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Living with student loan debt can be stressful. This strains your budget and can prevent you from achieving your financial goals, such as buying a home or saving for retirement. But it is possible to repay your student loans rapidly.
The sooner you pay off your student loan, the less interest you will pay over the life of the loan. And removing student loan stress from your life can also improve your mental health.
Refinancing is an option to pay off student loan debt faster. Visit Credible for learn more about refinancing student loans and compare rates from several private student lenders.
5 ways to pay off student loans faster
If you have student debt, you don’t have to spend decades paying it off. With the right strategies in place, you can repay your student loans much faster — even before the end of your repayment period. Here are five ways to pay off your student loans fast.
1. Pay more than the minimum each month
You’re going to have to make more than the minimum payment each month if you want to quickly pay off your debt. If you don’t have a lot of extra money to spend on your debt, don’t worry, even an extra $50-100 a month will help you get ahead.
You can also start making bi-weekly payments instead of monthly payments. With bi-weekly payments, you will repay your loan every two weeks. You won’t feel like you’re paying extra, but this strategy means you’ll end up making one extra payment per year.
It’s a good idea to automate your monthly payments so that your lender automatically deducts your payments from your account. Not only does this ensure that your student loan payments are made on time, but many loan officers offer an interest rate discount for automated payments.
2. Repay capitalized interest
Capitalized interest occurs when unpaid interest is added to the principal of your student loan. This increases your overall student loan balance, which means you’ll pay even more interest in the future.
Capitalized interest usually occurs during loan forbearance or during your grace period after you graduate from college. Repaying this capitalized interest can reduce your overall loan amount and allow you to pay off the debt more quickly.
3. Avoid extending your repayment period
If you have federal student loans, one of the benefits of enrolling in an income-driven repayment plan is that it helps make your monthly payments more affordable. IDR plans extend the time to fully repay your loans. If you request a deferral or forbearance, this will extend your refund window even further.
But it also means you’ll end up paying your loans for longer. If your goal is to pay off your loans as quickly as possible, you may want to avoid making payments under an IDR plan.
4. Consider refinancing
When you refinance, you replace your current loans with a new private loan with different rates and terms. Refinancing can help you repay your student loans faster by lowering your interest rate or shortening your repayment period. To qualify for refinancing, you’ll need a good credit rating, stable income, and a low debt-to-equity ratio.
You can refinance federal loans, private loans, or a combination of the two into a new private loan. But keep in mind that if you refinance your federal student loans into a private student loan, you will lose federal benefits, such as loan deferral and loan forgiveness.
If your goal is to pay off your student debt faster, be careful not to extend your repayment term. Refinancing over a longer repayment term will give you a smaller payment amount, but it will increase your total interest costs and the time it takes to repay your loans.
Credible, it’s easy to compare student loan refinance rates from multiple lenders without affecting your credit score.
5. Get help paying off your student loans
You may be able to access other resources to help pay off student debt faster. For example, ask your employer if they offer benefits for student loan repayment. Some plans offer employees up to $5,250 per year in student loan repayment, but it depends on the employer.
Certain professions may even be eligible for loan forgiveness. For example, the Civil Service Loan Cancellation Program is available to federal student borrowers working full-time for a qualified government or nonprofit organization. After you make 120 qualifying payments under an income-based repayment plan, your remaining loan balance will be forgiven.
And you may qualify for student loan discharge if you are totally and permanently disabled. To be eligible for a total and permanent disability leaveyou will need to complete an application and provide the necessary documentation.
Reasons why prepaying student loans is a good idea
Paying off your student loans earlier than expected has a number of benefits, including:
- Reduce stress – Studies have shown that student debt can lead to long-term stress and mental health issues. Borrowers may wonder if the cost of their degree was worth it. Paying off your student loans quickly will reduce this stress and free up space in your budget.
- Pay less interest — The longer you carry student loan debt, the more interest will continue to accrue. Paying off your loan before the end of your repayment period can save you quite a bit of money in interest.
- Improve your debt-to-income ratio — Getting rid of your student loan debt will improve your debt-to-income ratio. This is the percentage of your monthly income that goes towards paying off debt and is a major consideration for things like buying a home.
- Achieve other financial goals — While paying off student debt, many borrowers are forced to delay important life milestones, such as buying a home or starting a family. By paying off your student loans sooner, you can pursue other financial goals.
To start refinancing your student loans, visit Credible and compare prequalified rates from several lenders.