Getting ahead financially is harder when you have student loans to pay off. Almost 70% of college seniors graduate with student loans1. Paying off student loans can be stressful not only for students, but for their families.
Fortunately, there are things you can do to pay off the loans more quickly and in an organized way. Here are some of the best ways to efficiently pay off student loans.
Understand your loan
Loan documents are boring to read but you should take time to understand how your loan is structured, the repayment guidelines and the amounts owed each month. Each lender has different rules. Understanding them will help you set up a plan for paying back your student loans, including a schedule of how to much to pay each month and when.
Determine payment amount
While your loan guidelines will tell you the amount due each month, consider paying off additional amounts to lower the balance quicker. By paying more toward the principal, you will pay less interest overall and get out of debt faster. Make sure you understand whether the lender allows pre-payments without charging an extra fee. Indicate when making your payment that the additional amount should be applied to the principal.
If you have more than one student loan, pay more toward the loan with the higher interest rate first, while still making necessary payments for the other loans. By paying off your student loans earlier you can then save for other financial goals such as retirement, down payment on a home or other projects.
In school, it’s common to live frugally and make sacrifices. That shouldn’t stop after college ends. You may feel like it’s time to celebrate and enjoy your new-found income but if you are in debt and enjoying a more posh existence, in essence you are financing that lifestyle.
Making sacrifices might mean eating out less often, living with your parents, buying fewer gadgets, postponing expensive vacations and paying more attention to your budget. But those can be shorter-term decisions until you pay off your student loans.
Treat your student loan repayments like other bills including rent, credit card and cellphone. Automate the payments so they come straight out of your account each month. If you get a bonus or raise, consider putting it toward principal payments, and continue to live within the same budget. You won’t notice the money isn’t there, and you will be paying off your student loan faster. Some people find it helpful to make additional mid-month payments or to send extra money when they have it.
Some lenders offer a grace period after you finish college and start a job. By ignoring that grace period and starting to pay the loan off immediately, you will decrease the amount of interest owed and pay off your loan earlier.
Paying off your student loans is one part of the larger financial picture. A Nationwide financial advisor can help you make a customized financial plan, including structuring debts and saving for the future.