Credit card debts and personal loans can both be annoying. However, in most cases you should be able to get either one of these paid off within a reasonable amount of time and without having to sacrifice much. For example, let’s suppose you owe $800 on a credit card at 15%. If you paid just $150 a month on that card you’d be debt-free in six months. Of course, this assumes you don’t use the card to make any purchases during those six months.
The really annoying debt
But then there’s that so very annoying student loan debt. No matter where you went to college you probably came away from school with a lot of good memories and a useful degree – but also with an annoying pile of student loan debts that you now must repay. According to the USNews.com, Project on Student Debt reported that approximately 69% of those that graduated in 2013 had loans that averaged $28,400. And that of those that graduated with debt approximately 19% had used private lenders to fund their schooling.
What makes student loan debt particularly annoying is that it’s not easy to get rid of them. In fact, according to one report it takes the average person with a bachelor’s degree an incredible 21 years to reduce their student loan balances to zero.
The good news is that you could get that annoying debt paid off fast and here’s how.
Make more than your minimum payments
Student loans are like credit card debts in that they have minimum monthly payments. But that doesn’t mean you can’t pay more than what’s required. If you do this, you can shorten the length of your loan considerably. Here’s an example. Let’s suppose you owe $30,000 on your student loan and your start date was September of this year. Your interest rate is 6% and you have 10 years to repay your loan. If you make your minimum monthly payments on time you’ll pay $333 a month through September 2025. However, if you up that monthly payment by $100 you would pay off your loan by November 2020 or five years earlier. That’s just $100 more a month to get that loan paid off five years faster.
Use “extra” money to make a lump sum payment
Sometimes extra money will just come your way unexpectedly. It could be in the form of a small inheritance or a bonus. The natural thing would be to use it for something fun or gratifying like a trip to Mexico or a new car. However, you could make a serious dent in your student loan debt if you resist that initial impulse to splurge and make a lump sum payment on it. Going back to our example of $30,000 in debt let’s say you get a $5000 bonus one year after your loan’s start date. If you put it all towards your student loan debt you would knock two years off your repayment schedule. While that might not be as much fun as a trip to Mexico it will feel like a lot of fun when you’re debt free two years faster.
Budget as if you were still in college
When you were in school there were probably days when you lived on Ramen noodles. You don’t need to go back to doing that but now that you’ve graduated and are in the working world you could make it your goal to budget as if you were still in college. For example, just pretend you can’t afford things like a new car, a better smart phone or a larger apartment. Budget to live frugally and put the money you save towards making bigger payments on your student loan. As you read earlier in this article just $100 extra a month – which certainly wouldn’t require living like a monk – would get you out of debt five years faster.
Live at home with your parents
The best way by far to pay down your student loans is to commit as much of your income as possible to paying them off. And what would be a better way to increase your disposable income than by living with your family rent-free? According to the study done by PewSocialTrends.org, only 67% of Millennials lived independently – a decline from the 69% with the same living arrangements in 2010. Of course, there is a downside to living with your parents. It’s that you’d be back under your parents’ roof just when you had come to treasure your freedom. But the good part is that if you subtract rent, utilities, Internet bills and food out of the equation you would have a lot more extra income you could use to pay down your debt rapidly.
Got private loans? Pay them off first
Did you fund your education using a combination of federal and private loans? Then your best option would be to first pay off the private ones. The one exception to this is if you were able to snag a fixed rate for the life of a private loan that’s lower than that of the federal rate. However, majority of private loans have higher interest rates and less flexibility than their federal counterparts. So, the faster you pay them off, the more money you’ll save in interest.
Change to a different repayment plan
If you had a federal loan you probably have the standard repayment plan with a 10-year term. There are a number of different federal loan repayment plans including one called Graduated Repayment. When you’re fresh out of school and not earning much you could choose to switch to this program. It’s called graduated repayment because your payments start low then gradually increase every two years. And in three or four years when your salary has increased substantially you could then make those extra payments we mentioned earlier in this article.
Here’s a short video that might interest you as it explains the various federal loan repayment programs.
It can cause problems with your brain, too
Struggling to repay student loans can wreak havoc on not just your finances but also your brain. There can be times when you wonder why in the world you took on so much debt. You might even feel like packing up, faking your own death and living off the grid indefinitely to break free from a life dominated by your college loans. Don’t despair. Keep telling yourself that repaying student loans is kind of like running a marathon. It will take persistence, dedication and stamina. However, if you train your mind to stay the course and keep your wallet on a lean diet you could actually get rid of that world’s most annoying debt fast.