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Paying off student loans quickly

Nov. 4, 2019, 4:28 a.m.   qualiacredit  

If you are a recent college graduate, the odds are pretty fair that you have some student loans. Taking out loans to get a degree may have been a good financial bet on your long-term financial health, but they can become an albatross around your neck.

Ideally, you want to get them paid off quickly so you can comfortably afford other things, like a home loan or even just a savings account. Here are a few ideas for doing that:

Set Up Automatic Payments. Late fees and extra interest charges just grow your debt. They also hurt your credit rating, which makes new debts more expensive.

One way to help make sure you don't run into either of those is to set up automatic payments. Some loan programs may even give you a break on interest for setting up automatic payments.

Change To Weekly Or Biweekly Payments If you get paid weekly or biweekly, you can set up more frequent, smaller loan payments. This can reduce the amount of interest accrued. If your payments are automatic, it's not more hassle than paying monthly.

Consider A Consolidation Loan If you have several loans at different interest rates, you may be able to consolidate your loans. Make sure you only do this if it brings your real interest rate down. Otherwise, you are just making things slightly less hassle for a higher real cost.

Pre-Pay High Interest Rate Loans First If you are fortunate to have cash to spare, look at the interest rate for each and every loan. Pay off the highest rate loan first. It will save you the most in interest.

Once that first loan is paid off, roll that payment into paying down other debts. Again, look at the interest rates and list them from highest to lowest. Pay off higher rate loans first.

Cut Expenses Of course, there are some tips and tricks for working the system. We've covered a few of those already.

But the reality is that you have to have the funds available to make extra payments. That generally involves either increasing your income or cutting expenses. For most people, cutting expenses is easier to achieve in the short term. Here are few things to consider:

  • Get a roommate or move back in with your parents.
  • Live without a car if you can reasonably arrange it.
  • Learn to cook so you can eat well for less.
  • Learn to make some of your own clothes or at least repair them.
  • Shop second-hand stores.
  • Clip coupons, shop sales and do without.

Get Creative Brain storm some ways you might be able to come up with a quick way to pay down debt quickly. Remember, don't judge the initial ideas. Just jot them down. People are more creative when they feel free to say anything that pops into their mind.

This will be specific to your personal circumstances, but here are a few ideas to help get the ball rolling:

  • Ask family and friends for cash for Christmas and birthdays. Put the entire amount towards your loans.
  • Have a yard sale or start an Ebay account to sell extra stuff you don't really need.
  • Start a side gig to make extra money for loan payments.

How To Use Windfalls It's common for people to suggest that you should use the entire amount of a windfall to pay off debt, but that's not really a best practice. Using the entire windfall to pay down debt without having any fun in the present or investing in the future helps foster a poverty mentality. It also creates a situation where you have a portfolio or debts, not a portfolio of investments.

A better practice is to use one third of a windfall for the past (paying off debt), one third for the present (splurging on something) and one third for the future (investing in something. Debt becomes a habit when it seems like it is the only way to get your needs met.

Debt also becomes a habit when the only two options in your mind are spend or borrow. If you want to put a stop to that, you have to also think in terms of saving and investing. Dealing with windfalls in a healthy manner is an important part of breaking that cycle.

Loan Forgiveness Many of the above ideas can be used to pay off any kind of debt. You should also be looking for programs specific to dealing with student loans, such as taking a job that offers loan forgiveness.

Remember that this, too, shall pass. Future you will thank you for paying it off.

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