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The best way to pay off student loans is to pay more than the minimum each month. The more you pay on your loans, the less interest you owe – and the faster the balance goes away.
Use one Student loan payout calculator to see how fast you could get rid of your credit and how much money you would save in interest. Here are seven strategies you can use to pay off student loans even faster.
There is never a penalty for paying early student loans or paying more than the minimum amount. But there is one caveat on prepayment: student loan service providers who collect your bill can apply the additional amount towards the next month’s payment.
This will speed up your due date, but it won’t help you pay off student loans any faster. Instead, instruct your servicer – either online, by phone or email – to offset overpayments against your current balance and to meet the due date for the next month as planned.
You can make an additional payment or a lump sum payment of the student loan on the due date. Both can save a lot of money.
For example, let’s say you owe $ 10,000 with an interest rate of 4.5%. If you paid an additional $ 100 every month, you’d be debt-free more than five years ahead of schedule if you had a 10-year repayment plan.
2. Refinancing with a good credit rating and a steady job
Refinancing replaces multiple student loans with a single personal loan, ideally at a lower interest rate. To expedite repayment, choose a new loan term that is shorter than the remaining term of your current loans.
If you choose a shorter term, your monthly payment may increase. But it will help you pay off the debt faster and save money on interest.
For example, if you refinance $ 50,000 from 8.5% to 4.5%, you can pay off your student loan debt almost two years faster. It would also save you about $ 13,000 in interest, even with the same payments.
You are a good candidate for a refinance if you have a credit score of at least the high 600s, a solid income, and a debt to income ratio of less than 50%. You should not refinance federal student loans if you want or need programs such as income-based repayment and public service lending.
Would Refinancing Save You Money?
Lower your student loan payments
Get pre-qualified for refinance to compare real rates and see what you could save each month.
Federal student loan service providers offer a quarter point interest discount when you have payments automatically withdrawn from your bank account. Many private lenders also offer an auto pay deduction.
The savings from this discount will likely be minimal – if you cut the interest rate on a $ 10,000 loan from 4.5% to 4.25%, you would save about $ 144 total on a 10 year repayment plan. But that’s still extra cash to quickly pay off student loans.
Contact your servicer to sign up or to find out if an automatic payment discount is available.
4. Pay biweekly
This simple strategy is one way to get yourself to pay extra debt: make half your payment every two weeks instead of making a full payment every month.
You end up making an extra payment each year, saving you time on your repayment plan and money on your interest costs. Use one bi-weekly student loan payment calculator to see how much time and money you can save.
5. Pay out capitalized interest
Unless your loans are subsidized by the federal government, fall during your school days, your grace period and deadlines from Reprieve and forbearance. This interest capitalized when repayment starts, which means your balance grows and you pay interest on a larger amount.
Are you considering monthly interest payments while it accrues to avoid capitalization. Or afford a flat rate interest in front of your Payment term or postponement ends. That won’t speed up the withdrawal process immediately, but it does mean that you will have a smaller amount of credit to get rid of.
6. Stick to the standard repayment schedule
The government automatically draws up federal student loans 10 year repayment periodunless you choose otherwise. If you can’t make large additional payments, the quickest way to repay federal loans is to stick with this standard amortization schedule.
If you don’t really need these options and can afford to stick with the standard plan, it means a faster path to debt freedom.
When you get a raise, a Refinancing bonus for student loans or some other financial windfall, allocate at least some of it to your loans. Consider this breakdown: 50% of the additional income can be used for debt, 30% for savings, and 20% for leisure expenses.
You can also start a sideline Pay off student loans quickly. Sell items like clothing, unused gift cards, or photos; rent out your guest room, parking space or car; or use your skills to work freelance or give advice on the side
Consider making rules for yourself, such as every 5 or 10 dollar bills you get for your loans. Some money saving apps, like Digit and Qapital, also help you set savings goals and rules.