Hi, Penny: I’ve been slowly paying off my student loans, but it feels as if it will be decades before I get out from under my debt. How can I pay off my student loans fast?
— Strapped by Student Loan Debt
Hey, Strapped by Student Loan Debt,
First of all, know that you’re not alone in feeling overwhelmed! In fact, student loan debt is something that affects millions of graduates. And while it’s easy to feel as if all your hard work to pay off your student loans isn’t making a dent — especially with costly interest charges added each month — there are a few strategies you can use to pay off your debt faster. Let’s take a closer look at how you can manage your debt, pay off your student loans faster and maybe even relieve a little bit of stress.
Understand how your student loan debt fits in with your overall budget
Having a handle on your monthly expenses might help you determine how much you can afford to put toward paying off your student debt. A good place to start is by making a budget. Take the time to consider all of your monthly expenses and income as well as your short- and long-term financial goals.
By looking at your full financial picture, you’ll be in a better position to understand how much money you can put toward paying down your student loan debt. For example, if you have stable employment and just a few monthly expenses, you may be able to afford putting extra cash toward your student loan payments. But if you’re saving up for something big, like buying a home, or you’re working on paying down other higher interest debts, you might not have any extra funds at the moment.
Make a plan to tackle your student loan debt
Though your student loans follow a repayment plan, you can still pay off the debt quicker. Here are some of the ways you can speed up the loan repayment process to get out from under your student loans faster.
If you can afford it, make extra payments or pay more than the minimum
By making multiple payments each month, more money goes toward paying off your student loan principal. And this means you could not only pay down your loan a bit faster by shortening the overall repayment period, but you could pay less interest over time.
Consider student loan refinancing
Depending on your credit history and financial situation, you may qualify for lower interest rates by refinancing your student loans. If you qualify, you could have the option to shorten your loan term, which can help you pay off your student loans faster.
But keep in mind that if you’re refinancing a federal student loan, it will become a private loan. This means that you’ll no longer have access to federal student loan protections such as loan forgiveness programs, repayment plans, loan deferment or forbearance after you refinance.
Consolidate your student loan debt
If you have several federal student loans, you may want to consider student loan consolidation. This doesn’t necessarily help you pay them off faster, but it can simplify your loan repayment into a single new loan payment each month. You’ll also get a new interest rate and loan term with the loan consolidation. Having one payment may be easier to remember every month, and it allows you to focus all of your repayment efforts in one spot.
Before consolidating your student loans, you should consider some of the disadvantages. For example, consolidating typically lengthens your loan term. While this gives you more time to pay off your loan, it could increase the overall amount of interest you’ll have to pay. You may also lose features like interest rate discounts, principal rebates or certain loan cancellation benefits.
Switch your repayment plan
When you take out a federal student loan, the Department of Education assigns you a standard repayment plan that comes with a 10-year loan term. But if this doesn’t work for your financial situation, you may be able to switch to another federal loan repayment plan based on your income and family size.
Work on a creating a budget
Making a budget that fits your lifestyle can help you avoid taking on extra debt and might be able to help you better prepare for unexpected expenses. Take time to weigh the pros and cons, and look at your budget before entering another situation where you are taking on debt for a significant period. For more information on the different types of debt and payoff strategies, check out our complete guide to debt.