How To Easily Pay Off Student Loans

Make a Plan to Pay Off Your Student Loans Faster

Earlier this year I shared my debt payoff success story! It felt so great to write that, and I truly hope my story inspired you to continue on your journey to financial freedom. What I started to realize, however, is that while I offered some helpful strategies for how to pay off student loans, I didn’t dive too deeply into the details.

I decided I owe it to you, my amazing readers, to offer you a practical plan for getting out of debt! Because being debt free is a feeling EVERYONE should be able to experience. And trust me, even though it may not feel like it at times, you CAN do this!

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Why pay off student loans faster

There are lots of reasons to pay off student loans faster (or any kind of loan for that matter). Some reasons are emotional whereas others are financial.

Both reasons are extremely valid to consider as being in debt not only has a long term financial impact, but also debt can easily take an emotional toll.

Financial Considerations for Paying Off Loans Early

Being in debt can lead to having to put off a number of important life events such as saving for retirement, buying a house, and even having kids.

Before Joel and I paid off all of our debt, all of these were factors that we had to consider which really wasn’t my favorite. To be quite honest, having to forgo your dreams due to finances is pretty much the worst!

Gone are the days where you could settle down, buy a house, and have kids right out of high school or college.

When you are contributing a significant chunk of your monthly paycheck to paying debt whether they be due to student loans, credit card debt, auto loans, or something else, you might be left with little left over.

Add on the amount of money you are losing to paying interest, and you are truly in a lose-lose situation. But don’t give up hope! There are ways to get out and ways to enjoy your life along the way!

1. Cost of Interest on Loans

One of the things you need to consider when thinking about how to pay off student loans and why to pay them off faster is the amount of interest that debt might be costing you.

Let’s look at the average student loan debt which is just about $30,000 (although it is significantly higher for some). If you opt for the standard repayment plan of 10 years, do you know how much you will have paid in interest at the end of the loan term?

Well you should! Over the course of the loan, you will have paid $10,805 JUST IN INTEREST meaning your $30,000 loan really cost you over $40,000. Think about all the things you could do with an extra 10 grand in your pocket instead of the bank’s! (Assumes interest rate of 6.8% and monthly payments of $358)

By adding an extra $500 a month to your principal payment, you could save $7276 and over 6 YEARS of being in debt. All by paying just a little bit more each month.

2. Benefit of Compounding Interest for Retirement Savings

The mention of compounding interest and the importance of starting early may set your heart to racing if you are in the middle of trying to figure out how to pay off student loans.

I hate to be the one to say it again, but it really is true that the sooner you start investing for your future, the better off you will be in retirement.

For this reason, Joel and I chose to split any extra savings we had each month in order to expedite the paying of our loans while also maximizing the power of compounding interest. I know some experts will say one or the other or doing both is right, but this is what was right for us.

We opted for contributing just enough to Joel’s 401k to get the 6% company match and then maxing out his Roth IRA.

No savings for me when we very first started paying off debt, because I was in grad school. And, truth be told, we really didn’t have enough extra to spare after Joel’s retirement and plugging away on our loans.

Either way, if you pay off your loans faster, you will definitely be in a better financial position to up your retirement savings much earlier.

Check out this example to get you thinking. If you wait just 10 years (the standard student loan repayment period) to begin investing for retirement, you will have to double your contributions for the next 30 years just to break even on the amount you will have at age 65. You will also have missed out on nearly $150,000 worth of compounding interest benefits.

A Quick Comparison

By figuring out how to pay off loans faster, you will be able to get rid of debt and snowball those debt payments into your retirement savings!

Emotional considerations of paying off debt

In addition to there being financial drawbacks to being in debt, there is also an emotional impact that is definitely worth thinking about.

Do you find yourself constantly worried about being in debt, wondering how you are ever going to get ahead financially?

If this sounds like you, paying off debt early might lift a weight off your shoulders.

Some people push for holding onto loans for their full term in order to invest more heavily. While mathematically this makes so much sense if your interest rates for your loan are below 6% or so, it might not make emotional sense.

Yes, investing your money and earning anywhere from 6-12% rate of return for a long term investment is likely better financially than paying off loans early. However, is it worth that extra money to live in a constant state of anxiety and stress over your loans for 10 years?!

For me, it definitely wasn’t which is why Joel and I opted for early repayment and retirement investments.

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How to Pay Off Student Loans Fast

If you have made it this far, I am going to assume you have decided that financially, emotionally, or both, paying off student loans is the right choice for you.

Making a conscious choice to tackle debt and achieve freedom is such an important step on the journey to getting rid of debt! Because, you see, “fast” is a relative term.

Unless you receive some crazy windfall or win the lottery (which don’t even waste your money on), “fast” in the debt repayment world likely means 2-5 years instead of 10-20 years.

You are in this for a long haul, but it is so worth it!

So, how can you pay off your student loan (or other loans) faster? There are really two main options or, if you are really on top of it, you can do both!

1. Reduce Your Spending
2. Increase Your Income

Because there are tons of resources for tackling those two things available, I am not going to dive into them in this article. Be sure to check out the links above for tips to accomplish these two things.

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Different Strategies You Can Use to Pay Off Student Loans

There are generally two primary strategies people use for getting rid of loans. These are especially important to consider if you have multiple smaller loans that add up to one huge (and likely very sad) amount.

Debt Snowball to Pay Off Debt

The debt snowball method entails writing out a list of all your debts from the smallest balance to the largest balance.

This method of debt repayment is the preferred plan of attach for finance guru Dave Ramsey and the one he talks about a lot in his amazing book The Total Money Makeover.

I read this book when I was just getting started with paying off debt, and it is definitely one you should add to your list!

Once you have your debts listed from lowest to highest balance, you will put any extra money you have each month towards paying off the loan with the smallest outstanding balance.

When you have paid that one off (HOORAY!) the required monthly amount for that loan, plus the extra you were putting towards it each month are then “snowballed” into paying off the loan with the next highest balance.

Keep doing this until you are DEBT FREE!!

Pros and Cons of the Debt Snowball

Pros: This method of debt payoff can be a really good thing if you aren’t so sure you can stick with an aggressive repayment plan or need some early success and encouragement.

By totally getting rid of a loan, you will get an emotional boost earlier than you might with the debt avalanche method (although not necessarily).

Hopefully, this initial success will give you the strength to continue on your journey.

Cons: This method doesn’t take into account interest rate. If you have a loan with a very large outstanding balance that also has a disgustingly high-interest rate, you will end up paying a lot more in interest by using this method.

This is especially important to consider if you have credit card debt. Credit card debt can have interest rates as high as 25% of greater. Do yourself a favor, and get rid of that first. You will save SO much money!

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Debt Avalanche to Pay Off Debt

Another way you can choose when deciding how to pay off student loans is called the debt avalanche. As a skier, I can attest to the power of an avalanche. It rips through everything in its way without stopping.

While the debt snowball focuses on the amount owed, the debt avalanche is geared towards interest rate.

That is because loans with higher interest rates are costing you more. The longer you have them, the more interest you will have paid to your lender.

For this method, take all of your loans and put them in order with your highest interest rate first and your lowest interest rate last.

 It does not matter what the balance on each loan is for this method (although if you have two loans with very similar interest rates, you may be better off starting with the one that has a higher balance).

Just as in the debt snowball, start putting any extra money you have each month towards the principal of your loan.

You may have to call your loan company or specify with online payments that you do NOT want your extra payments to advance your due date. Otherwise, you won’t get out of debt any faster than you would otherwise.

Once you have paid off the loan with the highest interest rate, you will then take all the money you were putting towards that loan and use it to pay off the loan with the next highest rate. In this respect, it becomes similar to the debt snowball.

Pros and Cons of the Debt Avalanche

Pros: Depending on how long your entire debt repayment plan takes, you could save a significant amount of money on interest by tackling your loan payoff this way.

Cons: If the loan with the highest interest rate has a large outstanding balance, you will not get that initial emotional/motivational boost by paying off a loan so quickly.

If you feel this is something you need to have to continue on with eliminating debt early, the debt snowball may be a better choice for you.

Do Both

Keep in mind that if you decide to start with the debt snowball for some early success, that does not mean you can’t later switch over to the debt avalanche.

What works for you right now may not be what you decide to stick with in the long run. The important thing is that you come up with a plan for paying off your loans and don’t give up.

Refinance student loans

If you’re looking for even more ways for how to pay off student loans, you may wish to consider refinancing your loans.

Sometimes your existing loans may have extremely high-interest rates. One of the best ways to get these interest rates down can be through refinancing.

You can also consolidate your loans at the same time as you refinance which can make life easier as you will have just one payment to make each month.

When refinancing a loan, you will definitely want to shop around and talk to several different companies about the rates they can get you in your specific situations.

You may not always be able to find a better rate and need to consider any fees that may be encountered when refinancing, but it never hurts to shop around.

There are tons of companies that refinance student loans. Below you will find some that are definitely worth checking out as they offer rates that may allow you to save a lot of money over the course of your repayment plan, even if you pay them off early.

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Loan Refinance Comparison

When Joel and I were paying off our loans, we were lucky that none of ours had terrible interest rates, but I have definitely heard horror stories. If that sounds familiar, you will definitely want to investigate the possibility of refinancing.

Just make sure you consider all your options and speak with a financial planner if you aren’t sure what is best for you. Also, note that if you plan to qualify for public service loan forgiveness you need to keep your federal loans in order for that to happen.

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For more debt-free inspiration check out how we paid off our student loans and ways to stay motivated while paying off debt.

How to Pay Off Student Loans Fast