The student loan is probably the first adult responsibility that falls upon you when you graduate college. So, it is natural to feel confused and not know where to look for answers and figure out how to pay off your student loans. In fact, there are people who graduated ages ago yet still cannot come up with a strong strategy to pay back this debt.
Student loans have become quite a dilemma to pay off for people, and with 400,000+ borrowers still struggling with the debt, it is best to strategize and pay off your loan in the best possible way available to you.
To avoid such a situation, it is essential to develop strategies for paying off student loans. This will help you map out a plan which you can follow to gradually pay off your student loan in order to start saving or investing your money.
Continue reading to learn about different strategies you can try to pay back your loan.
Now, the amount of student loans varies for everyone, so it is essential to see which strategy will work best for you. That said, the following are some strategies you can follow to pay off your student loans:
1. Aim to Pay More than the Minimum Amount
The fastest way to pay off your loan would be to pay more than the amount you are due monthly. However, it is not as easy as it sounds. Often loan service handlers do not treat this extra payment with the principal amount. They may add it to your next month’s due bill, and you will have to pay the remaining amount, or instead, they might put the extra payment towards interest. Of course, this helps you stay within your payment due dates, but it may not be of much help if you wish to pay off your loan faster.
In order to ensure that it is accepted as an extra payment to the principal amount, you must speak to your loan handler. You will have to inform them where the extra payment needs to go so that your effort works in your favor.
2. Use the Grace Period to Make Advance Payments
Every borrower is initially granted a grace period of 6 months before their dues kick in. However, this is for federal loans. In the case of private student loans, it is important to note that the interest is charged right after you leave school and is added to the total amount you owe.
Nevertheless, during this grace period, you can make advance payments to ensure you are ahead in your payment schedule. Of course, this is only possible if you land a good job or have a stable source of income.
Furthermore, you must remember that initial payments always require less interest, and as years progress, so does the interest rate. This is why using the grace period is a great way to pay off a good chunk of your student loan with a lesser interest rate.
3. Consider Refinancing
If you do not want to make extra payments and your student loan is too long for you to manage, you can consider refinancing your loan. Refinancing means you will have to manage a single loan instead of multiple ones. It will also give you a shorter duration with a lesser interest rate to pay off quickly. If you effectively strategize and research well. You can pay off your loan considerably earlier than originally expected.
However, it is essential to have a good credit score if you want to qualify for refinancing. Additionally, you should also have a sufficient debt-to-income ratio to ensure you are eligible and can pay off your loan easily without any constraints.
All that said, we do not recommend refinancing if you have a federal student loan. You see, once you move towards refinancing, your loan is converted to a private loan. Hence, you lose all the privileges that come with federal loans.
4. Signup for Autopay
There are multiple ways to reduce your interest rate. Unfortunately, not everyone is aware of these methods. One such way is to sign up for auto-pay for your federal student loan. Lenders who give out federal student loans can give you a lesser interest rate if you allow them to automatically deduct the payment in time for the due date directly from your bank account.
A reduced interest rate can work wonders and helps cut down a big chunk from the total amount you owe. Even if the difference is as small as half a point or even lesser, it can significantly affect your monthly payments.
5. Change Your Repayment Plan if Required
Many borrowers start side hustles or try making passive income along with their steady jobs to ensure they pay off their student loans. If you have a way to earn some extra income or if you are expecting a raise in your salary, you can consider altering your repayment plan.
In case you have a federal loan, the shortest loan they offer is the graduated loan or a 10-year plan. If you wish to change your plan, you must remember that you will not be eligible for loan forgiveness.
Students who have borrowed from private lenders may not be able to change their plan or timeline because it is agreed upon in the beginning. Hence, you may need to refinance your student loan in case your lender refuses to change the plan. When you refinance, you can choose a timeline that suits you best. Typically, private lenders offer 5 to 20 years plans.
It is natural to want to pay off your student loan as quickly as possible since it is an excessive monetary burden on top of the recession we are currently living through. That said, it may not always be the best to pay off your loan faster. For instance, if you want to apply for a loan forgiveness program, you might have to put off paying your loan fast because loan forgiveness would be better and more beneficial than that. Hence, it is important to do thorough research and make a well-thought-out decision.
