You graduate from college with a luggage full of big dreams, big goals, and a bright outlook on where your next steps in life will take you.
“Career success is just over the horizon!”
However, something is holding you back. Also, no prizes for guessing what that might be – it’s student loan debt.
The burden of student loan debt isn’t something you’re facing alone, in any case. In the U.S. alone, the average student graduates with $28,500 worth of debt!
Student loans were the second-highest source of consumer debt for this year’s Q1, falling just behind mortgage loans.
If you’re only just beginning to find your roots in the working world, the monthly repayments are very likely eating off a considerable portion of your fresh-grad earnings. Moreover, while there may be vast amounts of advice online on how to get out of student loan debt fast, the majority of it all boils down to the same thing – scrimp and save.
Sounds boring? I know. However, frugality is essential in your journey to becoming debt-free.
Budgeting can only get you so far. What if there isn’t even enough to save in the first place?
This comprehensive guide is constructed to help you get out of student loan debt fast through 5 main areas:
(told you this isn’t your typical “get out of debt fast” article!)
Why does it matter that I pay off my student loan debt fast?
Granted, you could pay the minimum monthly repayment. You could pay it off at your own pace. However, you should only do so if there are more pressing debts at hand.
Credit card bills for one, come with exorbitant interest rates much higher than the average interest rates for student loan debts. So your next dollars should be going towards those first.
Otherwise, the reasons why you should be paying off your student loans ASAP are pretty self-explanatory. We lay them out for you below:
• In the long run, you’ll be saving more money from the interest saved
• Lowers your debt-to-income ratio
• The money freed up could otherwise be invested back into your career
• You’ll be better prepared for more incoming debts! (house, wedding, children, and many others)
Now that you’re convinced, let’s get into the step-by-step of how to get you out of student loan debt fast!
Think outside the “Budget Box”
There’s more to being debt-free than just saving money. Guess what comes before strategy and hard work? Mindset.
First off, know that your student loans are not a form of “good debt” as many like to put it. By doing so, you won’t hold yourself accountable to make the repayments timely. Melanie Lockert from Dear Debt explains how she was using this term to rationalize her $81,000 debt subconsciously.
Give yourself some sense of urgency. Start treating it like a crisis, not an option.
One right way to do this is to count your debt in days. This is the formula:
(Loan balance x Interest rate P.A) / 365 days
To illustrate, say these are your current student loan details:
Outstanding loan balance: $35,000
Interest rate P.A: 6.8%
That means, your student loan debt would be costing you about $6.50 per day!
($35,000 x 6.8%) / 365 days = $6.50 per day
The “it only costs a cup of coffee per day!” sales tactic is the oldest one in the book, but it works. When putting this way, cutting back $6.50 a day in return for getting rid of student debt seems more than feasible.
Speaking of cutting back on spending, these are the first two methods to implement in your journey to paying off your student loan debts fast.
a) Create (and stick to) a monthly savings planner
A business plan helps to provide a clear-cut vision for the business. Similarly, a monthly savings planner acts as the framework for your plan of attack towards paying off your debts.
Creating one is simple, think of it as your Personal Profit and Loss Sheet, just with more emphasis on outstanding loans, savings, and with a clearly defined financial goal in mind.
This is how to get about doing it:
• Note down your net income from all income streams, including any interest earned from investments.
• Categorize your expenses into variable expenses (rent, loans) and fixed costs (food, utilities)
• Commit a fixed amount to save every month
• Set yourself a financial goal (pay off student loans by 2022)
Alternatively, you can download the HUSTLR Monthly Savings Planner and get started today.
By being able to see the entire picture through your monthly savings plan, it then becomes a lot easier to identify areas where your spending can be tweaked to make for more allowances towards your monthly loan repayments and savings instead.
b) Utilize the debt avalanche or debt snowball method
Your student loans might not come from a single source, but a mix of federal, private, and perhaps family members. Which do you pay off first?
Necessarily, the debt avalanche and debt snowball are two methods devised by financial guru Dave Ramsey to aid in tackling personal debt. Here’s a rough overview.
• The Debt Avalanche Method
Interest is the enemy. Alternatively, at least that’s the concept behind the debt avalanche method.
With this method, your loans are ordered by interest rate. That is, highest to lowest. Debts are paid off, starting from the loan with the highest interest.
This method saves more money in the long run through interest saved but is less motivating as results can’t be seen instantly.
• The Debt Snowball Method
Motivation is vital for the snowball method to work. With this, your loans will be placed in order according to debt balance from the smallest to biggest.
Debts are paid off beginning from the smallest loan. Once that’s paid off, extra cash then goes towards paying off the second-largest debt and so on.
As you can tell, the snowball method gives you more sense of accomplishment. That sense of accomplishment after paying off that first loan will make you more motivated to continue paying off the rest of the loans!
This downloadable template can be edited to either the avalanche or snowball method!
• Identify areas to scale back your spending
Even though we admit that saving will only go so far, we can’t deny that thriftiness certainly goes a long way in helping you get out of debt fast.
So before you even think of getting into the “earnings” portion below, make sure your spending habits are in line with your current financial situation. That means no fancy brunches and food deliveries to your door every week if you’re $40,000 in debt!
Here are a few tips to help you stay thrifty:
• Cut down on credit
Treat it like your debit card!
• Go through that monthly saving planner you just made
See if there are any “vampire” subscriptions you don’t need. We explain what that is in our guide on budgeting tips
• Consider setting up a forced savings plan
The key takeaway? Brush your ego aside. If you’re earning an annual income of $70,000 but owe $40,000 in student loans – don’t live like you’re making $70,000 annually. Live like you are $40,000 in debt!
• Automatically deduct your monthly repayments
If you haven’t already, consider having your monthly repayments automatically deducted via direct debit. Your lender may also call it auto-debit or electronic debit, but they’re mostly the same thing – automatic deduction of your loan repayments every month.
Depending on your lender, you might even be able to customize the collection date and frequency to coincide with your payday. If you can afford it, direct debit works great by essentially forcing you to pay off your student loan debt as soon as your pay comes in. The risk of forgetting and making late payments will be eliminated as well.
As a bonus, many lenders might even provide specific incentives for debtors who choose to pay via this method.
One good example? Federal Direct Loans usually provide a 0.25% deduction off interest rates for direct debit users!
It’s easy enough to say “live more frugally!” or “just pay more!”
However, here’s the thing – that alone won’t be enough to help you break up with your student loan debt. Because as is with most cases, there isn’t enough income. Your hard-earned dollars have other places to go than just your debts.
This is where you can either:
• Generate new income streams
• Enhance your current income stream
New income streams could come in the form of a second part-time job, investments, or a side hustle! We’re all about the side hustles here at HUSTLR (can you tell?).
If you believe in your side hustle, are good at it and are willing to put yourself out there fearlessly, your side hustle might even blossom into something you can do full-time!
Here are some of our favorite guides on side hustles you can do:
Also, if you’re relying on a single source of income, perhaps a raise might be due? However, don’t get too worked up over how to go about negotiating your salary – we’ve got you covered there as well.
You might also want to consider refinancing your student loans, but whether this will be beneficial to you or not depends on your situation.
Got consistent income flowing in, and a decent credit score to back it up?
Contact your lender to see if you meet their specific requirements, and compare the new offered rate with what you’re currently paying.
To pay off your loans fast; what you want to do is refinance to a shorter-term length with lower interest. Yes, you’d have to pay more each month, but as with the debt avalanche method – you save more money by shaving off some of the interest.
BUT if you’re struggling to pay off your monthly repayments and have a history of defaulting, then refinancing might not be the best option for you.
See, student loans have the highest delinquency rates out of all household debts in the U.S. So be it private or federal, there are always solutions readily available to help you better afford them – you have to do some digging around to know what’s convenient for you in your country.
TL:DR? Here’s the simplified version
• Think of your student loan debt in days with this formula:
(Loan balance x Interest rate P.A) / 365 days
• Create a monthly savings planner
• Utilize either the debt avalanche or debt snowball method to pay off your loans.
Avalanche is for you if:
You want to save as much money as possible
Snowball is for you if:
You lack the discipline to make your repayments consistently long-term
• Make the necessary lifestyle changes where possible
• Register for a direct debit to ensure your repayments are made on time, every time
• Generate new income streams through an extra part-time job, investments, or side hustles.
• Work on increasing your current income
• Contact your lender to discuss if refinancing is a good option for you. The goal? A shorter-term length and lower interest rates.