The cost of higher education just keeps rising, and many students must borrow money in order to finance their pursuit of post-secondary studies.
The burden of paying back student loans can be a drag on young adults as they enter the workforce and want to start saving for home ownership, having a family, or just paying the bills.
Still, student loan debt doesn’t have to linger. With some financial discipline and smart strategies, it’s possible to put student loan debt in the past.
Here’s a look at five ways to pay off student loans as fast as possible.
Keep living like a student
Some people look forward to finishing school and starting work because it allows them to begin living less like a student. They may be eager to move into a place of their own, get a new car, or splurge on other life luxuries that were once beyond their means. Of course, if you can handle a few more years of living with roommates, going without a fancy new set of wheels, or passing on that pricey trip to a high-end beach resort, you’re going to get out of debt more quickly, and maybe even be able to stash away some savings at the same time.
Get a handle on your spending by building a budget
It’s hard to know how much money you can devote to paying off any kind of sizable debt unless you have a strong understanding of your entire financial picture. This means taking stock of how much money you have, how much you earn every month, and how much you spend in the same time frame.
Split your spending into as many categories as you can, so you know how much is going toward bills and unavoidable expenses versus how much goes to discretionary needs such as clothes, drinks and meals, or travel. Then start trimming the fat, looking for costs and expenditures you can live without, leaving you more money to pay off debt.
Start paying back before you graduate
Most student loans don’t require any payments to be made while the recipient is still in school, and some even have a grace period that extends six months or more beyond graduation. Still, if you’ve got the means, there’s nothing to stop you from getting a head start on paying off the debt ahead of schedule. With most government student loans, early payments go towards the loan principal, helping reduce your interest charges down the line.
Increase the size or frequency of your payments (or both!)
If you’re out of school and earning an income, consider accelerating your repayment schedule by increasing the frequency of payments from monthly to bi-weekly or even weekly. Each individual payment will be smaller than the monthly one was, but you’ll end up paying back more over the course of 12 months, typically at least one full monthly payment more.
If your budget allows, you can also top up each payment and pay more than required. The best thing about overpaying is that the extra amount goes directly to your loan principal, which helps reduce the amount you pay on interest each month.
Another great thing about both these ideas is you can use automatic payments for a ‘set it and forget it’ factor: once you’ve increased the frequency or size of each payment (or both), just sit back and let automatic payments make your debt load dwindle.
Take advantage of tax deductions and refunds
At tax time, you can deduct up to $2,500 in student loan interest from your annual income, depending on how much you earn (less than $80,000 as a single filer, or $160,000 in combined income when filing with a spouse). This deduction should save you a few hundred dollars in income taxes and might even help you get a refund. Either way, it’s more money you can use to pay off student loans more quickly.