Do you owe a piece of America’s more than $1.48 trillion in student loan debt? If so, there’s a good chance you’re trying to figure out how to get rid of that debt.
When you have student loan debt, you’re painfully aware of the stress it can add to your life — not to mention the fact that you might be delaying major life decisions because of the debt. But if you owe a lot, you may feel at a loss as to how to pay off the student loans casting a shadow over your life.
A system can help you tackle your debt and stay motivated. “Your money, when you complete your plan, will have so much more power,” popular financial expert Dave Ramsey told Student Loan Hero. “Above all, believe you can do this.”
If you take a step back and employ the following strategies from Ramsey and other money experts, you might be surprised at the progress you make as you work to crush your student loan debt:
1. Get on a monthly budget
The first step to figuring out how to pay student loans, according to Ramsey, is to create a budget and stick to it.
“A monthly budget will show you exactly where your money is going and where you can cut back,” Ramsey said. “A lot of people find extra money they never knew they had. Throw that money at your student loans each month.”
Amber Masters and her husband are paying off a combined $649,000 in student loan debt they owe as a result of becoming a lawyer and a dentist. A budget has been a great help to them as they prioritize student loan repayment.
“We live off a set budget, and any income above that budget goes straight into our student loans,” said Masters. “We can pay them off as early as possible and save money on the interest that is accruing on them.”
2. Refinance your student loans
“When you refinance your student loans, you’ll have one consolidated loan with a single monthly payment and a potentially lower interest rate,” said Dearing. “This is important because more of each payment goes toward paying down the balance owed.”
Watch out, though: Refinancing is only available through private companies. If you refinance federal loans, you could end up losing some of their protections.
Tim Hewitt, a certified financial planner and senior wealth advisor at Wiley Group, suggested looking into consolidation for federal loans. “It will combine multiple monthly payments into a single payment,” he said. “It can make the overall loan burden easier to manage.”
But he warned that federal loan consolidation might also mean a longer term, costing you more in interest payments. This is one of the trade-offs when you decide how to pay off student loans, but Hewitt suggests getting around the longer term by making extra payments to retire the debt early.
3. Get a job that offers loan forgiveness
You might be surprised to find out that there are jobs that can result in forgiveness for your remaining student loan balance. Hewitt pointed to programs like Public Service Loan Forgiveness that focus on work in government, education, and the nonprofit sector.
Not only are there federal loan forgiveness programs, but there are also state-based programs for teachers, healthcare professionals, and others. You might also find loan repayment assistance programs in states looking to attract dedicated workers.
As long as you meet the requirements of the program, you could be eligible. Realize, though, that in some cases a forgiveness program is most effective in conjunction with income-driven repayment, which lowers your monthly payments to a manageable portion of your income. If you become ineligible for forgiveness by switching to a non-qualifying job, you could be in a worse position in the long run.
Carefully consider these programs, and make sure you are prepared to commit to the work requirements before you apply.
4. Use a debt repayment strategy that works for you
Ramsey is famous for popularizing the “debt snowball” method of repayment.
“List all your debts, smallest to largest, regardless of interest rates,” Ramsey said. “Make minimum payments on everything to keep them current, and attack the smallest debt with a vengeance.”
This method works because you get a quick win that gives you a psychological boost to continue with your debt repayment.
However, the “debt avalanche,” a strategy championed by Harlan Landes, one of the earliest online personal finance experts, might be worth considering as you decide how to pay off student loans. With this method, you rank your student loan debt by interest rate and tackle the highest-rate loan first.
“Mathematically, starting with a higher-rate loan will be more effective in reducing what you pay in interest and helping you get out of debt faster,” said Landes. “But it can be hard to stick with for some people because it takes a little longer to achieve that first win.”
The important thing, Landes said, is to figure out which approach will help you stay motivated to press forward. In the end, your strategy should be something you can stick with for the long haul.
5. Consider living with your parents (or a roommate)
Single? Maybe you can move back home with mom and dad.
“Live at home until you get a suitably-paying job in your degree area,” said Richard M. Gutkowski, Ph.D., and author of the “DEBT is a Four-Letter Word, But it Need Not Be!” series of books. “While you look for a job in your degree area, find any other job that provides an income so you can pay down your loans.”
In many cases, Gutkowski said, parents are willing to help you save money on living expenses so you can tackle your student loan debt.
But what if it doesn’t make sense to move in with your parents? Perhaps they don’t live near your job, or it’s just not an option. Jordan Russell, an account manager with Canadian lender Loan Away, suggested getting a roommate if you can.
“For many, the largest expense is renting or a mortgage, so you shouldn’t be living alone,” Russell said. “If you have friends, live together.” Sharing housing expenses can free up money to put toward student loans.
6. Live a frugal lifestyle
Whether or not you live with someone else to cut costs, Russell said, it makes sense to take various steps to reduce your financial outlay. “Living a very humble lifestyle will go a long way,” he said. “Try to spend no more than 40 percent of your net pay on living expenses.”
Russell proposed the following ways to cut back on living costs:
- Cook your own food and eat out as little as possible.
- Try to make your current gadgets and electronics last as long as possible.
- Avoid buying expensive clothing, and instead shop at consignment and thrift stores.
- Rather than buy a car, take public transit or ride a bike. Not only will you save on car loan costs, but you will avoid maintenance and repair expenses, and you won’t have to pay auto insurance premiums.
- Spend time with like-minded people who won’t tempt you into spending money.
With a little planning, said Russell, it’s possible to save money each month and use those savings to reduce what you owe on student debt.
7. Earn more money with a side gig
It’s not just about cutting back, said Masters. In fact, there’s only so much you can chop from a budget. Once you can’t reduce your expenses any further, it’s time to make more money.
“We earn more by asking for raises at work or running various side hustles,” said Masters. “Any form of extra income coming in helps us pay off our student loan debt even faster.”
Side gigs like driving for a rideshare company, pet-sitting, and even being a professional snuggler (providing platonic physical contact and emotional support) can help you earn an extra $500 a month that can be put toward paying down your student loans.
Kelli Bhattacharjee, the founder of Freebie Finding Mom, paid off $15,000 in student loans by creating a plan that involved earning extra money. “Get a part-time job on the evening or on weekends,” she said. “Mark those earnings to use only for paying off student loans.”
8. Use a windfall
Anytime you get extra money, whether it’s a tax return, an inheritance, or a work bonus, use it to pay down a chunk of your student loans.
“We like to think of a windfall as fun money, extra money to play with,” said Landes. “But really, it can be used take a big bite out of your principal.”
He recommended using at least 75 percent of any windfall you receive to put toward debt. “Make an extra payment to your student loan servicer, making sure to specify that you want it to go to the principal. You’ll reduce your balance and get that much closer to being free of the debt.”
9. Make it automatic
One of the best ways to get in front of your debt payments is to automate them. Bhattacharjee said that automatic payments could help keep you from the temptation to spend.
Not only that, but there are some loan servicers that will give you a slight reduction (often about 0.25%) in your interest rate if you set up autopay. That can save you over time, especially if the servicer combines automatic payments with another reduction after a set number of on-time payments (usually an additional 0.25% off your rate after 24 or 36 timely payments). Find out from your servicer if you can get these rate discounts.
10. Ask your employer to help
A growing number of companies offer student loan benefits to their workers. Some employers, like Student Loan Hero, will match your student loan payments each year up to a certain amount. With this extra boost, you can speed up the process.
Gutkowski suggested that you check with your human resources department about student loan benefits and whether they are tied to how long you agree to work for the company.
How to pay off student loans: Use multiple strategies
For best results, you might need to combine techniques. The more options you have for putting money toward paying off student loans, the faster you’ll reduce your debt. For more great ideas on how to pay off student loans, check out The Ultimate Guide to Paying Off Student Loans Faster.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|