Guest post by: David Chen of Millennial Personal Finance
For many Americans, student loans are a fact of life. College or graduate school is simply out of reach without some form of student loans, and most of us will spend years paying back Uncle Sam or a private student loan company for our degrees.
When you are in your 20’s and 30’s, it can be difficult to see the light at the end of the student loan tunnel. But paying off your student loans early is a very achievable goal, with just a little hard work and dedication. By dedicating some extra cash each month towards your student loans, you can pay off your loans more quickly, and then be able to reach your other financial goals, like buying a house, getting married or setting up a retirement account. Read on to learn more about how you can pay off your student loans — even if on a tight budget.
Pay Down the High Interest Loans First
If you have student loans, the first step that you should take is figuring out what kind of loans you have, the amount of debt for each loan, and the interest rates for each. Next, sit down and make a plan for paying off the loan with the highest interest rate first.
Why do you want to pay off the loans with the highest rate first? Simple: they cost you the most money. If you can put a little extra money towards that loan each month — say $50 or $100 — you could potentially pay off the debt several years earlier than you otherwise would have. This could save you thousands of dollars over the life of the loan. Continue to pay the minimum on the other loans, and tackle the loan with the next highest interest rate next.
Pay More than the Minimum
Whether you are freshly out of college or struggling to make mortgage payments in your 30’s, finding extra money to put towards student loans can be difficult. But if you want to pay off your student loans early, it is a necessary step towards financial freedom. If you happen to receive a raise at work, then you’ll want to remember this tip.
Start by taking an uncompromising look at your budget. While most of us may think that we run a pretty tight ship, there are probably more than a few places where we could trim some expenses — a few Starbucks trips, expensive dinners out, a pair of shoes that we really don’t need, or online impulse buys. While each of these purchases may not seem like a lot, they add up over time. Just $100 per month can be put towards your student loans, and be used to get your out of debt. So look for ways to make little cuts in your budget, and put each of those savings directly towards your student loans. You won’t miss that coffee — but you will be happy when you aren’t making those student loan payments into your 40’s and beyond.
Make Two Payments Each Month
Making an extra student loan payment each month may not be feasible for everyone, but if you find yourself with some extra cash each month, it makes sense to use it to pay down your student loans and get yourself out of debt. By doubling up on your student loan payments, you can slash the total amount that you will owe on your loans — and be well on your way to financial goals.
This trick is particularly useful for anyone making a good salary who perhaps hasn’t yet started a family and does not have substantial expenses. If you have disposable income each month, putting that money into an extra student loan payment will reap the reward of paying off your student loans in record time.
Benefits of Paying Off Your Student Loans Early
When you make sacrifices to pay off your student loans before they are due, you will have the immediate benefit of not being in debt. But there are advantages beyond being debt-free. Not having the burden of student loans will give you the freedom to start a nest egg, saving for retirement and other goals, like purchasing a house or saving up for a marriage or a car. You will also have the freedom to explore career options that may pay less money, as you will not be saddled with student loan payments each month.
Making additional student loan payments each month can put you on the path to financial freedom. Start by examining your budget to find expenses that you can cut, paying off the highest interest loans first, and then stick to your plan to pay off your student loans with hard work and dedication.