One of the most common sources of debt for Americans is student loans. One in five Americans will hold student debt at some point, and most will not pay it off for 15-20 years, meaning they’re accruing interest for most of their working lives!
There are a number of strategies for paying these student loans off and avoiding as much interest as possible. Here, in our opinion, are the five best methods for paying off your student loans efficiently.
Prospective Students
Before we get to the tips for those that have already taken out student loans, we have some advice for aspiring college students.
Avoiding taking out student loans can significantly improve your financial situation when you begin working after graduation. It’s important to consider all of your options when deciding which university or college you’d like to attend, and that means taking into account tuition cost.
Be sure you’ve applied for each and every scholarship you are eligible for, and make a real effort to find the ones that are infrequently used. Even with scholarships, however, tuition can be prohibitively expensive at major universities, so be sure to make the right choice for your future when committing to a school and don’t be blinded by prestige or peer pressure.
Now, on to the tips for those who owe!
Attack Your Principal
Principal refers to the actual sum of money you owe to your student loan financier, not counting the interest. When paying the minimum amount per month, most of your payment goes to paying interest, and very little actually goes to reducing the amount owed. This can, if left unchecked, leave you paying as much or more in interest than the original borrowed amount!
There are multiple ways to address this, but the most effective is to simply pay more than the minimum amount per month, provided you can afford it. The more you pay, the less time your loan has to accrue interest, leaving you significantly better off in the long term.
Equity Bank’s online budgeting tools can help you calculate your monthly expenditures and find the perfect amount to pay each month toward your student loans.
Apply for Forgiveness
A major story in national politics over the last couple of years has been the topic of widespread student loan forgiveness. While it is currently on hold as the courts examine its legality, there is no question about one thing: if the program goes through, and you qualify, you should apply. Check here for updates on the current administration’s plan.
As it stands, there are a number of programs for student loan forgiveness in special circumstances. The PSLF, or Public Service Loan Forgiveness, is a student debt relief program that targets public service workers, and offers forgiveness on loans once 120 qualifying monthly payments have been made. You can see if your employer qualifies and apply at the link here.
Research Income-Driven Repayment Plans
Income-driven repayment plans are available to borrowers who meet a certain minimum threshold, and they can lower the amount of your monthly payments based on your income and family size. This may not be the best option for those looking to get out from under student loan debt as early as possible, but it is a great way to ensure that those earning less can still make progress on paying off their loans without breaking the bank.
Prioritize Your Debt
It’s not as glamorous as a gaming system or that brand new phone you’ve had your eye on, but when you have a little extra money on hand, it’s important that you prioritize paying off your loans before spending big on non-essentials. Your annual bonuses, tax returns, and other big windfalls should go, at least partially, to paying down your debt.
When considering how interest works, and the fact that there are no penalties for extra or early payments on student loans, it makes sense to attack it first, as paying that little bit extra now can save you big in the long term.
Consolidate and Refinance
Consolidating and refinancing your loans should only be done after careful consideration of your alternatives, as it can extend the repayment period of your loan, making it a burden for longer than it would otherwise be. In some cases, it can help to refinance your loan, giving you a lower interest rate along a more favorable timeline.
Consolidating multiple loans, either from different providers or from different institutions, can allow you to simplify the repayment process and clear a path towards being debt free.
Always consult a financial advisor when considering refinancing a loan, as the terms are not easily decipherable and making the wrong decision in this regard can leave you in serious hot water!
Wondering Where to Start?
No worries! Student loans are a confusing knot to untangle, and fear of making the wrong choice when repaying can often lead to borrowers taking the path of least resistance. Don’t be one of them! You’ve got Equity Bank on your side.
Visit your local Equity Bank branch or contact us today to speak with one of our expert team members about your unique situation, and what Equity Bank can do to help you start tackling your student loans.