Aggressively paying off your student loans is a great way to minimize the amount you spend on interest over the life of the loan. By aggressively paying off your loan you spend less and achieve debt freedom faster.
Even though aggressively paying off your student loans seems incredibly expensive or like a huge commitment, there are many ways meet your goals. The trick is finding the aggressive strategies that you can stick with month after month.
Here are some of the tactics that can be used to aggressively pay off your loans:
Pick one loan to attack. Most people have more than one student loan. If you want your aggressive payments to go the furthest, single out one of your student loans. Most people pick the loan with the highest interest rate or the lowest balance. With every other student loan, you pay the minimum. For the remaining student loan, you attack. By focusing your extra funds on one loan it can be completely eliminated much faster. This means one less bill each month and more money to attack the extra loans. As time passes, the loans should get progressively easier to pay off.
Make a budget. If you have never sat down to make a budget, it sounds like a pointless exercise. You may think you know how you spend your money and you may think you have it figured out, but you never really know until you sit down and make a budget. The process can shed light on areas of unnecessary spending and help you focus more on your priorities.
Pay what you can, when you can. Lenders charge interest on student loans on a daily basis. If your bill is not due for two weeks but you have the money now, pay now. Doing this saves you a little bit in interest costs each month.
Earn more, spend less. This concept is a pretty obvious one, but it should never go overlooked. Often people focus on earning more or spending less. Smart budgeting is about doing both. Always be on the lookout for ways to earn a few extra bucks, but never forget that spending less money is just as good as earning more.
Get lower interest rates. This is the silver bullet. Lower interest rates means more money to pay down the principal balance of your loan. If you haven’t done anything with your loans since the time you took them out, odds are pretty good that you can find lower interest rates now. As a college student you likely had no degree, a limited credit history and little to no income. As a college grad with a job and a credit history, you are far less of a risk to lenders. Taking advantage of your improved finances can help you achieve your goals much sooner. Best of all, there are a number of companies offering refinancing and consolidation services, so it is a good time to be in the market. Just be careful when it comes to refinancing federal loans.
Remember that the monthly bill is the minimum payment. Far too often people fall into the mistake of thinking that the number on their bill is the exact amount they must pay each month. It is better to treat it is a minimum payment. As long as there are no pre-payment penalties (and these are very rare), you can always pay extra on your student loans. If you are on a payment plan that won’t have your loans paid off for 10 years, you don’t have to drag it out that long. If you can pay it off in five, pay it off in five.
There is no magic wand. College is expensive and paying off student loans is hard. Things will not change overnight. The key is to use the resources at your disposal to put together a long-term plan that you can stick with. Getting rid of student debt is a marathon not a sprint. Having a super tight budget for two months is great, but keeping a reasonable budget for two years is far more effective. With each passing month you can get yourself closer to student debt freedom.