Most student loan advice is tailored to borrowers who are struggling to cover their payments. And for good reason: it’s not always easy to find extra money in your budget for student loan payments when you’re just getting started.
But what if you actually have a sizeable income and the room in your budget to take care of your minimum student loan payments – and then some? Higher income earners can take advantage of extra money and learn how to pay off student loans fast.
Why make extra student loan payments?
If you’re in a situation where you have extra money you could allocate to your student loans, you first question might be “but why?”
After all, it’s tempting to use that cash for other financial goals, such as saving up for your first home or taking a vacation.
But here’s the thing: the longer you keep balances on your student loans, the more money they cost you in the long-run thanks to the interest.
You can pay off student loans fast and free up that monthly payment to put toward the discretionary spending that’s important to you. Plus, you can prevent paying thousands of dollars in extra interest by reducing the term length.
How to pay off student loans fast
The sooner your debt is gone, the sooner you’ll be able to use that monthly payment for things you want to spend it on. But what does it take to repay your loans ahead of schedule?
Don’t settle for making the minimum payment on those balances. If you haven’t already, set up a budget system and know your cash flow. You need to understand exactly how much money you bring in each month and how much you spend.
Break down your spending into a few different categories:
- Necessary, fixed expenses: These are costs like your rent or mortgage, health insurance, and other mandatory bills.
- Necessary, flexible expenses: These costs are related to living expenses, but you have more control over them and they can change from month to month. This includes purchases such as groceries and transportation.
- Discretionary expenses: This bucket is for everything else. If the above categories are your needs, discretionary expenses are your wants.
Because you’re earning a good income, you probably have cash left over each month even after you account for your “fun” spending. You can start with this amount if you want to pay off your student loans ahead of schedule.
Whatever you have left at the end of each month, take that sum and apply it to the principal balance of your student loans. Consider using a payoff method like the debt snowball or debt avalanche to target loans strategically.
Cut costs and pay down debt with more velocity
If you want to get really serious about getting rid of your student loans, you can start looking at your discretionary spending and ways to cut back. Then use that cash toward your student loan repayment instead.
This can be hard to do, especially if you’re used to spending that money on things you enjoy. But it’s amazing how much faster you can be debt-free if you commit to cutting back on your spending for just a little bit.
Check out this example to illustrate how increasing your monthly payment, or making extra payments each month, can knock out your debts even faster.
Say you have a student loan balance of $30,000 with a 6% interest rate and payment term of 20 years.
Your minimum payment would be about $214 per month. But here’s how changing your monthly payment impacts your debt-free date:
|Monthly Payment||Years of Repayment||Interest Saved|
So yes, it is tough to reduce your spending and put your hard-earned money toward debt repayment instead of things like nights out with friends or tropical vacations. But if you’re earning enough money, don’t settle for making the minimum payment.
Increasing the amount you put toward your student loan debt each month could allow you to get rid of all your loans in less than five years instead of 15 or more. Accelerating your repayment also means potentially saving tens of thousands of dollars in interest!
While these numbers are powerful, they’re still just examples. It makes much more of an impact when you can see your own personal situation in the data. So go ahead: plug in your information into the prepayment calculator below and see how changing your monthly payment saves you time and interest.
Then determine how much extra money you’ll put toward your student loans every month to be on the right road to debt freedom and financial success!
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