Money on your mind?

There are so many stories about people who crushed astonishing student loan balances in incredibly short periods of time. While it’s always impressive, it can sometimes feel unattainable if you’re not making a hefty salary or you’re contending with other financial obligations. You may think, “Yeah, well if I made $120,000 a year then I too could put 40% of my salary towards student loans and be done paying them off in two years. But I don’t. So I can’t.”

Before you get all negative Nancy (sorry if your name is actually Nancy), here are three actionable things you can do to start paying off your student loan debt quickly that don’t require a crazy high salary, or for you to forgo other financial obligations.

LET’S START SIMPLE: PAY MORE THAN THE MINIMUM DUE

Your student loan servicer told you exactly how much you need to pay per month. Some of your monthly payment goes towards the principal balance due, but a lot of it also goes towards interest. The interest is one reason it can feel like it takes so long to pay off debt. You make that monthly payment but that principal balance just never seems to go down.

This is where paying more than the minimum due comes in.

Putting additional money towards your payment helps you dig out of debt faster because the extra money can be applied directly to the principal balance. It doesn’t even have to be a lot of additional money either. Start slow by rounding up your payment. For example, let’s say you owe $255 a month on your student loan. You’re going to round up to $260 or, even better, $300.

Paying more than the minimum due shaves both time and interest off your repayment journey. A true win-win.

One catch: you should reach out to your student loan servicer and tell them exactly where you want that extra money going. You don’t want it applied to future interest, you want it going to the principal balance of your loan. Otherwise, the lender will just default to its standard way of applying your extra payment to your outstanding balance. If you have multiple loans, then you can even identify which loan specifically you want to receive the surplus.

You do want to keep other financial goals in mind while you’re paying off debt, which is why tacking just a little bit extra to your payment enables you to get aggressive with your debt while also balancing in short, medium and long-term financial goals.

INTERMEDIATE: MAKE BI-WEEKLY PAYMENTS

You know when you’re on a bi-weekly payment schedule and then two times a year you get those delightful three paycheck months? Well, you can leverage the way the calendar shakes out to your advantage when paying off debt too.

Right now you’re paying $300 a month towards your debt. That’s 12 payments of $300 in the year. Simple. But instead, you’re going to split that $300 payment in half and every other week you’re going to put $150 towards your student loans. This ends up with you squeezing out an additional monthly payment each year so you’re making 13 payments instead of just 12.

Just be sure both installments of your bi-weekly payments hit your account before your bill is due. You don’t want to try using a clever hack and then accidentally end up late on a payment. Just like in the paying-more-than-the-minimum-due situation, you also want to make sure your lender applies any surplus payments to your principal balance.

Possible catch: Not all servicers allow you to make a bi-weekly payment. If yours doesn’t, then you can challenge yourself to just making an additional lump-sum payment of $150 twice a year when you get you those three paycheck months. And if you get paid monthly or you’re freelance, you can just challenge yourself to putting even a little more on each monthly payment.

BLACK BELT: REFINANCE THE DEBT

Finally, one of the most effective ways to pay off your student loan debt quickly is to reduce your interest rate by refinancing your student loans. Lowering your interest rate can save you hundreds to thousands of dollars and lots of time off your repayment process.

Refinancing sounds a bit odd as a concept. You take out a new loan to pay off an old one. Except the strategy here is that your new loan could be at a lower interest rate, which means more of your monthly payment can go towards the principal balance. It could also mean making a lower monthly payment if you aren’t trying to pay down your debt as aggressively and want to free up some cash flow for other financial goals.

Another perk of refinancing: it can help you consolidate all your loans together, so you’re making one simple payment. Plus, you can couple it with the other two strategies I mentioned and really do some debt slaying.

However, refinancing isn’t for everyone. You need to be gainfully employed, have a history of always making your student loan payments on time, a healthy credit score certainly doesn’t hurt. However, if you’re on an income-driven repayment plan because you struggle making your monthly payments, then refinancing may not be the best fit for you.

The catch: refinancing is only available as a private loan. If you’re refinancing a federal loan, then you’re turning it into a private loan and therefore are no longer eligible for any perks associated with the federal student loan program. That may mean no income-driven repayment plan, no forgiveness programs, no deferment or forbearance. Although some private refinancing loans offer forgiveness programs, deferments and forbearance programs. Ask the lenders your considering if they offer these benefits.

BONUS TIP: START MAKING PAYMENTS EARLY!  

If you’re reading this while you’re still in college or currently in a grace period on your loans, then you have a great opportunity to reduce the overall balance of your student loan debt by making payments now. The longer you wait to start making payments, the longer interest has to be accruing. Once the interest capitalizes (fancy word for getting added to the principal balance of your loan), you’ve just increased how long and how much money it’s going to cost you.

You might be worried that if you start making payments in college, it will somehow awaken the beast and mean you have to keep making those payments each month. Generally, that’s not the case. You can always confirm with your loan provider, but normally your repayment period will not begin until after you’ve graduated or left college. Making payments early doesn’t trigger some sort of repayment monster. You could even just make one lump sum payment a year.

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