10 Easy Steps to Create a Successful Plan to Pay Back Your Student Loans
Most students rely on student loans to finance their educational expenses. If you are one of the many students who have acquired loans for funding your university degree, the best thing you can do is to create a plan to pay back your student loans. These loans accrue interest and failure to pay off these loans timely can cost you a lot of money and land you in mental and financial stress. Thankfully, you can pay off your student loans by taking the following easy steps.
1- Start budgeting
Budgeting is a written plan of rationalizing your spendings to save some money each month and achieve your short and long-term financial goals. When you budget, you account for each type of expense and assign spending limits to each category of expense to achieve the desired level of savings that will contribute towards paying off your outstanding student loans.
2- List your student loans
To effectively plan loan repayments, it is essential to determine the total amount you owe by creating a list of student loans you have taken. The list should contain details about each loan, such as the interest rate, minimum monthly payment, and type of loan (federal or private).
3- Choose your debt repayment plan
If you have multiple types of loans, you can consider one of the two popular debt pay-off strategies: debt snowball and debt avalanche. The debt snowball strategy entails paying extra money to repay the smallest loan first while paying the minimum amount on the remaining loans. With the debt snowball strategy, you tackle smaller loans first using extra funds. On the other hand, the debt avalanche strategy aims to pay high-interest rate loans first by utilizing extra funds, while still paying the minimum amount on other loans.
The debt avalanche method can shorten your loan repayment term and save you money in interest charges. However, to stay motivated to reduce your list of debt, you can also consider opting for the debt snowball strategy to erase smaller debts as it is easier to pay off smaller debts first. No matter which strategy you adopt, you can reduce your overall debt if you make continuous efforts.
4- Pay more than your due installment
You can pay off your debt much earlier than the defined loan term if you regularly pay more than the due installment. Also, you can save a significant amount of money on interest charges on your student loans by making excess payments instead of paying just the minimum or due installment. So, in a nutshell, if you want to get rid of your student loan earlier than the stated loan term and also reduce your interest expense, you can consider paying extra money than your due installment.
5- Consider refinancing your debts
Refinancing your student loans can reduce your interest expense as you will get lower interest rate on your new loans when you refinance your existing loans. Refinancing your debts can be a good option for you if:
The savings you make from refinancing are significant
You have taken private loans
The interest rates on your student loans are high and variable
Your credit score has improved.
6- Increase your income
As obvious as it may seem, you can fast-track your student loan payments by increasing your income. You can consider utilizing your spare time to generate income that can contribute to paying off your student loans. Even a small income can take a lot of heavy burden off your shoulders, so you should strive to broaden your sources of income.
7- Take advantage of discounts on interest charges
Some lenders offer discounts in interest rates as an incentive when you consistently repay some installments of your student loans. During the course of your loan term, you can save money on interest charges by taking advantage of the reduced interest charges. So, you should never miss your loan payment to become eligible for an interest rate discount.
8- Make use of tax deductions
You can claim tax deductions up to $2,500 for interest paid on qualified private and federal student loans. The amount saved on tax deductions can contribute to paying off your student loans. You can visit the website of the IRS or consult with any tax practitioner to check how much you can save on account of interest payment tax deductions on your student loans.
9- Set up automatic payment
To ensure that you pay at least the minimum installment of your student loans, you can set up an automatic deduction that will automatically deduct the defined installment amount each month from your bank account to your lender’s account. By automating the loan payment from your bank account, you will not miss out on any payment, keeping you on track to eliminate your student loans.
10- Use bonus or extra money to repay your debts
If you receive any extra income, bonus, or get a rise in your salary, you should consider allocating a portion of it to paying off your student loans to reduce your debt burden. Instead of utilizing the extra money on unnecessary spendings, you can improve your financial condition by reducing your debts and interest expense by spending the extra money on paying back your loans.
Getting out of debt should be your top-most priority if you want to attain financial independence. However, the road to become debt-free requires one to be disciplined with managing money. As soon as you take student loans, you should devise a loan pay back plan so as to get rid of your loans as early as possible. By following the steps mentioned in the article, you can create a successful debt payment plan that will help you to pay back your student loans without any hassle.