If you are ready to graduate college or have just recently earned your diploma, you may be thinking about how to handle your student loan payments. Loan rates and costs are higher than ever, and a recent survey shows that students who graduated last year have about $37,000 in loan debt. If reducing your loan debt efficiently is one of your goals for the upcoming year, there are several strategies you can use to pay it off faster (unless you want to consider refinancing your student loans) without creating new or worsening debt.
Avoid Using Credit
Living on credit is one of the fastest ways to rack up extreme personal debt and to cause your budget to spin out of control. While it might seem feasible to open several lines of credit and use them to pay for most of your living expenses and put work income toward your student loans, this is not an equal balance. Eventually, what you owe in student loans and in credit card debt may eclipse what you make monthly, and it may become difficult to make payments on either.
If you must use a credit card for some costs, do some research to find a card with a low or fixed annual percentage rate. Use the card only when you need to and try to pay the balance off at the end of the month. Paying on time and over the minimum monthly payment can help boost your credit rating, and having only a small amount of credit card debt can help you save up money to put toward your student loan.
Refinance Your Loans
Depending on how much your loans have aged and your payment history, you may be able to qualify for refinancing. This might reduce the interest you currently pay and, in some cases, even lower your monthly payments. A lender will look at your work history, credit report, and your credit score to gauge whether you qualify. This is why keeping your credit healthy is so important, as it may benefit you greatly if you want to seek refinancing in the year to come.
Consider Income-Based Repayment
If you are having trouble making your student loan payments and your budget is suffering because of late fees and other costs, you might want to contact your loan company about income-based repayment. IBR can help you reduce your student loan payments and pay them off more efficiently, based on your income. While the application process can be daunting, it can relieve the stress you feel over not being able to meet your payments, help repair your credit, and help you pay your loans off with more efficiency and timeliness.
Look for Savings Elsewhere in Your Budget
If you want to pay more than the monthly minimum on your student loans to reduce them faster, you might look to your own budget to find additional funds. This might require some sacrifices on your part; however, it can be worth it in the future when you have less debt and want to make a major purchase, such as a home or vehicle.
One way to free up money in other areas of your budget is to look for discounts on services you use every day. Rack up points to save money on gas with a mobile gas app or ask your local insurance agency whether you qualify for any discounts. Bundling premiums may also result in long-term savings. Try to shave down your cost of living expenses by cooking meals at home, avoiding weekly trips to trendy lunch or coffee houses, and subscribing to a streaming movie service to cut back on entertainment costs.
Reducing or eliminating student debt can be one the greatest financial challenges you can face. However, you can meet your goals in the upcoming year by being frugal, using credit wisely, and proactively looking for ways to reduce costs for long-term savings.