Although many people feel compulsory to take student loans during their education life, they are faced with payment problems in the following years. Moreover, the long term of student loans is another issue that people have problems. For this reason, many people are looking for solutions to pay student loans faster.
Considerations before to pay student loans faster
To pay student loans faster helps you spend money in areas you really care about. In addition, it is a great advantage when the debt of student loans completely while receiving high consistent loans such as mortgage loans. However, it is necessary to pay attention to some issues before asking to pay student loans faster. These issues are;
- Saving for hard times
First of all, to pay student loans faster means paying more per month. It is important that you have enough budget to make these payments. If you are willing to pay student loans faster, but you can invest all your money in these payments and you cannot allocate money for difficult situations, to pay student loans faster is not a good choice for you. However, if you can allocate some money while paying your student loans faster, to pay student loans faster is a good option.
- Privileges granted to federal student loans;
The government has recognized more flexible repayment schemes for federal student loans. The Department of Education has prepared eight different reimbursement plans for low-income individuals. To pay student loans faster may not be a good option if more flexible repayment plans meet your living standards. To pay student loans faster means paying more. For this reason, many people have had to change their living standards while to pay student loans faster. In addition, federal student loans are usually forgiven after 25 years (300 payments) have been paid.
- Use for investment purposes;
The other thing you should be aware of before to pay student loans faster is investments. You can use the extra amount you pay for student loans faster for investment purposes. If you encounter such a situation, you should make good use of the return on investment. If you earn, you may find the opportunity to pay student loans faster, but if you experience losses, you may have problems paying student loans as well as losing the chance to pay student loans faster. Even if you go bankrupt, you have to pay student loans.
Top things to do to pay student loans faster
Considering the aforementioned elements, if you still want to pay student loans faster, you can use many methods to pay student loans faster. But you have to decide which of these methods is right for you. You must act with your living standards and the situation you are in.
- Turn windfalls into extra payments;
One of the best methods you can do to pay student loans faster is to pay more. In particular, you must make these payments to the principal. However, the financial situation of many people is insufficient to pay more. Even so, overpaying even a few times will work and will allow you to pay student loans faster. This is because when you take student loans, you pay interest along with the principal. As the principal amount decreases, you save the interest you pay. If you use the amount of interest that you are no longer able to pay for repayment of the principal, you can save more.
For example; You have to pay 400 $ a month. 320 $ of this amount is the principal and 80 $ is the interest payment. To pay student loans faster, when you pay the principal extra, the monthly amount you have to pay will be reduced. If your principal payment drops to 300 $, the interest will drop to 75 $. You get a 25 $ profit. If you re-deposit these 25 $ to the principal, the principal amount is reduced again and the and the interest you pay is reduced.
- Split your payments in two;
Another way to pay student loans faster is to split your monthly payments in half. For example; your monthly payment is 400 $. You can pay monthly by paying 200 $ on the 15th and 200 $ on the 30th. According to SMART College Funding’s planner and founder’s statement on how to pay student loans faster, if you pay half of your monthly payments every two weeks, it sounds like you’ve paid 13 months. Assuming that you have a 10-year term student loan, you can get rid of 1 year principal and interest payment when you apply this transaction. This allows you to pay student loans faster.
- Sign up for auto-pay;
Signing up for direct debit does not directly help you pay student loans faster. But, some lenders may cut interest rates to sign up for direct debit. Usually this discount is 0.25%. In addition, if you are considering paying student loans faster to get a large amount of loans such as mortgage loans, you will not miss your monthly payments with automatic payment and your credit score will increase.
- Refinanced student loans;
If you have a fixed income and a good credit score, you can opt in to refinance for the purpose of pay student loans faster. With student loan refinancing, you finance all student loans with a loan from a private lender. The good thing is that the interest rate of refinanced student loans is lower. This makes the total amount you pay less. They also have less maturities than most federal student loans. However, if you refinance student loans, you will permanently lose all rights that you receive from having federal student loans. Please note that if you want to use this option to pay student loans faster, you will have to pay more monthly.
- Public service;
According to Nazari, a method you can choose to pay student loans faster is to work for non-profit projects. Some companies pay student loans for participating in non-profit projects. However, you must follow the rules and successfully complete the program according to your requirements.