Editor's Note: This is a Guest Post! We don't typically publish guest articles, but I liked Tom's writing style and thought this was a great topic for our readers. You can read his bio at the end. Enjoy!...
When it comes to student loan repayment, every single month can be a struggle. Alongside day-to-day expenses, your budget needs to have a significant chunk carved out for your monthly payment.
However, that isn’t even the worst part.
The worst part is this will go on for 10 years. With that said, I decided that 10 years is way too long for me to have this debt hanging over my head. This is why I’m working to eliminate my student debt before the 10-year period is over.
Let me tell you how.
There are several ways to expedite repayment. Of course, none of them would erase debt quite as fast as student loan forgiveness, but not many people even qualify for that. These suggestions will, however, undoubtedly help you get the ball rolling.
Naturally, these methods are simply suggestions, and some of them carry their own risks. However, successfully implementing one, a few, or all of these will help reduce your student debt burden significantly.
Make Payments Every Two Weeks
This might not seem right, but making smaller payments every two weeks actually shortens your loan repayment period. Here’s why. By doing this, you’ll end up making an extra payment on the year as opposed to following your monthly payment schedule.
Let me do a little math to show you how.
So, let us say that you have 12 monthly payments of $100; you’ll pay back $1,200 on the year. Compare this to 26 payments every other week of $50 for a total student loan repayment of $1,300 on the year. You would be able to pay an extra $100 annually following this system.
This is very doable for the average borrower. You could easily budget for this increase, and on top of that, you can improve your finances and start making payments every two weeks instead of once a month – leading to my next point.
Making Larger Payments
This might be the simplest, but for those with the budget room, you can increase your monthly payment. This will easily shorten your repayment period. You pay more each month, so you’ll have less to pay back later. If you don’t stop making these large payments, then you’ll pay down your debt sooner than 10 years.
Bringing this back to my last point, you can combine this strategy with the bi-weekly strategy. This would be hard to pull off, especially if you’re short on cash. But it’s easily the best way to reduce your debt burden. You simply make payments without the need to restructure debt or get a different interest rate.
Refinancing your Student Loans
So we went over two proactive ways to shorten your repayment term, but they all have to do with shelling out more cash from your pocket. There is another way to save money and shorten your repayment term, but it comes with a few caveats.
Student loan refinancing is a loan product offered by private lenders and banks. If you apply for a refinancing loan, then you will receive a new loan, presumably for the amount of your current student loans. This loan pays off those old loans, and you are left with new repayment terms and an interest rate.
With this new repayment term, you have the option to shorten that term from 10 years to less time. On top of this, you’ll hopefully get a lower interest rate which would save you money on top of the shorter repayment term.
Of course, there are a few warnings about refinancing. For starters, only creditworthy applicants can qualify for it. You need great to excellent credit for this to make sense for you. If you don’t have great credit, you can still refinance, but you might not get a lower interest rate. If that’s the case, then it might actually cost you more or the same, even with a shorter repayment term.
Restructuring Your Budget to Make Repayment a Higher Priority
Get out the Excel spreadsheet – it’s time to do some planning. If you’re short on cash for any of the steps above (or need to build credit for refinancing), then looking at your monthly budget is the often the first step to figuring out how to pay your loans down sooner.
This will help you figure out where you stand with other debt as well as your student loans. Also, if you can make cuts to nonessentials, then you stand a good chance at being able to allot more cash to your student debt obligations. When I wanted to get working on my debt, calculating everything out was the first step I took. It’s essential to get a snapshot of where you stand financially.
Final Say
These methods are not airtight, nor will they fit with anyone, but the beauty of student loan repayment is that anything you do to save on repayment is going to be a positive influence on your financial future.
Whether you are looking at increasing your payments to every other week, refinancing your loan, or simply restructuring your budget to allow for more consistent payments, the end goal is all the same. By the time your 10-year repayment plan is complete, a smart borrower will already be enjoying their loan-free status and the extra income that they have without that pesky student loan repayment!
About the author: Tom is a millennial blogger who runs a personal finance site centered around achieving FIRE (financial independence – retire early). You can find him on Twitter @FIREdUpMillenn to follow his journey and stay updated on his newest posts.
The minimalist
Less debt, small house, less stuff you don’t need.