When you’re in college, you don’t worry about your student loans. However, as soon as you graduate and get your first statement. It gets real. One of your first questions is, How fast can I pay off my student loans?
I totally get it, I was there too. I knew college was going to be expensive and that when I graduated I had to pay back a lot of money. But it doesn’t hit you until after you graduate and you have to pay back thousands of dollars.
Student Loan Interest
As of February 2020, the total student loan debt in the United States is $1.56 trillion. On average, each person owes about $33,000 and the interest rate is 6%.
So, let’s say you owe $33,000 and the interest rate is 6%. Your monthly payment would be $366 and you would finish paying in 10 years. How does that sound?
Here’s the catch. Most people don’t realize how much money they pay in just interest. In the example above, you would pay a total of $10,964.40 in just interest. That means that you would pay back the $33,000 you originally borrowed plus $10,964.40. You would pay a total of $43,964.
Here’s where I say, hustle for yourself not the bank or the government (if you have private student loans). Instead of giving that $11,000 to the bank, give it to yourself.
don’t be like everyone else
I have friends and family that say, “My monthly payment is not that high so I’ll just keep paying that. Others say, “Well, we are always going to have debt so it doesn’t really bother me making that monthly payment”.
Here’s the problem with saying that. You are adjusting your mindset to always having debt and being okay with that. Please don’t fall into that trap. Don’t work hard for others and pay them in interest instead of yourself.
I understand that student loan debt is overwhelming, I’ve been there. But don’t settle. Don’t get into the mindset that you will always have debt. Because if you believe it, you will.
If you have student loans, calculate how much interest you would pay if you continue paying only the minimum balance or whatever payment you are currently making. You can calculate your total payment by going to this Student Loan Calculator.
Understanding how much money you will pay in interest puts everything into perspective.
student loan reality check
When I graduated from college, I had no idea what kind of loans I had, what the repayment plan was, or what my interest rate was. When I started making payments I got a 1098-E form in the mail. This form tells you how much money you paid in just interest that year.
I received a 1098-E form one year that said I had paid a total of $5,500 in interest. In one year, I paid $5,500. Your interest payments don’t reduce your principal balance (the amount of money you borrowed).
I panicked a little. I had no idea that was coming and unfortunately, most of us don’t. So after paying $5,500 in just interest, I made the decision to pay off my student loans fast, preferably ASAP.
how to pay off student loans fast
So how can you pay off your student loans fast? What is going to help you pay them sooner rather than later?
These are the three steps that will help you pay off your student loans fast:
Step 1 – Do not pay the statement balance.
The biggest mistake you can make when paying off your student loans is just making the minimum payment / statement balance. If you stick to the scheduled payment plan, it will cost you thousands and thousands of dollars in interest.
Don’t forget to calculate your total payment, including interest, using the Student Loan Calculator. This will tell you how you will actually pay at the end of your payment plan.
Don’t skip this step because this is what kicks your you know what into gear. If you don’t see it it’s not real.
When I started paying off my student loans, I never paid the minimum balance. I always paid more.
I finished paying my student loans in 6 years. I paid a total of about $50,000 which included how much I originally borrowed plus interest. On average, my monthly payment was about $700.
How did I afford to pay that much money each month? One thing that saved me a lot of money was living with my parents for a few years. If you can’t live with your parents, find roommates. You won’t live with them forever but you will live with them for the next few years.
I also did countless other things to reduce my spending and be able to afford a $700 payment each month. Here are 10 Ideas That Will Save You Thousands Each Year.
Step 2 – find a way to make more money.
I regret not doing this one. I honestly just didn’t even think about it. I was already working a 9-5 so I thought that was enough. I could have saved thousands of dollars in again, interest if I had paid my student loans sooner.
I encourage you to find ways to make extra money. Money that will ONLY go towards your student loan debt 🙂
Put in overtime at work. Get a weekend job. Nanny on weekends. Become a tutor. Do user testing.
There are many possibilities to make extra money on the internet. Do your research and take advantage of it.
Step 3 – negotiate your interest rate.
It’s possible you can negotiate your interest rate. If you have federal loans, you unfortunately, can’t do this.
But if you do not have federal loans. I encourage you to try it!
There are a lot of great resources that guide you through negotiating your interest rate. Here’s a great article from Nerd Wallet on how to reduce your interest rate.
I wasn’t able to negotiate my student loans because I had federal loans. I just focused on paying them off as quickly as possible. Just because you can’t reduce your interest rate, that doesn’t mean you can’t pay off your student loans fast.
Don’t get discouraged if you can’t reduce your interest rate. Keep moving and focus on what YOU CAN DO.
conclusion,
how to pay off student loans fast summary
- Do not pay the statement balance.
- Find a way to make more money.
- Negotiate your interest rate.
My advice and immediate next step recommendation is, figure out how much interest you would pay if you were to continue with your current payment plan. Nothing like a reality check to get you moving!
At the end of the day, it’s your decision and completely up to you. Just remember that the longer you have your student loans, the more interest you will pay.
Commit, hustle, and make the decision to pay off your student loans ASAP.
What’s driving you to quickly pay off your student loans?