4 Creative Ways to Pay Off Student Loans
4 Creative Ways to Pay Off Student Loans.
Collectively, more than 44 million Americans owe nearly $1.5 trillion in student debt. One in every four American adults is paying off student loans, and 70 percent of college students graduate with significant debt. In fact, the average borrower owes more than $37,000 at graduation — an amount that has nearly doubled since 2005.
But panic isn’t a payment strategy. Take a deep breath, gather your information, and follow these tips to learn how to pay off student loans quickly (and as painlessly) as possible.
- Strategize and prioritize
When faced with large and long-term debt such as a student loan, it can be tempting to ignore the difficult numbers and seemingly unconquerable timeline. But you’ll be far better off in the long run if you carve out some time early on to take a clear-eyed look and develop strategies to pay off student loans.
Start with a list of all your student loans — and any other debt, such as credit card bills — and get a firm grasp on how much you owe on each loan and what the interest rates are.
Bottom line: Dedicate extra cash to paying down loans with the highest interest rates or use the debt-snowball strategy, which advocates knocking off the smallest loans first as quickly as possible.
- Learn the lingo
There are countless ways to consider how to consolidate or refinance, and there are research lenders who may approve forbearance or deferment. But without a solid grasp on these terms, you could end up worse off than you were before. For example, while forbearance allows borrowers to put off payments, the loan interest continues to accrue — resulting in a bigger balance (and higher payments) down the road. By comparison, some loan deferments freeze interest along with payments.
It’s also important to know that refinancing federal loans can result in lower interest rates, but doing so can also strip you of some protections and benefits, such as alternative repayment plans and federal loan forgiveness programs. If someone is trying to sell you on the benefits of a particular program, understand they may not be giving you all the information.
Bottom line: Evaluate your options before you change things up and find the best way to pay off student loans.
- Make a budget
Very few people ever approached a budget and thought, This is fun! It can be difficult to make hard choices and find room for all the wants and needs in daily life. But a few simple changes can create unexpected slack in your budget, giving you creative ways to pay off student loans.
Bottom line: Look at your life for areas of overspending and consider using apps to analyze habits and bills for potential savings.
- Set it and forget it
Most lenders provide a six-month grace period after students graduate. It may be tempting to wait to start paying on your loan, but if you have a job consider starting right away. Not only will you start whittling away at the principal before interest kicks in, you’ll get used to living on your after-loan-payment income.
Bottom line: Automate your payments. You may benefit from a small discount from some lenders, and you’ll help avoid any late fees from missed payments