After years of collegiate study, paying off student loans is a common challenge many young Americans face. Sometimes, people get to spend about 10 years paying off student loans, whether they have a lucrative job or not.
A couple of months ago, I went to see a movie with a friend. It was a drama (based on true events) that shed light on how people amass student loans while in college, and by the time they complete their degree, they have to spend a very long time paying back the loans.
However, the main character of this film was an exceptional college student who was determined to pay off his student loan within the shortest time possible. Unlike his friends, this young man started strategizing and looking for ways to pay off his student loan as soon as he graduated.
He eventually consulted with a financial advisor who gave him brilliant ideas on how to pay off student loans fast without being stranded financially. As fate would have it, he successfully paid off the loan within a short time by implementing simple strategies the financial adviser taught him.
If you happen to be in this situation where you have to pay off student loan in time, there’s no need for you to be anxious or daunted by it. It’s very possible to pay off student loans faster.
How Long Should It Take To Pay Off Student Loans?
Usually, it would take at least 7 years to pay off student loans. But if the right strategies are applied, the time for repayment won’t be this long.
This is one of the questions that bother college students each time they think about the debt they have to pay. This post is about to show you the basic steps you can follow to pay off student loans quickly.
Factors That Prevent People From Paying Off Student Loans
A few factors could stop you from paying off student loans fast. One of them is unemployment.
Typically, the most feasible way to pay off student loans is by working and earning money. That’s the plan almost every student has before taking the loan. But in a situation where you don’t have a job, it becomes nearly impossible to pay off the loan.
You could try doing business. However, there’s no guarantee that your business will thrive, which leaves you uncertain about paying off the loan.
Another critical factor preventing people from paying off student loans is the inability to manage finances properly. You can have a good-paying job, but if you don’t know how to handle your income, you won’t be able to pay off the student loan for a very long time.
This is why you have to learn about earning, managing, and growing money. Speaking with a seasoned financial advisor concerning this is recommended.
Does Paying Off Student Loans Help Credit Score?
Does paying off student loans help credit score? That’s a question many college students are yet to find a definite answer to.
There’s no denying that paying off your student loan is a great accomplishment. But sadly, this doesn’t have a significant impact on your credit score.
As soon as you finish paying off the loan, your lender will notify the credit bureaus that the student loan has been paid in full. The only way this would help your credit score is if your account is in default when you pay off.
Nevertheless, this shouldn’t be much of a concern to you. What’s important is that you have been able to pay off the loan and set yourself free from debt.
Pros And Cons Of Paying Off Student Loans Early
Paying off student loans early is highly commendable. Notwithstanding, it’s good you acquaint yourself with some of the merits and demerits of achieving this early.
Here are the pros and cons of paying off student loans early:
[Pros]
- You Will Save More Money On Interest
One of the most significant impacts of paying off student loans early is that you’d be able to save some money. Once you pay off the debt in time, you will save some significant savings in interest charges.
- You Will Be Able To Focus On Other Financial Goals Afterward
Paying off your student loan early will enable you to focus on other important financial goals because you have cleared up the debt swallowing a portion of your income.
- The Burden Would Be Taken Off Your Shoulders For Good
Imagine the genuine peace and excitement you’d feel once you successfully pay off your student loan in full. There won’t be any reason to be anxious or scared about it anymore because the debt has been taken off your shoulders.
- Your Debt-To-Income Ratio Would Be Lowered
When trying to purchase a car or home on loan, your debt-to-income (DTI) is very important to lenders. The debt-to-income ratio determines how much you have in debt relative to your gross income every month.
Once you have paid off your student loan, your debt-to-income ratio would be much reduced, making it safe for lenders to lend you money. This has to be one of the pros of paying off student loans early.
[Cons]
- You Will Lose Tax Deduction
In the United States, anyone who has debt to pay off automatically gets a reduction in taxes. So this means as soon you pay off your student loan, your tax reduction would be canceled, and you would have to pay standard taxes like every other citizen.
- It Would Be Pretty Difficult To Save For Retirement
As someone who recently graduated from college, you won’t earn much because you have little or no work experience to get a high-paying job. This means that you won’t have enough money to save for your retirement plan because you are trying to pay off your student loan early.
- It Would Be Impossible To Build An Emergency Fund
You could count this as one of the cons of paying off student loans early. As someone who isn’t getting a hefty paycheck, the possibility of paying off a student loan and saving for an emergency fund at the same time is very thin. You would have to focus on just one – paying off the student loan.
Getting Started With Paying Off Student Loans
To get started paying off your student loan, you need first to have a stable source of income. Look for a job even if it’s not lucrative. Thankfully, getting a job after attending college on loan is not difficult at all.
The American government has set up a structure that makes it easy for college graduates (who have student loans to pay off) to get jobs quickly. As soon as you have a job, you can start paying off the loan bit by bit.
9 Fast Ways To Paying Off Student Loans
You don’t have to spend a decade paying off your student loan. If you know the proper steps to take, you will pay off the debt within a surprisingly short time.
Here are some smart tips for paying off student loans fast:
1. Establish A College Repayment Fund
Paying off student loans is a vital financial goal and must be taken seriously. This means you have to establish a special college repayment fund, where you’d constantly channel some of your earnings to. You can do this easily by setting up automatic deposits to an exclusive savings account.
However, ensure you don’t use a savings account you already have because you might be combining your college repayment fund with the rest of your money.
2. Make Additional Payments
To speed up your student loan payment, you could pay more money than you currently pay, as long as your financial status allows it.
For instance, if you usually have to pay $400 every month, you could increase it a bit to $450 or even $500 if your income is large enough to cover it. Using this method, people can be paying off student loans in full within a reasonably short time.
3. Consider Refinancing
One significant factor affecting your college repayment fund is a high-interest rate. If you realize that you are paying too much interest, it’s advisable to refinance your student loan for a lower interest rate.
If you refinance federal student loans with a private lender, you will not be entitled to some benefits, and however, you would be able to pay the loan faster. While using this strategy, ensure you have a stable source of income so you don’t fail to pay when you ought to.
4. Start Early With A Part-Time Job In College
Is it smart to pay off student loans early? Of course, it is! A brilliant way to do this is by working while studying in college.
You don’t have to complete your college education before you can start working and earning money.
While your study is ongoing, you can take a part-time job to raise some cash. It does not have to be a picture-perfect employment. It could be any legitimate job.
The main goal is to earn money while in school to start paying off your student loan even before you leave college. This will enable you to pay up faster than a person who starts paying after graduating from college.
5. Lower Your Interest Rate Through Discounts
Paying off student loans can be easier and faster if you successfully get your lender to reduce your interest rate. This can be done when you set up automatic payments on your loan.
Many lenders will offer a 0.25 to 0.5 percent discount when your college loan repayment is automated because this would enable you to make subsequent payments constantly.
Another effective way to get discounts on your interest rates, especially from private lenders, is by making on-time payments. If you are consistently paying off your loan at the right time, your lender might consider reducing your interest rate.
6. Stick To A Budget
If you don’t know how to manage your finances, you will struggle to pay off your student loan. An excellent way to manage your income efficiently is by creating a budget and sticking to it.
To create a budget, you must first examine your monthly cash flow and expenses. By reviewing your expense and monthly income, you can determine the kind of expenses your income can cover.
So when it’s time to create your budget, you’d be able to safely enlist your college repayment fund just like every other important expense or financial goal you have on the list; and you would be able to do this without breaking the bank.
7. Apply For Loan Forgiveness
Applying for loan forgiveness can help in paying off student loans within a very short time. You can eliminate all your student loan debt with a very good forgiveness program.
One of the most well-known forgiveness programs is thePublic Service Loan Forgiveness (PSLF). To be qualified for this program, you must be a full-time employee in a public service position by the government or a nonprofit organization. You would also have to make a certain number of repayments under an income-driven repayment plan.
Before applying for a forgiveness program like this, ensure you do your due diligence to know everything about the program and how to be eligible for it.
8. Take Advantage Of Tax Deductions
The American government provides a student loan interest deduction on taxes for paid interest on qualified loans. This law enables you to deduct up to $2,500, but it is primarily based on your gross income.
As long as you are legally required to pay interest on your loans, you are entitled to this tax deduction. If you happen to get qualified, you would be able to save hundreds of dollars on your income taxes, and this would automatically create some extra money to pay your debt faster.
9. Ask Your Employer About Repayment Assistance
Some considerate employers help in paying off student loans. You can take advantage of this opportunity if the company you work for does this for its employees.
Some of America’s largest employers, such as Walmart and Starbucks provided free college for selected employees who sign up for degree programs in a network of schools or courses chosen by the employers.
Some employers can offer a contribution of up to $5,200 to assist in repaying student loans. However, to qualify for this offer, there are certain criteria you must meet based on your company’s policy.
Final Thoughts On Paying Off Student Loans
Paying off student loans might not be easy. But if you are a strong-willed person, you can pull it off. With the smart tips provided in this post, you won’t only pay off your loan; you will do it faster than usual.
More importantly, ensure you get right with your budgeting. Budget your income in a way that gives room for you to pay the student loan without being stranded financially. You can also cut down on expenses and increase your cash flow to help complete this repayment faster.
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