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6 Tips to Chip Away at Your Debt and Lower Student Loan Payments

Posted by MoneyKey on May 4, 2019
A student stressing over how to lower student loan payments

There’s an old adage that says, “you can’t put a price on a college education,” but if you’re swimming in debt, this saying likely doesn’t ring true. With one in five Americans carrying student loan debt, there’s a significant portion of the population that’s facing an uphill battle when it comes to paying off their debt within a reasonable timeframe. This can be even more difficult when you also need to worry about rent, utility bills, groceries, online loan payments, and more. But this doesn’t mean that there aren’t manageable ways to lower student loan payments if you know how to go about it.

So if you’re swimming in debt and looking for a bit of relief, we’ve gone and put together some tips that may help to lower student loan payments and ease some of the financial pressure you may be feeling.

Treat the loan like a mortgage

This option may not be feasible to everyone, particularly if you’re living paycheck to paycheck, but if you’re trying to lower student loan payments, you should try to make larger payments when you can in order to reduce the size of the principal balance more quickly. If this is something you can manage, it’s one of the best ways to start paying off student loans early. By chipping away at the principal, you’ll effectively shorten the duration of your loan and put a halt to the accumulation of interest earlier than expected. Let’s take a look at an example that can show you how to pay off student loans fast.

A person making a large payment to lower the student loan balance

You have a student loan of $20,000 with 7% interest which you have to pay off in a 10-year period. This would mean that you’re looking at a monthly payment of $232.22. If you can manage to pay $400 instead of the $232.22 that you’d have to pay over 10 years, you could pay off your loan in just under 5 years!

The earlier you determine how to pay off student loans, the earlier you can start putting your money towards larger investments like saving for a house, starting a college fund for your child, or putting money away for retirement.  

Start saving early with a part-time job in college

The giant shadow cast by the student debt waiting to be paid off after graduation would make any college student quiver, so why not get proactive? Finding a part-time job to provide some income during your college years is a great way to start building up your savings so that you can be more prepared to lower student loan payments right out of the gate.

For example, you get a part-time job that helps you to save $600 dollars every month. Over the course of the year, you’ll have saved $7,200 that you can use to start paying off student loans early!

Start a college repayment fund

Learning techniques on how to pay off student loans fast won’t help you if you can’t manage to keep your hands off the money you’ve been saving. If you can access this money with the swipe of your debit card, you may be in trouble.

Two students graduating without worrying about student loan repayment

The money you’ve been putting aside to start paying off student loans early should be put into an account that you don’t have easy access to. You should also set up this account to have money automatically transferred so you’re forced to keep up with your payments. It’ll also help you avoid the temptation of spending your extra savings on things like shopping trips or eating out. 

If you’re looking to start making contributions to a savings account to pay off and lower student loan payments, it’s best to open a new savings account specifically designated for this purpose. You’ll want to avoid combining your college debt money with other savings so you don’t inadvertently spend this money on something other than your loan payments. Look for a high yield savings account to house this money to maximize your savings.

Identify unnecessary spending

It can be difficult to keep up with the process of paying off student loans early when you don’t have a clear idea of what you’re spending your money on. If you want to make a realistic budget that you’ll actually be able to keep up with, you’ll need to go through all of your financial statements, receipts, and bills to gain more visibility into your spending.

After going through this exercise, you might be surprised at what you find. Maybe you’re spending more on your daily coffee habit than what it would cost to make lunch for the week, or what you spend on a Saturday night out could be used to pay your phone bill for the month. Whatever your vices are, you may find that with some adjustments to your spending habits, you’ll have more money left over to lower student loan payments than you initially thought you would.

If you’re looking for more ways to create savings to start paying off student loans early, take a look at these money saving tips to help you start saving each month.

You can’t lower student loan payments without a thorough budget

Make a budget to lower student loan payments

Once you have more visibility into your spending and have identified some problem areas, it’s time to put together a budget. Its general purpose is to stack up your monthly income against your necessary living expenses. You’ll need to include things like your utility bills, rent, your phone bill, internet, cable or streaming subscriptions, groceries, debt repayment, and more. If you’re trying to lower student loan payments, you’re going to want to make this a priority in your budget.

If you’re ready to make a budget but feel overwhelmed by the process, check out our ultimate budgeting guide to help you get started. You might also want to consider trying out some free personal finance apps to help you budget and manage your finances.

Use cash and credit strategically

Taking advantage of credit card rewards is a great way to add to your savings. There are plenty of credit cards with no or minimal annual fees that are great for students or new grads. For example, if you’re spending $1,000 every month on your credit card and you’re getting three percent cash back on all of those purchases, you’ll be getting $360 every year that you can use to start paying off student loans early.

But this strategy won’t work if you’re not able to pay off your credit card every month. Interests payments will start to accumulate, and you may end up in more debt than you were already in.

If this is the case for you, you may have more luck opting for the envelope budget technique. This basically involves putting cash in different envelopes designated to the different portions of your budget and sticking to this amount every week. While you may not be getting cashback for your purchases, having tangible cash in hand may help you avoid overspending, and any leftover money at the end of the month can be used to lower student loan payments.

Consider these tips to help lower student loan payments

Trying to figure out how to pay off student loans fast is no easy feat. You’ll need to budget carefully and make certain sacrifices to keep up with your debt repayment. But this doesn’t mean it’s impossible to lower student loan payments. Once you’ve taken a hard look at your finances and have a clear idea of how you’re spending your money, you can start to cut out unnecessary expenditures and make changes in your life to increase your savings! Get started with the strategies we’ve least listed and keep chipping away at that debt.

Have you used any strategies to lower student loan payments that weren’t listed above? Share below!

 

Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see MoneyKey's Terms of Use.

Posted in: Financial Tips

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