Today’s college graduates are taking with them more student loan debt than ever before. While student loan debt can seem like it’s going to follow you around until retirement, there are several ways you can get a better handle on your debt and pay it off more quickly than you thought. Here are five tips to try.
1. Create a Budget
You monitor what you measure, and if you aren’t measuring your income and expenses, there’s almost no way to monitor and quickly pay off your debt.
Create a simple budget where you categorize all your monthly expenses (rent, utilities, debt, transportation, groceries, fun and entertainment). At the start of each month, set a goal spending cap for each category, and throughout the month track individual expenses to see where you need to cut back. This exercise will give you a tangible and realistic look at how much you can put toward your student loan debt each month — and maybe stop you from ordering that Chinese take-out in lieu of an extra $20 loan payment.
2. Pay High-Interest Loans Off First
If you don’t know what your interest rates are on your loans, find those and add them to your budget. They’ll be critical as you pay down your debts.
Next, consider tackling the highest-interest loan first. High-interest loans accumulate more interest over time, meaning you’re paying lots of money to the bank and very little is going to paying down the actual loan amount, or principal balance. Paying off your high-interest debts first can help you save money and pay off other loans more quickly in the future. You can also consolidate your student loans to get a lower interest rate. If you need help getting a loan or consolidating your debt, you can check out debt consolidation service like Freedom Debt Relief.
3. Pay Off Your Smallest Loan First
Though in most cases paying off high-interest debt first is the most logical approach, sometimes paying off a smaller loan can increase your debt payoff momentum. If you have a loan lingering that’s significantly smaller than the others, consider setting an aggressive timeline for that loan — can you pay it off in six months? Then, after you do, use the fifth tip on this list to pay off your next loan even quicker.
4. Always Pay More Than the Minimum Payment
Lenders want you to pay the minimum payment because they make their money on interest. While it depends largely on your principal balance and interest rate, minimum payments can be mostly made of interest fees. This is why some people pay off student loan debt for 30 years or so. Pay more than the minimum so you don’t have to. Even just $10 a month can help chisel away at your principal balance more quickly, and potentially save you thousands down the road in interest payments.
5. Use a Compounding Payment Payoff Strategy
After you’ve paid off one loan, don’t think of that monthly payment as newfound fun money for the month. Instead, add that payment to your next targeted loan to pay your second one off even more quickly. Adding just $50 a month to a payment can drastically impact how quickly you pay it off — especially when it’s going straight toward the principal balance.
If you’re interested in really managing your student loan debt, consider tracking all your debt in an amortization table. First, it will tell you an exact date when you’ll be debt free and how each small extra payment could delete a month from your debt calendar down the road.