Student loan debt can feel like an anchor around your financial future. The payments seem endless, the interest compounds, and the whole situation can be overwhelming. If you’re in this position, know that you’re not alone, and more importantly, there are ways out. By using the right strategies, you can accelerate the repayment process and take control of your financial life.
Here are 5 strategies to get out of student loan debt faster, so you can start building the future you’ve always dreamed of—free from that looming student loan burden.
1. Refinance Your Loans to Lower Your Interest Rates
One of the quickest ways to reduce the amount you’ll pay over the life of your student loans is to refinance your loans. Refinancing essentially means taking out a new loan to pay off your existing student loans, ideally with a lower interest rate. This will lower your monthly payments and the total interest you’ll pay over time, which means you can pay off the principal more quickly.
Here’s how to determine if refinancing is right for you:
- Good Credit Score: If your credit score is in a good range (typically above 650), refinancing can help you qualify for a lower interest rate. The better your credit score, the lower your rate.
- Stable Income: You should have a steady job with a reliable income to be eligible for refinancing. Lenders like to see that you can handle debt repayment responsibly.
- Federal Loan Considerations: If you have federal student loans, refinancing will convert them into private loans. This means you’ll lose out on some protections that federal loans offer, like income-driven repayment plans or loan forgiveness. So, before refinancing, weigh the pros and cons.
To get started with refinancing, shop around and compare rates from different lenders. Some popular refinancing options include SoFi, LendKey, and Earnest. Remember to run the numbers to see how much you’ll save with the lower rate, and if it will help you pay off your loans more quickly.
2. Use the Debt Snowball or Debt Avalanche Method
When you’re trying to tackle multiple loans, it can be hard to know where to start. Two popular methods to attack your student loan debt are the debt snowball method and the debt avalanche method. Both are effective, but which one you choose depends on your personality and your goals.
Debt Snowball Method:
- With the snowball method, you focus on paying off your smallest loans first, regardless of interest rates.
- Once a loan is paid off, you take that payment and roll it over to the next smallest loan. This method creates a sense of momentum and accomplishment as you pay off each loan.
- Psychological Advantage: This approach is great for people who need the emotional boost of seeing loans disappear quickly.
Debt Avalanche Method:
- In contrast, the avalanche method has you focus on the loans with the highest interest rates first.
- After paying off the high-interest loans, you then move on to those with lower rates. This method saves you the most money in the long run, as you’re tackling the most expensive loans first.
- Financial Advantage: If you want to save money and pay off your loans more efficiently, this is the way to go.
Both methods are effective, but the key is to stick with the plan and keep applying all extra money towards your loans.
3. Increase Your Monthly Payments (Even by Just a Little)
If you’re used to paying the minimum on your loans, it may seem like an impossible task to pay more. But increasing your monthly payment by even a small amount can have a huge impact on how quickly you pay off your debt.
Here’s why:
- More Goes Toward Principal: When you make larger payments, more money goes directly toward paying down the principal balance, rather than just covering the interest. This means your overall loan balance decreases faster.
- Example: Let’s say you have a $25,000 loan at 5% interest. If you pay only the minimum payment, it could take 10 years to pay off. However, by increasing your payment by just $50-100 per month, you could shave off several years from your loan term.
- Automatic Payments: Many lenders offer an incentive (usually 0.25% off your interest rate) if you set up automatic payments. This small reduction in interest can add up over time, especially if you continue to make additional payments.
To increase your payments, look for areas in your budget where you can cut back. For example, if you cancel a subscription you don’t use or cut down on eating out, you might find you can free up a few hundred dollars to put toward your loans.
4. Take Advantage of Loan Forgiveness Programs (If Eligible)
If you work in certain public service or non-profit jobs, you may be eligible for loan forgiveness. Programs like the Public Service Loan Forgiveness (PSLF) program offer substantial relief for those who commit to working in government, non-profits, or certain other eligible fields.
Here’s how to maximize your chances for loan forgiveness:
- PSLF Eligibility: In order to qualify for PSLF, you must make 120 qualifying monthly payments under a qualifying repayment plan while working full-time for an eligible employer. After those payments, the remaining balance on your Direct Loans will be forgiven.
- Income-Driven Repayment Plans: To take advantage of PSLF, you must be enrolled in an income-driven repayment (IDR) plan, which sets your payments at a percentage of your income. While payments under an IDR plan can be lower, they also allow for forgiveness after 20 or 25 years of qualifying payments.
- Tracking Your Payments: Make sure you’re keeping track of your qualifying payments, and consider submitting an Employment Certification Form annually to ensure you’re on track.
Even if you’re not working in public service, there are other forgiveness options available, such as teacher loan forgiveness and Nurse Corps Loan Repayment Program, so always check for what you might be eligible for.
5. Earn Extra Money to Pay Down Your Debt Faster
While reducing your monthly payments and refinancing are key, sometimes the best way to get out of student loan debt faster is by earning more money. The good news is that earning extra money doesn’t have to be complicated.
Here are some options to consider:
- Freelance: Freelance work in areas like writing, graphic design, or web development can provide a steady income stream. Websites like Upwork and Fiverr are excellent platforms to find clients.
- Gig Economy: If you need a more flexible schedule, consider side jobs like driving for Uber or Lyft, delivering food for DoorDash, or running errands through TaskRabbit.
- Sell Unused Items: If you have furniture, electronics, or clothes you no longer use, sell them on platforms like eBay, Facebook Marketplace, or Poshmark.
- Start a Blog or Online Business: With little investment, you can start a blog or an online store to sell products or services. Affiliate marketing is also a great way to earn passive income while sharing products you love.
The road to getting out of student loan debt faster isn’t easy, but it’s definitely possible with the right strategies. By refinancing your loans, using debt repayment methods like the snowball or avalanche strategies, and increasing your monthly payments, you can make substantial progress. If you’re eligible, taking advantage of loan forgiveness programs can be a huge benefit, and earning extra money can help you pay off your loans even quicker.
Remember, the key is persistence. The more consistent you are in applying these strategies, the quicker you’ll be able to enjoy life without the weight of student loan debt hanging over you. And that’s the kind of freedom everyone deserves.