Because the cost of college has soared in recent decades, students have been forced to take out loans that average $37,172, an increase of $20,000 in just the last 13 years. Over 44 million Americans hold nearly $1.5 trillion in student debt, a crushing amount that restricts such life choices as buying a home, starting a family, or starting a business.
Billshark therefore offers these ten tips to help you get out from under this burden sooner than you thought you could.
1. Make the decision
It isn’t easy to get rid of your student loan debt, so you need to set it as a goal. This helps you remember why you’re making financial sacrifices.
2. Be prepared
Before you focus on paying off your student loans, be sure your other, higher-interest debts are paid off first. Also, set aside at least six months’ of emergency funds to keep from going into debt if an emergency arises. And, although you might think it’s too soon, start your retirement fund now. The sooner you start, the longer you’ll have to build up a nice nest egg.
If you have multiple student loans with differing interest rates, consider consolidating them into a single, lower-interest loan. You could also refinance your loan if interest rates are lower than when you took them out, and you have a good credit score. Many private lenders offer rates as low as 2 ½ – 3 percent. Don’t, however, go for a longer-term loan, which defeats your goal of paying it off early.
4. Make extra payments
Nearly all student loans—federal and private—allow you to pay off loans early without a prepayment penalty. Depending on your financial ability, you can make a single extra payment each year, or quarterly, or even monthly. This not only reduces the principle faster, but lowers the interest that accrues on the principle.
Note: If you make extra payments, you must notify the lender in writing that it is an extra payment to be applied to the principle. Otherwise, they may just think you’re paying next month’s payment early, and advance your due date as a result.
5. Go beyond the minimum
If you don’t have enough cash to make extra payments, at least consider paying more than the minimum required. As with making extra payments, this helps reduce the principle, and consequently, the interest owed.
If you either can’t or don’t wish to consolidate multiple loans, always start with the highest-interest rate loan first. Once that is paid off, take the money you were paying there and add it to what you’re paying on the next-highest, and so on.
6. Hand over the windfall
If you’ve made the commitment to pay off your student loan(s) early see (#1, above), it won’t hurt as much to make a lump-sum payment with any windfalls you might receive: tax return, bonus, unexpected gifts, etc. Remember, you’re not only reducing the principle but the interest you’d have to pay otherwise.
7. Ask for forgiveness
Although the federal student loan forgiveness program is in jeopardy, the Public Service Loan Forgiveness and Teacher Student Loan Forgiveness programs are still available. The Peace Corps and AmeriCorps both offer assistance in student loan repayment.
8. Find a new job
Some employers these days provide student loan repayments as a benefit. If yours doesn’t, and you’re already job-hunting anyway, why not look for companies that offer this as a perk?
Alternatively, some non-profit organizations offer a certain amount of student loan repayment assistance to high-skilled volunteers.
10. Go for auto-pay
If you sign up for an auto-pay program which allows your servicer to automatically deduct your payment from your bank account every month, you may be eligible for an interest rate discount. In addition, you know you’ll never be late, which helps your credit rating.
One way to find extra cash to put toward your student loan is by letting Billshark’s professional bill negotiators find it for you. Remember, if we can’t save you money on your cable, phone, satellite, Internet, and home security bills, you owe us nothing.