Earning a college degree can feel rewarding and open up exceptional career possibilities for graduates. At the same time, a degree is expensive. It can leave you feeling unsure about how to pay off your student loan debt in a reasonable amount of time. In fact, most grads step into the real world thousands of dollars in debt, with no assets, and no experience in dealing with financial burdens.
With $20,000 of student loan debt attached to your name, you may not want to take the traditional 10-year repayment plan approach. This plan comes with a host of financial issues that can affect you negatively for years to come. With that being said, we would like to detail a few strategies for paying off your student debt in less than two years. This may seem impossible, but if you take action, stay disciplined, and get a little creative, your student loans will be paid off in no time.
Why It’s Crucial to Pay Off Your Student Loans Early
Many individuals with student loans end up owing much more than their original loan amount. In this situation, the light at the end of the tunnel is nowhere to be seen. This is most likely because they never took control of their student loans. They didn’t figure out the best plan of action to take, they paid the bare minimum to keep their payments low, or deferred their loan for years. In all fairness, they may not have received the proper guidance on why it’s imperative to pay off your student loan debt as fast as possible, and how to go about it
Specific reasons to pay down your student loan debt quickly:
- Minimizes Climbing Interest: Paying your student loan debt off in two years or less will literally save you thousands of dollars, and years of financial hardship. The longer your school loan is unpaid, the more time interest will have a chance to accrue. This can lead to original loans being doubled or even tripled. Your $20,000 student loan that you thought would be difficult to pay, then becomes an out of control $60,000 loan!
- Less Credit Card Debt: Paying a student loan debt over an extended period of time can lead to massive credit card debt. It’s no secret that your monthly student loan payments can drain your bank account each month. This, in turn, can lead to relying on credit cards to make up the difference. Imagine this scenario playing out for 1o years. Now you not only owe a large student loan, but also large interest-bearing credit card debts. So if you have been considering if you should pay off your school loans early, this should be a motivating factor!
- Prevents a Delayed Home Purchase: Your student loan can decrease your chances of qualifying for a home. In addition to this, your monthly student loan payments make it challenging to save for a down payment on a home. According to the Federal Reserve, a 10% climb in student loan debt results in a 1-2% point drop in homeownership rates for student loan borrowers for the first 5 years after leaving college.
First Things First – Know Your Numbers
Before you begin your student loan debt reduction journey, it’s essential to calculate your loan numbers to see what it will take to pay your student loan off in under 2 years. Furthermore, it’s always a good motivator to play with the numbers to see how big your student loan will grow if additional years are added. For example, a $20,000 loan, with a 6 percent interest rate, paid over the course of 10 years, will accumulate $6,644 of interest. By contrast, a student loan that is paid in only 2 years, with the same interest rate, will accrue $1,274 in interest. Use Navient’s handy student loan calculator to find your target numbers.
Now that you realize the importance of paying off your student loan debt as fast as possible, and you have all your numbers in order, let’s dive into some strategies that will help you pay down your student loan as fast as possible.
Strategies for Quickly Paying Off Your Student Loan Debt
Paying down your student loans in a speedy fashion doesn’t have to be difficult. You just have to play your cards right. We’re providing some excellent student loan debt reduction ideas that can be used in combination with each other. Or, you may just find that one strategy erases your debt on its own.
1. Set an Aggressive 2-Year Student Loan Payoff Goal
Once you calculate your target numbers, you can set your student loan payoff goal. It should include a start date, your monthly payment amount, along with your end date. Your end date might be unpredictable because you may reach it sooner when implementing various strategies, it can always be adjusted. Setting a goal is more about creating the right mindset. Goals give you motivation, allow you to keep track of your progress, present a finish line to strive for, and give you a sense of accomplishment along the way. If you need a little advice on how to bring in some extra cash to allocate towards paying off your student loan debt, check out this article on how to earn passive income.
2. Create a Budget and Get Expenses Under Control
If a budget is not in place, you will be aimlessly spending your money. This will leave you with no real sense of what is coming in and going out. In turn, you will have no idea how much can be allocated towards paying off your student loan debt. Additionally, a budget will allow you to recognize where you should cut back to ensure you successfully reach your payoff date.
Creating a budget is simple. List out all your expenses and deduct them from your monthly income. The amount that remains can be allocated towards your student loan payment. Now…cut back even more on your expenses to free up additional funds that can be assigned to your student loan. Many people will find that simply cutting back on eating out and their daily latte, can really add up.
3. Avoid Income-Based Repayment Programs
If your considering taking part in a repayment program to lower your student loan monthly payment, beware! This type of program stretches the length of your loan, and increases your debt. If you go this route, you won’t be able to meet your goal.
4. Refinance to Obtain a Lower Interest Rate
Due to competition among lenders, you can apply for a lower interest rate loan, which can save you thousands. In some cases, an interest rate may be reduced by half. This will allow more of your payments to go towards paying down your principle. This strategy is great for student loan holders who have a steady income and good credit. Going this route could possibly cancel any eligibility for deferment options or student loan forgiveness. So be sure to think this through and do your research.
5. Seek Out Employers that Assist in Paying Off Student Loan Debt
You may want to seek out companies that assist their employees in paying off their student loan debt. Their programs can vary, with some offering tuition reimbursements and others offering employer student loan payment matching benefits.
If you happen to owe much more than $20,000, you can take advantage of the Public Service Loan Forgiveness Program. If you qualify, the program will forgive your entire student loan amount after 120 consecutive payments.
6. Fine-Tune Your Student Loan Payments
- Set-Up Auto Payments for a Rate Reduction: Most student loan lenders offer a 0.25 percent interest rate reduction when you enroll and set-up automatic student loan payment withdraws each month. This is an easy option that will save you some money when every little bit helps.
- Make Additional Payments: A great way to ensure you pay off your student loan debt sooner rather than later, is to make extra payments in addition to your scheduled monthly payment. Furthermore, making your additional payments soon after your scheduled payment will reduce your interest. This is where cutting costs within your budget to allocate more money to your student loan payment comes into play. Be sure to communicate that you would like the overpayments to be applied to the current month’s balance. Otherwise, they may just apply it to your next payment.
Creative Ideas to Obtain Funds for Your Student Loan
Take a look at these two out-of-the-box ideas for obtaining funds to pay down your student loan debt.
1. Be Adventurous and Join the Peace Corps
Joining the Peace Corps can help you pay off your student loan debt, as well as provide you with a larger skill-set, and an impressive resume. Through this amazing program, federal student loans may be eligible for partial cancellation or forgiveness. This includes Stafford, Perkins, Direct, as well as consolidated student loans. Peace Corps volunteers who have Perkins loans could be eligible for a 15 to 70 percent cancellation benefit. If you are serious about paying off your student loan debt, this might be your ticket.
2. Explore New Territory by Moving to Kansas
In an effort to pay down your loan fast, be adventurous and consider moving to Kansas. They have an incredible program that pays down your student loan debt. All they need from you is to live and work in their state. 77 counties participate in this program and you could be eligible for up to $15,000 in college debt reimbursements. It’s called the Kansas Rural Opportunity Zones program. This program can certainly fast-track paying off your student loan debt.
Keep Your End Goal in Mind and Make it Happen
Taking the necessary steps to pay off your student loan debt in less than 2 years may seem like a huge task that can be overwhelming to tackle, but you can certainly make it happen! You may have to sacrifice a bit, but it will be worth in it in the long run when you no longer have a large financial burden weighing over you. Evaluate which strategies would work best for your particular financial situation and put them into play. You will be free of your student loan debt in no time, with additional funds to allocate towards new goals such as building up your savings, purchasing a home, investing in your retirement fund, or maybe taking a post-student loan vacation!