How to Pay Off $40,000 in Student Loans as Fast as Possible
If you're sick of your student loan debt weighing you down, it's time to take some action and pay off your loans as fast as humanly possible. So what is the best way to do this?
First, you need to remember that paying off your student loans in full might not happen overnight - but by boosting your income, reducing unnecessary expenses and making extra payments every month, you can certainly speed up the process.
Paying off your loans early will reduce the amount of total interest you pay on the loans, plus free up money for you to save on more important things like buying a house or investing for retirement.
Why Paying Off Student Loans Fast Should Be Your #1 Priority
#1 High interest rates. Paying off your student loans early will save you money on interest. Think of it this way: if your student loans have an average interest rate of 7%, paying them off in full will net you a guaranteed rate of return of 7%. Not bad!
Here's some math to get you motivated: student loans with a total balance of $20,000, a 10-year repayment term and an average interest rate of 7% will cost $7,865.87 in interest if you only make the minimum payments each month! Check out this student loan calculator to see for yourself.
#2 Student loans are nearly impossible to get discharged in bankruptcy. While your mortgage, car loans and other debt will most likely be wiped out, your student loans will stick with you forever until you pay them off. There is no escaping your student loans!
#3 Peace of mind. Not having student loans to pay each month can be a great feeling. Instead of putting $200 - $400 per month towards paying them off, you will be free to put that money towards anything you want - whether it's saving for retirement, investing, buying a house, paying off other debt, going on a vacation, etc.
Best Strategy Towards Paying Off Debt
How do you hammer down your student loan debt as fast as you can? The answer is simple: boost your income while reducing your expenses, and use the difference to pay off extra each month.
How to Boost Your Income
Obviously, having a good paying full-time job is important. But even if your job isn't the greatest paying, you can still consider taking on a few side jobs to boost your monthly income.
- It might be smarter to get a side job off the books, so you don't have to pay taxes on the money you make. Some of your options include waiting tables, delivering pizza, valet parking, tutoring students, mowing lawns, babysitting, etc.
- Start a blog online for money. Revenue sharing websites like Hubpages, Infobarrel and Squidoo allow you to write about things you love, and get paid for it. How much can you realistically make blogging for money online? More skilled writers make thousands per month, while others might make far less. Still, blogging for income online could be well worth your time.
- Do you have any valuable items you don't use? Consider selling your unwanted stuff on Craigslist for extra cash.
- Do you have any storage space, a garage or a parking lot that you can rent out for extra money? You could be putting an extra $100-$300 back in your pocket every month.
- Get paid every time you spend money by signing up for a rewards credit card. Some cards offer anywhere from 1% to 5% cash back on everyday spending. This can translate into $20-$100 per month back in your pocket. Just remember to pay off your credit card balance in full each month so you do not get charged any interest - this will basically cancel out all of your savings.
- Make money taking paid online surveys.
These are just a few options!
How to Reduce Your Expenses
It doesn't matter how much you make - if your expenses are out of control, you could still be broke! That's why living below your means is so important. To put it simply, you need to make more than you spend, brining in positive cash flow each month.
Here's a few great tips to keep your expenses down:
-One of the smartest things you can do to help pay off student loans faster is reduce any unnecessary monthly expenses. We don't realize it, but we tend to spend money on tons of things that we really don't need.
- Think about how much you spend each month on things like Starbucks coffee. A $2 cup of coffee per day would equal $60 per month. Why not instead make coffee at home for much less?
- Live like you are still a college student. Just because you are making money now doesn't mean your expenses also have to increase. Try living at home with your parents for a few years to save on housing costs, since this is likely your biggest monthly expense.
- Do you really need to eat out 4-5 times a month or go to bars every weekend? Be very careful with these types of expenses, because they can really add up. Try less costly activities such as museums or public parks.
- Ride your bike to work or use public transportation, instead of driving. This will not only help you save on gas costs, it will benefit the environment.
- Reduce or eliminate your cable bill. Why pay $100 a month for cable service if you don't watch TV every day? Instead, you may want to opt for a cheaper online TV alternative, or ditch TV altogether.
- Cook your own meals at home and pack your own lunch to work.
- If you own your home or rent and have an extra bedroom, why not consider renting out the room to reduce your housing costs?
How much student loan interest you'll pay
Student Loan APR
Total Loan Balance
How much student loan debt did you have after graduation?
Consider Consolidating Student Loans at a Lower Rate
Consolidating your students loans into one loan at a lower rate could mean big savings in interest, plus one simple monthly payment. Most federal student loans are eligible for consolidation, but consolidating private student loans might also be allowed.
As you can see in the table above, the difference between having loans with an 8% interest rate over loans with a 4% interest rate is huge.
Real-Life Example of Student Loan Consolidation
Let's say you have four student loans, each at $5,000 each. Here, you will see the interest rate for each loan, the minimum monthly payment due, and the total interest paid if you made just the minimum payments. Each loan has a term of 10 years.
Amount APR Monthly Total Interest
$5,000 10% $66.08 $2,928
$5,000 8% $60.66 $2,279
$5,000 6% $55.51 $1,661
$5,000 5% $53.03 $1,364
Total minimum monthly payment: $235.28
Total interest paid: $8,232
To consolidate these student loans, you take out a new $20,000 loan. Since the average rate on the individual loans is about 7%, you would want the new loan to have a lower rate. Having just one simple monthly payment also makes your life a lot easier, and reduces the chance that you'll miss a payment.
New loan: $20,000 at 5% APR
On your new loan, your minimum monthly payment would be $212.13, more than $23 less than before. Even better, you'd end up paying $5,455.76 in total interest - a savings of $2,777!
In this case, consolidating the four individual loans into one loan made sense.
Be Careful if You Extend the Repayment Period
Getting a lower interest rate doesn't always translate into guaranteed savings. This example above is based on someone consolidating student loans with 10-year terms, with a new loan that also has a 10-year term.
What if you were to instead consolidate student loans with 5-years left on them, to a new 10-year loan? By extending the life of your student loans, you lessen your total monthly payments, but also increase the amount of total interest you pay on the loan.
For example, a $10,000 student loan at 5% interest with five years remaining will have $1,322.76 in total interest yet to be paid. By consolidating this loan with a new 10-year loan at 4% interest, your monthly payments would be less - but you'd end up paying $2,149.28 in total interest.
Ways To Get Rid of Student Loans Without Actually Paying Them
Believe it or not, there are a few ways you may be able to get rid of your student loan debt, without actually paying for it. If you qualify, here are a few options:
1. Join the military: Certain branches of the military has student loan forgiveness programs.
2. Become a teacher: The government offers a Teacher Forgiveness Program in low-income areas. You are eligible for up to $17,500 in student loan forgiveness if you teach full-time for five complete and consecutive academic years in areas that serve low-income families. More info. can be found at the Federal Student Aid website.
3. Income-based repayment: Even if you can't get your student loans forgiven in bankruptcy, you still might be able to qualify for an income-based repayment plan. If you're eligible, you can have up to 100% of your loan balance forgiven after 25 years, or 10 years if you work in public service.
4. Do community service: Consider applying for the AmeriCorps award, which repays part of your student loan debt based on your service in the AmeriCorps program. Your other options includes the Peace Corps. and Volunteers in Service to America (VISTA).
5. Medical reasons/permanent disability: If you can't work due to a physical or mental impairment, you may be able to get your loans forgiven.
This impairment must be expected to result in death or last for a continuous period of at
least 60 months, or it must have already lasted for a continuous period of at least 60 months.
Question: Do you have to pay student loans if you go to jail or prison?
I hear this question all the time. The truth is, you still have the obligation to pay back your student loans, even if you are in prison. Before you serve time, you should contact your student loan provider to let me know the situation. You might be able to apply for deferment or forbearance of your loans.