When I first graduated from college, I quickly settled into the idea of my 20-year repayment plan.
It didn’t really occur to me that perhaps I should pay my student loans off sooner. After all, I was an English major. I wasn’t exactly anticipating making a lot of money in my life.
Then one day I found a calculator that showed me the price I would pay for my student loans at the end of my repayment plan. And I was truly shocked.
What was my new number? $50,000. That’s $10,000 more than I originally understood to be the amount my education was costing me.
In hindsight, I realize that of course, the price would be high – that’s what interest does. However, I simply never thought to do the math.
But once I did, all bets were off. I was determined to pay off my student loans as fast as possible. Here’s how I did it, and why I chose the strategy I did.
Why should you pay your student loans off faster?
It’s hard to think about all the things we have to put off due to student loan debt.
Especially since we often walk away with a degree that costs the same amount as a down payment on a house. Which, in turn, means we wait to actually buy a home, or get married, or any other major life event for years longer than we expected.
So if you can pay off your student loans even a little bit faster, consider doing it. That way you free up money for the things you really want to spend it on. Don’t let your student loans defer your dreams even further.
Have you calculated what you’ll pay by the end of your repayment plan yet? If not, our SLH Student Loan Payment calculator below can help.
Student Loan Payment Calculator
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What are student loan bi-weekly payments?
There’s one trick I particularly love when it comes to managing student loan debt, and that’s making bi-weekly payments on your student loans.
I’ll get to how this works in a minute, but to start, here’s why it matters.
By simply switching to this payment schedule, you’ll see an extra payment go towards your loans every year. And that one extra payment will decrease your repayment time as well as the amount of interest you ultimately pay on your loans.
Set up your bi-weekly payments in 3 steps
Here’s how it works.
1. Split your monthly bill in half and pay every other week
You can pay bi-weekly by splitting your monthly bill in half and then applying that half payment to your account every other week. For example, if you’re paying $500 per month, pay $250 every other week instead.
This might take some adjustment if you’re on a strict monthly budget. However, if you get paid bi-weekly, then you can simply line up each half payment with your paychecks.
2. Make sure both payments make it in before your due date
Next, make sure the first two bi-weekly payments are ahead of your next bill. So if you start now but only one bi-weekly payment hits before your next bill, then you’ll end up paying less than you owe.
The easiest way to get started is to start one month ahead of time. For example, don’t start your first set of bi-weekly payments until right after you pay your next bill.
Then, make sure both of the payments make it in before the next month’s bill. You can keep this really simple by plotting the dates out on a calendar, too.
3. Make sure your lender applies your payments correctly
Finally, to ensure this works properly, double-check how your payments are being applied on your student loan servicer’s website.
Luckily this is pretty easy to do. When you log into your account you can select the way extra payments are allocated. In this case, make sure the extra payment is being allocated toward your balance (as opposed to being forwarded to your next bill).
Also, if you have more than one loan with one servicer, you can pick one of them to receive all of the extra funds.
For example, if you’re looking for the fastest way to pay off your debt, choose the account with the highest interest rate. Or, if you’re looking for a more immediate win, choose the account with the lowest balance.
And if you don’t see these options online, call your student loan servicer. They can walk you through their process.
How bi-weekly payments get you out of debt faster
So how does this small change make a difference? Believe it or not, that extra payment you make each year can have a big impact on your time in debt and interest paid.
In my case, paying bi-weekly will knock about a year-and-a-half off my repayment time – and it will save me approximately $2,000 in interest.
I know that may not sound like much. But saving a couple of thousand dollars just for scheduling my student loan payments definitely feels like a pretty big win to me!
Take a minute to see the difference this could make on your loans. There’s also a CalcXML calculator that can help – just keep in mind that this answer is an estimate.
Small steps toward a big win
The biggest win you’ll get out of bi-weekly payments isn’t just the money you saved. It’s also the momentum you gain.
The high cost of student loan debt (or all debt) comes from the interest you’ll pay. So any small moves you can make to decrease the amount of time you’re paying on your loans (and thus on your interest) will make a huge difference in the end.
And if you are paying interest on your student loans, here’s how you can claim it as a tax deduction and potentially get a refund.
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