Money Smarts Blog
How to Manage Your Student Loans & Pay Them off Quickly
Aug 6, 2019 || Amanda Spurgeon
There’s no quick-fix for paying back your student loans. In fact, if you come across anything offering a service that sounds too good to be true, it’s probably a student loan scam. But, that doesn’t mean you’ll have to live with student loans forever. Here are some realistic tips for managing your loans and paying them off quickly.
Pay more than the minimum
It might be tempting to only pay the bare minimum on your loans to keep a little extra cash in your pocket. But, if you can afford to pay more, you should. Your loans are constantly accruing interest on the principal. The faster you reduce the principal, the less interest you pay overall.
You might be surprised at how quickly a small increase in your payment can add up. When I first started repaying my loans, one smaller loan had a minimum payment of $25. While that would leave me with plenty of extra cash every month, I knew it would take me forever to pay the loan at that rate. I decided to double payment and pay $50 every month. I still had some extra cash every month, and the peace of mind that I was actually working toward paying the loan off.
I made the last payment for that loan in May and it felt really satisfying. I’m still working toward paying off some of the larger loans, but knowing that I was able to tackle one within five years of graduating feels pretty good.
Make extra payments
The same idea applies here as paying more than the minimum amount due. Anything you pay beyond the minimum payment every month will go directly toward the principal and reduce your overall repayment cost. If you find yourself with some extra cash between payments, considering putting that toward your loans.
It isn’t the most exciting way to spend your tax return, but I like to take half of what I get back every year and put it toward whichever loan has the highest interest rate. Since this is “extra” money in my book (it’s not built into my budget, so I’m not relying on it to pay any bills etc.), I don’t feel the same stretch I would if I cut back in one category of my budget to make an additional payment.
Cut back where you can
Reducing your monthly spending will help you free up extra cash to put toward your loans, but don’t feel like you need to go crazy. Some personal finance blogs will tell you to find a roommate, move into a tiny apartment or cut out your shopping/dining out/fun budget. While that will certainly help you pay your loans off faster, it’s not your only option.
Unless you want to go back to living like you’re still in college, consider more realistic ways to reduce your spending. Analyze your budget and look for ways to cut back within reason. Maybe that’s limiting nights out to once a week, canceling your Stitch Fix subscription or riding your bike instead of driving to save on gas.
I’ll admit this is the hardest for me. I have a pretty flexible budget that allows me to have fun, pay my bills and save a little every month. I could probably cut back in a couple places, but I like the balance I have right now. So, instead of cutting back spending in certain areas, I’m waiting to spend in others. For example, we could technically afford to replace my husband’s car with something newer, but what he drives now gets great gas mileage and runs just fine. We’ve decided to wait on replacing it until our loans are closer to paid off.
Refinance if it makes sense
If your interest rates are high or you’re managing multiple payments to different lenders every month, refinancing or consolidating could be helpful. If you think this option would be helpful for you, do a little math before you jump in. Make sure that refinancing for a lower payment won’t have you paying more overall.
Paying off student loans can feel impossible sometimes. But if you’re committed and are willing to make a few sacrifices, you might be surprised by how quickly your balance starts to dwindle. Just don’t let your desire to pay them off lead you into the trap of a student loan scam – if something seems too good to be true, it probably is.