Are you a college graduate? Congrats on earning your degree! But now you may be among the 44.2 American borrowers who feel the weight of student loan debt on their shoulders and budget. The average student loan debt in 2016 was over $37,000, which Student Loan Hero reports is an increase of 6 percent from the year before. When money’s tight, paying the average monthly student loan payment of $351 can feel impossible.
The number may be overwhelming, but you can put a dent in your balance and pay it down fast if you take action now and make sacrifices. The following solutions can help you whittle down that debt, but it has to start with commitment:
Don’t Ignore It
That number is intimidating, maybe even painful, but it’s not going anywhere. It’s easy to put off payments or pay the minimum, while prioritizing other expenses (like that trip to Mexico—you only live once, right?). That debt doesn’t go away though, and poor financial decisions made now and payment procrastination can worsen debt down the road (see “understand interest below”).
Consider the consequences: You may default, damage your credit score, cause your interest rate to skyrocket, get charged with penalties and/or get sued. Plus, the sooner you pay it all off, the sooner you can enjoy a lifestyle free of debt and financial stress, yay!
Interest is the amount owed for borrowing the funds. Each month’s loan payment goes to interest first and then your principle balance. Interest increases though if you’re on a payment plan or have deferred payments, and an increase in your principle follows.
It’s important to make full payments to avoid loan default. If you pay less than what’s required, you’ll start to only pay the interest rate, or even interest on the interest, as your balance grows past what you initially took out.
- Try to make extra payments or pay above the minimum to reduce future interest
- Pay the interest every month at least or
- Check out a repayment plan that’s based on your income
Find Ways to Pay More
Now that you’ve prioritized your student loan debt and are ready to pay it down fast, look for opportunities to help increase your payments. You can stash away extra cash by readjusting your budget to designate more for loan payments or by exploring ways to earn extra money.
Entrepreneurial endeavors, like becoming an Amway business owner, and side gigs, like temp jobs or freelance work, can help you supplement your income. You can also take the steps at work to get a promotion/higher salary or raise. And although it’s exciting to get a hefty tax refund or bonus, (keep that commitment!) and put the lump sum toward your loans.
Consolidate or Refinance
Refinancing your loans is highly effective for paying down your balance faster. In fact, Zack Friedman, founder of a personal finance comparison site and Forbes contributor, says refinancing “is often the single best strategy to lower your student loan rate.”
Consolidate multiple student loans into one monthly payment or refinance one loan to lower your rates. The goal is to reduce your interest rates, which helps more of your payment go toward the actual loan. Friedman advises applying to multiple lenders and understanding eligibility requirements.
These are only a few solutions that can help you better manage your student loan debt. Other options to research include switching to a different repayment plan, loan forgiveness, lifestyle changes, making new goals and staying motivated with this new money mindset.