Student loan debt has surpassed auto loan and credit card debt to become the second-largest source of consumer debt.
As a result, more people than ever are burdened with student loans.
National student loan debt has risen by more than $1 trillion since 2008, according to the Federal Reserve. This is a large amount of debt that needs to be addressed.
1. Paying Off Your Loans Early
Paying off your loans early can help you save money on interest and may reduce your total loan cost. But before you start making extra payments, be sure to check with your loan servicer to see if they have any interest rate reduction programs that could save you even more.
The debt snowball method is a popular strategy for eliminating high-interest debt quickly. It works by tackling your highest-interest debt first and paying down smaller balances.
It’s also a good idea to establish a budget, which will help you plan how much money you can afford to put toward your student loan debt. By tracking your spending, you’ll be able to see where you’re going overboard and prioritize where you can cut back.
Aside from lowering your overall costs, this can also make it easier to reach other financial goals, such as saving for retirement or a down payment on a home. If you do this, you can also avoid making late or missed payments, which can negatively affect your credit.
Another option is to use extra funds from your employer, such as an employee assistance program or a student loan repayment plan. The amount varies, but employers typically offer around $100 to $300 per month.
Using an employer-sponsored plan can be especially helpful if you have federal student loans with higher interest rates than your private loans. The money you’ll receive through your employer’s program can be used to make extra payments on your student loans, which will help you pay off your loans faster.
If you have a large amount of student loan debt, paying off some of it can help you avoid accumulating credit card debt. This can give you the chance to build an emergency fund, which can help you cover expenses like medical bills or unexpected expenses without resorting to credit cards.
It also makes it easier to meet other financial goals, such as securing a mortgage or refinancing your student loans at a lower interest rate. Depending on your debt load, it can take 10 to 30 years to pay off your student loans, though you can shorten this timeline by choosing income-driven repayment plans or refinancing your federal loans to a lower rate.
2. Repaying Your Loans in Full
Repaying your loans in full will not only make your student debt easier to pay off, it also gives you more control over the terms of your loan. This will help you save money in the long run and improve your credit score.
If you can, you should pay off your student loans as quickly as possible to avoid the high interest and other fees that come with them. This will allow you to free up more cash for other financial goals, like saving for retirement or a home.
This will also help you keep your debt-to-income ratio low, which will improve your chances of qualifying for other types of funding if you need it in the future. However, you should be aware that repaying your student loans in full will require more than just a single monthly payment.
For instance, you may have to take a lower salary or reduce your benefits in order to afford your loan payments. You should also contact your lender to discuss repayment options that are available.
Another option is to find extra income, such as a bonus or tax refund. These types of extra income can be especially helpful when you’re struggling to pay off your student debt.
While making these additional payments, be sure to instruct the servicer to apply your extra money to your loan principal, which will decrease the amount of interest you have to pay and get you closer to paying off your loan.
You can also make a larger monthly payment if you’re able to afford it. The extra payments will save you a significant amount of money on interest in the long run, so they’re well worth the effort.
In addition, if you’re making consistent extra payments, you can even get your interest rate lower. Increasing your student loan payments by just $10 per month can save you nearly $30 in interest over the life of your loan.
Keeping track of your student loans can be a challenge, but it’s important to know exactly how much you owe and when your payments are due. By using a student loan calculator, you can estimate your monthly and total repayment amounts and see how much extra you can contribute to pay off your loans sooner.
3. Making Extra Payments
If you have the budget, making extra payments is a great way to make a dent in your debt. The more you can put toward your student loans, the sooner you’ll be able to get rid of them and the less interest you’ll pay over time.
Increasing your monthly payment doesn’t have to be an extravagant amount — even $20 or $50 more each month can make a huge difference. Just make sure your loan servicer is applying any extra payments to the principal balance and not just to interest — that’s what can actually slow down your payoff.
Another important way to speed up your repayment is to avoid taking on new credit card debt. It may seem tempting to get that newest smartphone or latest fashion, but it can keep your credit card bill growing and you could end up paying more interest overall than you would have if you’d just made extra payments to your student loans.
Instead of putting your extra funds towards your credit cards, use them to save up for other financial goals, such as paying off your mortgage or building an emergency fund. This may require you to reduce your spending or increase your income, but it’s worth it in the long run.
To get started, create a budget that includes your student loans and work it into your regular expenses. This will help you see where you spend more money and make it easier to cut costs and put some extra cash toward your student loans.
You can also save extra money by searching for unclaimed property on the Internet. If you find something, consider selling it to help pay off your student loans or to earn some extra cash.
If you have a large tax refund, use it to pay off your student loans and save on interest. It’s a smart move that will help you start the year on a positive note.
Getting a part-time job while you’re in school is a great way to reduce your college debt. You can earn up to $7,040 per year without affecting your need-based financial aid eligibility.
4. Avoiding Credit Card Debt
A lot of students and parents turn to credit cards for relief from a sudden financial emergency or to make purchases they can’t afford. Unfortunately, this can lead to a dangerous spiral of debt that can have long-term negative consequences for your finances and your credit score.
One of the biggest ways to avoid credit card debt is to always pay your bills in full at the end of the month. Not only will this help you to avoid late fees and interest charges, it will also keep your credit score in check.
Another way to avoid credit card debt is to only charge purchases that you know you can pay off in full at the end of the month. This includes items like groceries, clothing and other essentials.
If you’re having trouble paying off your balances, try talking with your creditors to see if they offer forbearance or deferment on your debt. This is a free way to work out a payment plan that will make it easier to stay on track with your bills.
It’s also a good idea to get into the habit of saving for emergencies before making purchases with your credit card. By keeping up with your budget and saving money, you can better determine how much of an emergency fund you need to have in order to avoid credit card debt.
Once you have a solid budget in place, it’s easy to see where your extra cash is going and how you can reduce your spending. This will help you to avoid splurging on unaffordable purchases that can add up quickly.
Those with a high income may be more likely to be able to avoid credit card debt, but that doesn’t mean everyone can! If your income has dropped significantly, you’re more likely to find yourself in a position where you need to use a credit card to cover a large purchase.
While credit card debt is an inevitable part of life, it can be a lot more manageable when you understand how to use them wisely. By following these six simple tips, you can avoid credit card debt and start building your financial future.