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How to Pay Off Your Student Loans Fast(er)

College Debt

Like many 18 year old students heading off to college for their freshman year, I was naive. Naive about a lot of things, but finance in particular. After I filled out some financial aid paperwork, I went into my registrar’s office and took out a student loan for $5,000. It was that easy. The next semester, I figured I should borrow more money than I did the previous term, so I took another $7,500. You can see where this is going. I graduated with roughly $30,000 in student loans, and then realized I would have to pay this money back.

A Plan for Paying Down Student Loans

I was in a panic. How could I afford rent, phone, internet, food and my student loans on my pittance salary? Luckily, one of my college roommate’s parents (Mr. and Mrs. T) are financial advisors, and they agreed to talk with me about a plan for managing my expenses. The first thing every person paying back student loans needs is a plan.

My payments were high, my salary was not. At first, I thought I’d get a deference on my payments. That would buy me some time to earn some more money before I started to make payments. However, my friend’s parents advised me against this action because the interest continues to accumulate on the loan, even in deferment. That means more money to pay back.

Pay More Now

Their advice was the opposite of the advice I was seeking. Instead of putting off payments, Mrs. T suggested I paid more each month than was requested of me in my Sallie Mae coupon book. That way, she explained, more principal would be paid down each month, allowing me to pay off the debt faster, and with less interest charges.

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Auto Pay

Mr. T suggested I set the payments to auto-pay for a set amount each month. That way, the payment is already taken care of, and I’ll forget about the money. He was right. I paid just $65 a month more than I was required to, and I started to notice a real difference in my balance in about a year’s time. I was stoked to see that $30,000 shrink to $20,000 and then $10,000 in short order. It was not easy. Nearly 25% of my income went to student loan payments each month, but I was determined to rid myself of this debt. Raising my monthly payment $65 a month took a little more than two years off my payment schedule.

Take Advantage of Discounts

Sallie Mae and other lenders offer interest discounts for various programs. These programs include signing up for on-line payments, auto-pay, or making consecutive payments for a certain number of months. The discounts aren’t much, but the savings add up over time.

Other programs, such as Upromise, also helped me pay down my student loans faster. Upromise is a program that enables users to earn cash back on spending to use toward student loans. Every time I shopped at my grocery store or shopped on-line, I earned some money to pay down my debt. This, too, added up over time.

A Final Word

Paying off my student loans was a great feeling. Not sending a check to Sallie Mae every month is an even better feeling. However, my student loan interest rates were pretty low. That extra $65 a month could have been invested to earn more than what I saved in interest payments. The higher your rates are, the more aggressively you may want to pay your loan off.

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