Planning and Financing
Here are some tips to help you pay your student loans faster. Any of these options will take a little bit of sacrifice and a lot of diligence:
1. Stick with standard repayment
While it may be tempting to enroll in a plan where you pay as little as possible each month, it is preferable to pay more per month. This will save you a lot of money in the long run.
Example: You owe $30,000 in student loans with an average interest of 5%. To pay this off in 10 years, will cost you $319 a month. All in all you pay $8,200 in interest in over the 10 years.
Now if you extend the repayment term to 20 years, your monthly payment will go down to about $198. Your total interest costs are estimated to be higher than $17,500. That is $9,300 that could have gone into your pocket simply by sticking with the standard 10 year term.
2. Pay more than the minimum
Now that you are convinced that you should stick with standard repayment, just think about how much more you could save by putting a little more each month towards your monthly payment.
3. Cut every day expenses
So where will the extra money come from if you will be paying more towards your student loan payments? Well, you can cut some everyday expenses. Do you drink coffee everyday? Do you eat out all the time? Start spending more time at the grocery store and start making little changes to make you save hundreds.
4. Pay every two weeks
Another popular extra payment strategy for student loans is to make a student loan payment every two weeks. Now, you don't need to pay double the amount of your monthly payment to make this work. Instead, here is the strategy:
1. Split your monthly payment in half.
2. Make a payment of that amount every two weeks.
By doing this, you'll make a full extra payment over the year.
5. Take full advantage of tax deductions and credits
If you are paying off student loans, you are likely eligible for the student loan interest reduction on your federal taxes. You may deduct up to $2,500 on your taxes each year for the interest you pay on student loans. Tax credits can be even more valuable than tax deductions. In general, a $2,500 tax credit will save you more money than a $2,500 deduction will. You may be eligible for tax credits if you're currently paying tuition, including while you are in grad school.
Once your college loans are paid, the benefits proliferate! The money you make now is free to be invested and applied to other things such as buying a home, paying off your car, or saving for retirement.
Consolidating student loans
What is a good credit score?