Why should you pay off student loans early?
Paying off student loans early can help you become debt-free, increase your credit score, prevent interest costs, and bring peace of mind. You can spend more of your income on other things and follow your goals and desires without being limited by debt. Many student loans are structured in a way to accommodate you, but the truth is, they tend to leave out the terms you actually understand. Large financial jargon and a lengthy contract are all that require a reader to skip and sign simply.
How to pay off student loans faster?
With tuition fees crossing over £9,000 and hefty interest charges, your student loan is bigger than ever. That’s why such financial matters require a simple check-up before signing up. And if you avail one, you should know your options to repay that debt. All of this can cause distress and anxiety. So to help you out with that, here is a simple guide to finding everything you should know about your student loan repayment and where to look while searching for ways to do it.
10 Ways to pay off student loans faster
Student loans can be a burden if not handled correctly. Generally, it is said that it’s better to pay off student loans faster than you, and there are many reasons why that is beneficial. Here are some of the best ways to pay off student loans faster:
1. Make a budget
Cutting off unwanted spending is a fantastic approach to saving some money in your monthly budget. Learn how to live economically while still having a good time as a student. Make use of the extra money to lessen your student loan debt. If the money in your monthly budget is insufficient to pay off student loans, you may need to make sacrifices such as eating out less or going on fewer dates Consider taking the time to calculate how much money will be left over after paying off your student loans if you clearly understand what is coming in and going out each month. This method will surely help you to pay off student loans faster.
Don’t know how to plan the perfect budget for yourself? Here is a short guide to budgeting for students!
2. Contact your lender
Many students are scared of a defaulted loan while searching for employment. Students looking for jobs can contact lenders to rearrange their instalment amounts. This can be done to accommodate their personal expenses like accommodation, rent, groceries, etc. Adjustable student debt allows you to pay smaller instalments today and larger instalments afterwards. While this offsets the burden of heavy instalments each month, the total principal amount is shaved off at a lower rate. Shorter principal amounts being paid could leave you ending with long-duration interest charges in the long run. One major way to tackle it is to start job-hunting early and then slowly build your skills to earn early promotions or higher pay grades.
Booking accommodation the first time? Check these Common rental frauds and ways to avoid them.
3. Check your eligibility for Income-Based Repayment
Income-based repayment is an effective way to reduce your obligations based on your discretionary income. The amount you earn after taxes and personal necessities (Food, housing, and clothing) falls under discretionary income.
Under the latest norms, income-based repayment is eligible for borrowers having high debt relative to their income. These can be:
– Borrowers with Direct Subsidized and Unsubsidized loans
– Subsidized and Unsubsidized Federal Stafford loans
– Student PLUS loans and consolidation loans—but not PLUS loans made for parents.
The IBR plan is currently available to 1.6 million eligible participants and enables you to pay in either 10% or 15% of discretionary income, depending on your borrowing date. The instalment is capped under a 10-year Standard Repayment Plan and also supports eligibility for Public Service Loan Forgiveness after 20-25 years.
4. Consider consolidating
Loan consolidation is the best-known solution to repay your debt at a constant interest rate. If you have multiple student loans by chance, loan consolidation allows you to club all of these debts and pay back sums based on the average of interest rates on the loans being consolidated. You can also enrol in a graduated-payment program while in consolidation (and in some other circumstances) that allows you to pay increasing amounts over time. The best way to determine whether you should opt for loan consolidation is via the Student Loan Borrower Assistance Project of the National Consumer Law Center. By doing this, you’ll successfully pay off student loans faster.
5. Invest in a savings scheme
Investing in a savings scheme is one of the best ways to pay off student loans faster. It’s easier to plan your financial stability if you have some liquid funds available. You can either bring your indebtedness down or invest it in a savings account or other savings instruments by leveraging these funds. But, how do you choose the right one between the two? A simple calculation is assessing the interest paid vs interest earned. If your funds earn more interest than being paid to your student loan, go for a savings scheme. This will help you moderately pay off the debt over time without burdening yourself. Meanwhile, if your investment is earning less than the interest paid to your student debt, it is wise to bring your debt burden down. This will also bring your overall repayment period to lesser months/years and leave you debt-free much sooner than expected.
6. Start a side hustle
You can easily take up a part-time job or a side hustle to earn extra cash to pay off student loans faster. Think about doing something like delivering food or driving for Uber and using that money you earned to make additional loan payments. Rent out your extra room, parking space, or car, or use your skills as a freelancer or consultant on the side. You may even sell stuff like apparel, old gift cards, or photos. Taking up a side hustle will surely prove to be beneficial.