Though federal student loans come with a standard repayment plan that enables borrowers to pay off their balance over a 10-year period , U.S. News & World Report noted many people who hold bachelor’s degrees find student debt hanging over their heads for at least 20 years.
While the payback period for this form of financial aid can be lengthy for some, the experts at Communityforce offered up their best tips for cutting into student debt quickly and efficiently.
One payback effort, different methods
Truth is, there are a variety of paths you can take to assist you on your journey to attacking student loan debt. Here are three popular options to consider:
1. Paying off private loans before federal ones: According to USA Today, private student loans typically come with variable interest rates. Essentially this means even if you’re offered a lower rate initially, that rate could quickly increase (or decrease) as the economy changes. Prevent yourself from becoming a victim of circumstance by paying private loans right away.
2. Targeting the loans with the highest interest rates: Choosing to first pay off student loans with the highest interest rates saves money in the long run as it cuts down on the amount of interest you’d pay over the life of the loan. Consequently, many loan holders decide to pay back their debt in this manner.
3. Prioritizing the loan with the lowest balance: If you’re someone who gets bored quickly or wants a “quick victory,” this might be the method for you. Though this tactic will result in paying more interest in the long run, it might be worth the cost if you foresee yourself giving up on payments altogether due to a lack of progress. Better to clear somewhat of a path toward financial freedom than to not attempt at all.
Alternatively, you might choose to combine methods. For example, if you have multiple loans that have the same high interest rate, you might target the one with the lowest amount. Similarly, you might choose to pay off the loan with the lowest total balance and then turn your attention to prioritizing based on interest rate.
Add to your efforts
Chances are, there’s untapped money waiting in front of you for the taking. Start the process of finding such funds by simply taking a look at your bank statements and determining where your money is going. From there, you’ll be able to decide if you’re overextending anywhere and if you can pull from any of these sources.
Some such examples might include:
- Cutting down living expenses. The recommended rate for rent payments is approximately 30 percent of your income. If you want to pay off more student loan debt, however, you can lower your percentage by taking on a roommate or finding a cheaper place to live. Either way, you might discover a large chunk of change to contribute toward your loans.
- Finding free sources of entertainment. While it certainly might be tempting to go on spending sprees at theaters, restaurants or shopping outlets, it’s important to be mindful of where your money is going and how you can live more frugally. Try supplementing your normal sources of entertainment with the many free ones that exist. One example might be staying at home for a creative date night instead of heading out to an expensive restaurant.
- Replacing with low-cost alternatives. While not every expense offers a free option, most have some alternative that costs less. Shopping for work clothes is important, but could you be shopping somewhere that’s cheaper overall? If you’re paying for a package at a local yoga studio, consider cutting down your package and supplementing with free weekly yoga sessions in the park.
- Taking on a part-time or temporary job. In addition to cutting down your costs, you might find it helpful to increase your income. That could come in many forms, including seeking full-time employment as opposed to part-time or taking on a part-time or temporary job in addition to your regular full-time gig.
In the end, taking on an approach that combines wise payment planning, reducing expenses and increasing income will help put you on the path to successful repayment of your student loans.
For more information on loans, grants and other forms of financial aid, please visit Communityforce website!