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Twelve years ago, my $46,000 student loan debt seemed impossible to pay off. Even now, after making regular payments and a little extra occasionally, I still owe around $30,000. That’s after paying more than $30,000, most of that amount going to interest, over the last decade.
I share my embarrassing story, the result of many poor financial decisions, as an example of how significantly even a low interest rate of 6 percent can increase a debt. There’s no time to spiral into debt shame, though. I’ve decided to get rid of this albatross around my neck and pay it off within the next three years.
If you have a student loan debt that seems insurmountable, and you’re making only the required monthly payment, you’ll be paying a lot of money for a long, long time. The good news is, it doesn’t have to be that way.
Here are 7 tips for getting rid of your student loan debt ahead of schedule.
If I make the required payments, my loan will be paid off in about eight years, after I pay thousands of dollars more in interest. That’s why I’m aiming to knock this loan out in three years, no matter how difficult that may be. Set a goal for your own loan payoff date, and you’ll be motivated to pay it down faster.
Ask your loan servicer about getting a lower interest rate. For additional information on refinancing options, see Debt.com’s student loan refinancing page and refinance tool.
Contact your student loan service provider to understand exactly how payments are applied. Generally, any amount you pay over the required payment goes directly toward the principal but it never hurts to make sure. If you have more than one loan, target payments toward a higher-interest loan to pay it off faster. Or, you may find it motivating to eliminate a smaller loan first. Either way, keep making interest payments on the other loan(s) so those balances don’t increase.
No matter how tight money is, keep making payments and skip the forbearance route. With a forbearance, your loan servicer allows you to miss payments but interest continues to accrue. I put my consolidated loans into forbearance off and on for years before I started paying regularly. That’s why my loan balance shot up from $35,000 to $46,000.
To make progress, you’ll have to adjust your spending. For example, I’m choosing to pay $1,000 that I would rather spend for a vacation this year on my student loan. I’ll prepare a lot of rice and noodle dishes at home to save on groceries. I’ve cut cable TV and will keep my paid-off car. Here are a few more suggestions to free up money.
Keep track in a spreadsheet or notebook of each payment, the principal amount before and after payments and how much went toward interest. Record the new balance after every payment. This will help you see how effectively your payments are lowering the principal balance.
If you don’t believe it’s possible to pay off your student loan debt, you’ll make excuses and rationalize that everyone’s got student loan debt. Then in ten years, you’ll still owe a ton of money. So, set a payoff date goal and promise yourself that even when you run into challenges, you’ll figure out how to keep chipping away at your student loan debt until it’s finally gone.
Then you can graduate to a financial future focused on saving money instead of fretting about debt.
Published by Debt.com, LLC Mobile users may also access the AMP Version: 7 Tips for Getting Out of Student Loan Debt Faster - AMP.