Student loan debt continues to be a major problem in the United States. The national student loan debt toll stands at nearly $1.5 trillion. The average student loan debt for borrowers in the Class of 2017 was $28,288, up from $27,975 for borrowers in the Class of 2016.
These numbers aren’t just shocking — they have a real world impact on the graduates who carry this debt. High monthly payments and the prospect of years (or decades!) of repayment can prevent young adults from taking many crucial steps as they start out in the world. For example, many young college graduates aren’t able to move out on their own or purchase a car given the burden of their student loan debt. Some may even put off getting married or starting a family because their student loan debt is just too high.
For these reasons, many graduates have made a commitment to pay off their student loans as quickly as possible. This is a smart decision, as the interest on student loans can add up, and make it difficult to make a dent in the overall amount that you owe. Here are five ways that you can pay down your student loans if you currently are struggling with debt — and reduce your overall costs.
The Debt Avalanche Method
The debt avalanche method is a tried and true strategy for reducing debt, and one that experts say will result in paying the least amount of interest over time.
To use the debt avalanche method, start by listing out your student loan debts by the interest rate from highest to lowest. Then start devoting all of your extra money to the student loan with the highest interest rate, making it your highest priority debt. Keep working at paying down this loan, putting just the minimum towards your other loans as you do. Over time, you will pay off this loan. From there, you can devote the amount that you were paying on that first loan to the next high-interest loan on your list. Your ability to pay off your debts will then “avalanche,” allowing you to pay the next loan off with even more money.
This strategy is the one preferred by many financial gurus because it makes the most sense in terms of money saved. However, it does require patience, as it will take time to completely pay off your first debt and start the “avalanche.” Once you get to that point, you will quickly reap the benefits — and be grateful that you chose this method.
Making Half-Payments Every Two Weeks
If you aren’t ready to commit to the debt avalanche method, consider making your usual payments — but splitting them into two payments every month. While this may seem like a strange way of paying down your student loan debt, it does work to reduce your overall costs.
The secret is twofold. First, if you pay biweekly, you will make 13 full payments in a year (26 half payments), rather than 12 payments. Just by doing that, you are getting ahead of your student loan debt. Second, by making half-payments every two weeks, you are gaming the system in your favor. By making payments this way, you are reducing your loan principal every two weeks, which allows slightly less interest to accrue than if you only made one payment per month.
This could save you money in interest and shave time off your student loan repayment! Just make sure that your student loan payments are applied correctly, towards your balance instead of towards your next bill.
The only thing to watch out for with this option is making sure that you make both payments before the monthly due date. You should also make sure that you don’t mismanage your budget and overdraw your account by accident.
Student Loan Refinancing
Student loan refinancing offers a way to reduce your interest rate and overall cost over repayment — if you qualify. The way it works is simple. You apply for a new loan with a private lender to replace your existing loans. If you are successful, you are left with a new loan ideally at a lower and/or fixed interest rate. If you can get a lower rate, monthly payments should be reduced.
Refinancing can save you thousands of dollars, particularly if you currently have a high interest rate. However, it is only a good option for applicants who have the credentials to qualify for a low rate. In an application, lenders examine your payment history, credit score, and income to determine what your interest rate will be for the new loan. If you don’t have a strong credit score, you are better off waiting until you improve your finances to apply for refinancing.
Making Double Payments Every Month
Another option for anyone looking to pay off their student loans more quickly is to take whatever you are currently paying on your student loans — and double it. This option will help you pay off more principal (instead of most of your payment going towards interest), which will allow you to get out of debt more quickly.
However, the obvious drawback to this method is that it is only an option for those who have enough cash to do it. For many people, paying double is simply not an option, particularly if you are currently struggling to make your minimum payment. If you can cut out a few extras from your budget and work towards paying more on your student loans, it could help you be debt-free faster.
While getting out of student loan debt isn’t always easy, it is rewarding. These options are just four ways that you can explore as ways to pay down your debt and move forward with your life after graduation.
Andrew Rombach is with LendEDU