Editor’s Note: This article was originally published on April 19th, 2018. It has been modified to include updated links to the resources provided.
Having a massive salary and making huge payments towards student loans is a great way to eliminate debt. Same for refinancing at a lower interest rate. The notion of a “side hustle” or living with parents to save on rent has also thoroughly been covered.
Today we will look at a few strategies that aren’t necessarily obvious but can make a massive difference in student loan repayment.
Don’t Wait Until April To Use Your Refund Towards Student Loans
Some people get a fairly large tax refund each year. The responsible ones use that cash to pay down their student loans.
While this is a great approach, there is an even better way… change your withholding. For many, that means a quick chat with HR to change the amount that gets withheld. The extra money that shows up in your weekly paycheck can then be applied towards student loans.
Rather than paying a big chunk towards student debt at the end of the year, extra payments throughout the year will go further because it will result in less interest accumulation over the course of the year.
The goal of tax withholding isn’t to generate a huge refund each year. The goal is to pay exactly what is necessary so that you don’t owe anything at tax time. There isn’t much to gain by having the government hold on to some of your money all year long. Get that money sooner, and use it to pay down debt sooner.
Put another way: if you are getting a huge refund every year, it means you are providing the federal government with a large interest-free loan. Keep that money for yourself and put it to work, knocking out student debt.
Find Cheap Friends
This might sound silly, but your friends dictate your lifestyle in many ways. Frequently visiting expensive bars or trendy restaurants can put a huge dent in any budget.
Finding friends who prefer staying in to watch a movie instead of the theater can make a difference. If your friends value inexpensive entertainment, you will save a bundle in the long run.
Those who have friends who like to spend often end up paying more. One recent survey found that nearly 40% of millennials overspend to keep up with their friends.
Use Credit Card Rewards to Pay Down Debt
A Cash Back Credit Card can be a huge asset to any borrower paying down student loans. Many of these cards pay consumers 1.5% or 2%.
Rather than getting an account credit or buying a gift card, that money can be deposited directly into your personal account and then forwarded to your student loan lender.
The cool thing about this approach is that it costs nothing, and every transaction helps pay down debt. Saving money is the best way, but for spending that cannot be avoided, credit card rewards can help eliminate student loans.
Don’t Take a Raise
Lifestyle inflation is a real problem. If your company pays you more, there is a temptation to buy more things or more expensive things.
If you are getting by on your current salary, a raise isn’t an absolute necessity. Any additional income earned through a raise or a bonus can be applied directly towards student loans.
The nice part about this approach is that if you never get adjusted to having the extra money each month, you will never miss it.
By the time the student loans have all been paid off, you will be treated to a well-deserved massive raise and a debt-free lifestyle.
Starting good habits and tweaking things in your favor add up. No single change will make your student loans disappear, but by stacking a few of them together, you can make a noticeable difference in your debt and your life.