No matter how often you try to ignore them or pretend they don’t exist, your student loans refuse to go away. The best way to kick your loans to the curb? Pay them off sooner.
It might sound counter-intuitive to pay off your student loans faster. After all, no one wants to part with more money than necessary. But the truth is that paying off your loans before the end of the loan term could save you thousands of dollars in interest.
Let’s look at an example:
Jake graduated from a public university with $20,000 in Direct Subsidized Loans. He was a given a 5 percent interest rate, and his student loan provider offered him a 10-year repayment period. If he stays on track and pays $212.13 every month for 10 years, he will become debt-free. But over the course of the loan’s life, he will also pay a total of $5,455.72 in interest.
Thanks to interest, Jake’s loan ballooned from $20,000 to $25,455.72.
Luckily, there’s a better solution — paying faster. Here’s how to make it happen:
Round up the payments
One of the most effective (and painless) ways to pay off your loan faster is by rounding up the payments. Instead of paying $212.13 each month, Jake could pay $300. The extra payment of $87.87 each month would save him nearly $2,000 in interest. And if an extra $87.87 is too much, then Jake could round the payment to $250 instead. Even with an extra $37.87, Jake would save more than $1,000. Rounding up your payments is a great way to have your money pull double duty: paying your loan and saving you money on interest fees.
Set up automatic payments
Most loan servicers offer incentives to people who set up automatic payments. The most common incentive? Reduced interest rates. Typically, the rates are reduced by a relatively small amount (an average of 0.25 percent) but even small amounts add up over time. With an interest rate of 4.75 percent instead of 5 percent, Jake would save nearly $300. For something that takes less than five minutes to set up, that’s a pretty impressive ROI. Contact your loan provider directly to see if they offer any incentives.
Birthdays are the best time of the year. Not only is an entire month dedicated to the celebration of you, but it’s also the only time of the year when checks arrive in the mail. Instead of using birthday money to splurge on a night out or some takeout (yum), consider halving the amount and putting some of it toward your student loan instead. Tax season presents another excellent opportunity to slash your loan balance. Use your refund to submit an extra payment. Inheritance? Do the same thing. Even if you only submit an extra $100, every little bit counts.
Side hustles have become the millennial calling card. With stagnant wages and student loan balances that are higher than ever before, there’s a reason millennials are working hard to earn extra money on the side. Use your existing skills to start a side hustle and pay off your loan faster. Good at graphic design? Start picking up a few freelance clients. Love dogs? Start dogsitting with Wag on the weekends. Good with kids? Teach math after work as a Chegg tutor. A few hours a week could save you years of loan repayment.
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