Pay Off Student Loans With The Debt Snowball
The debt snowball method has helped a ton of people dump their debt, and it can work for student loans too. First, list all your loan debts from smallest balance to largest. Start paying on the smallest student loan balance first. Throw any extra money you have into paying off that first debt while still paying the minimums on everything else.
Once youve paid off the first debt, move to the second-smallest balance. Take everything you were putting toward the first one and add it to the minimum of the second balance. Once that debt is paid, move on to the next one and repeat the process until youre finally out of debt. Boom.
You might be thinking, Nopethis is going to take forever! Dont get it twisted. Most people that go all in on this plan pay off their debt in 18 to 24 months! Thats not quite forever, is it? My favorite thing about working the debt snowball method is that youll feel the progress youre making as each student loan disappears. Knocking those smaller loans out first will give you a couple of quick wins and help you stay motivated to crush the bigger student loans fast!
Just make sure you dont pocket the extra payment money as you pay off each loan. Keep the momentum going by rolling that money into the next loan payment.
How To Pay Off Debt In Retirement
Should you be concerned about your debts in your retirement? The short answer is yes.
If possible, it’s best to avoid carrying debt in retirement. Studies have linked credit card debt with increased stress and even physical pain. Meanwhile, older adults without such burdens find it far easier to manage their finances and make ends meet.
According to the Federal Reserve Bank of New York, from 1999 to 2019, debt among Americans over the age of 70 climbed a whopping 543%. A 2021 report by Experian found that the average credit card debt held by baby boomers was $6,230, while the average credit card debt held by the Silent Generation was $3,821.
Households of people ages 70-plus are more likely than before to have credit card debt, mortgages and even student loans.
The Covid Impact On Student Loan Debt
When the Act was passed, federal student loans were set to 0%, and most federal student loan payments were paused . Of course, borrowers could still pay on their loans if they chose too, but many chose not to or took advantage of paying off other loans, saving money, etc.
As a result, the student loan debt amount has reached a record high of over $1.57 trillion. And, loans in forbearance or deferral are double compared to 2019.
Again, many borrowers took advantage in 2020 and 2021 to pay off other debt since federal student loan debt was no longer carrying an interest rate. But, private loans were continuing to accrue interest, and saw a growth as well.
So, if you have student loan debt, youre not alone. If you think youll need to take out loans in order to cover college, youre also not alone. But, there ARE some things you can do in order to avoid having college debt.
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Graduate Student Loan Debt Repayment Timelines
Graduate and professional students, on average, borrow more for school than undergraduate students. Their income rates tend to be higher, as well.
- 4.3% is the interest rate for Direct Unsubsidized federal student loans to graduate or professional borrowers.
- 5.3% is the interest rate for Direct PLUS loans, which go to graduate or professional borrowers as well as parents of undergraduates borrowing on their behalf.
- $58,300 is the average student debt for a borrower who graduated from a public institution with a Masters degree.
- $96,700 is the average debt for masters degree holders who attended a private, for-profit institution.
- $101,200-$175,600 is the range of average debt for doctoral degree holders.
- $243,300 is the average debt for professional degree holders who attended private, nonprofit institutions.
- $77,800 is the average salary for a masters degree holder.
- $96,800 and $97,900 are the average respective salaries for people with professional and doctoral degrees.
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Pay Down The Principal
The faster you pay off your student loan debt, the faster you can redirect savings to something else. If you can pay a few hundred more dollars each month, you can shave years off the life of your loan. Even if you cant pay that much extra each month, pay off as much as you can afford. Paying down the principal doesnt require that you put in a set sum each time, so you can pay more when you are flush, and less when you have a lot of expenses.
If you would like to know more about the best ways to pay down your student loans and save for your future, contact Citadel today. We can help you develop a savings plan that works for you.
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How To Properly Pay Off Student Debt
August 27, 2018·Everything
Everyone that has finished college knows that it wont be long until you have to start paying off your student debt. The reality is that school is expensive, and many have to take out a certain amount of money in order to obtain the degree. Once you graduate, the money must be paid back month by month until you are debt-free. By following a step-by-step process, you should not have to spend sleepless nights worrying about what to do.
The first step requires you to look for a job, and this is also the longest stage. Give yourself time to find it, and start setting up a timeline for when you will be debt-free. Its even a good idea to pick up a second part-time job on the weekend for some extra cash. Next, you will want to learn how to save and budget, given the fact that a big portion of your money will, after all, be spent on paying off your student loan. You even have the option to take out another type of credit, and thus one that has a lower interest. Another option is to potentially live at home for a while. Remember to also ask a financial advisor for assistance as they can guide you towards the best monetary routine.
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Consolidate To A Federal Direct Loan
The first thing you should do is to consolidate your federal student loans into a federal Direct Consolidation Loan. Most recent loans should already be through the Direct Loan program, but if you started classes several years ago, you may have loans at different banks. Consolidating your loans may qualify you for student loan forgiveness programs and make it easier to pay one monthly payment. It will also give you the opportunity to lower your monthly payment and extend the term of the loan. This may be crucial if you are not making as much as you originally expected during the first few years of working.
Heres How To Pay Off $100000 Of Student Loans
If you have student loan debt, you may be wondering whats the best way to pay off student loans.
Heres what you need to know.
Whether you have $20,000 or $100,000 or more of student loan debt, here are the best options to pay off student loans:
1. Refinance Student Loans
Student loan refinancing rates are incredibly cheap right now and start at 1.9%. Student loan refinancing is the fastest way to pay off student loan debt. When you refinance, you combine your existing federal student loans, private student loans or both into a new student loan with a lower interest rate. You can choose new loan terms, including variable or fixed rate and a loan repayment term from 5 to 20 years. Lenders prefer borrowers with at least a 650 credit score, stable and recurring income, and a low debt-to-income ratio. If that sounds like you, you could save thousands of dollars on interest costs on your student loans.
This student loan refinancing calculator shows how much you save when you refinance student loans.
2. Apply to refinance student loans with a cosigner
3. Apply for student loan forgiveness
4. Consider an income-driven repayment plan
5. Pay off student loan debt the old fashioned way
Here are some popular ways to pay off student loans:
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Pay Down High And Variable Interest Loans First
It can be easier and faster to pay off student loans if you make more than the minimum payment each month. If you have multiple college loans with different interest rates, some financial experts suggest paying more than the minimum payment on your highest and variable interest rate loans and making the minimum payment on loans with lower, fixed interest. This strategy can help eliminate or reduce your most expensive college loans faster and protect you from variable interest rates that can raise your monthly payments.
Pay More Than The Minimum Payment
Youve probably heard this one before. If youre only paying the minimum payment each month, youre not getting anywhere fast. You might not even be breaking even with the interest youre piling up! By making larger payments, youll be able to attack the amount you owe at a quicker rate. Start playing around with that Student Loan Payoff Calculator to figure out how fast you can pay off your loans by making extra payments.
Heres an example:
- Lets say you have the typical amount of student loan debt that the average student graduates with, which is $38,792.1
- With a 5.8% interest rate and a 10-year loan term , youd be looking at a minimum monthly payment of $426.78.2
- Because of interest, your total repayment amount would be $51,489thats $12,697 more than your original loan! Yikes. That blows.
- But lets say you decided to pay just 20% more than your minimum payment each month . That would put your monthly payment at $512.14which means youd pay off your entire loan in about eight years and save $2,794.04 in interest ! Thats more like it.
- If you paid over 20% more than your minimum payment each month, youd pay off your loan even faster . You get the picture!
All that said, if youre having trouble even making the minimum payment each month, you might think the idea of paying more money is a pipe dream. With that in mind . . .
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Take Advantage Of Tax Deductions
The federal government offers a student loan interest deduction on your taxes for interest paid during the year on qualified loans. The law allows you to deduct up to $2,500, depending on your adjusted gross income. The deduction is available for both federal and private student loans.
You can claim this tax deduction if youre legally required to pay interest on a qualified student loan and your filing status is not married filing separately. There are also adjusted gross income limits for this program, which are set annually. You do not need to itemize to claim this deduction.
Those who qualify for the deduction will generally save a few hundred dollars on their income taxes, which could help with student loan repayment. If you pay less in taxes, this could free up some extra money to pay down your debt. Its a good idea to speak with a tax advisor to make sure youre taking advantage of any relevant tax benefits related to your education, says Ferastoaru.
Take Advantage Of Interest Rate Reductions
Many student loan servicers provide a deduction on interest if you set up auto-pay. Some also reduce interest after youve made a certain number of on-time payments.
Interest rate reduction programs vary among lenders, so find out what your options are with getting your lender to reduce your rate. And remember, even a slight interest rate reduction can make a big difference if youre dealing with $100K in student loan debt.
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What Tips Do You Have For People Looking To Pay Off Their Debt
I have a ton of tips to help people pay off their debt. In fact, I started writing a series about how to get out of debt when you have no clue where to start on my blog. Feel free to check it out.
A couple of quick tips that greatly helped us in our journey were to earn extra income wherever possible and to keep your end goal in mind whenever youre thinking about making a purchase. Sometimes just thinking about the loans would allow us to put something back that we didnt really need and here we are today, with all $80,000+ of student loan debt gone!
If you want to connect with Lance to see what he is up to today, check out his site at MoneyManifesto.com
Note: This is part of a series called Debt Success Stories which features people who were able to pay off a significant amount of debt. If you have a Debt Success Story I would love to hear about it. Please visit the contact page to let me know the details.
Making Your Student Loans Manageable
Ideally, your combined housing payment and total debt should not be more than 40% of your pre-tax monthly income. For example, if you earn $2,500 a month, pay $800 in rent and owe $400 in student loans, your housing and debt is 52% of your income, which is high. That said, I know from experience that when you combine big student loan debts and low entry-level wages, the 40% debt-to-income ratio can be a difficult target to achieve.
Getting your housing and debt payments under 40% of your income will make a world of difference in your financial health. Youll have more money to enjoy life. Youll be able to build a bank account buffer so youre not living paycheck-to-paycheck and, eventually, be able to to save money for larger purchases. Youll feel like youre making progress.
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Average Student Loan Repayment Timelines
The amount of time it takes for an individual to repay their student loan debt depends on the initial amount borrowed, the loans interest rate, and repayment habits, among other factors.
- 10 years is the ideal timeline for paying off student loan debt according to financial experts and the U.S. Department of Education .
- In practice, it takes borrowers closer to 20 years to pay off their student loans.
- 21.1 years was the average length of repayment in a 2013 study of 61,000 respondents.*
- 45% of student loan borrowers decrease their balance in the first five years of repayment.
- 21% of student loan borrowers increase their balance in that same period.
- The average medical school graduates salary is not sufficient to make their student loan payments.
*More recent reports claim shorter timelines , but this comes from a poll of 2,200 borrowers between the ages of 26 to 45.
Take Full Advantage Of Tax Deductions And Credits
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If youre paying off student loans, youre likely eligible for the student loan interest deduction on your federal taxes. You may deduct up to $2,500 on your taxes each year for the interest you pay on student loans.
While you must meet other requirements, generally a lot of student loan holders in their 20s will be eligible. Thats because this deduction can be taken even if you dont itemize your taxes .
Tax credits can be even more valuable than tax deductions. In general, a $2,500 tax credit will save you more money than a $2,500 deduction will.
You might be eligible for tax credits if youre currently paying tuition, including while youre in grad school. While there arent any tax credits related to simply paying student loans, its worth checking out if youre currently in college or thinking about going back to school soon. See our post on student loan tax credits for more information.
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John R Justice Repayment Program
The John R. Justice Student Loan Repayment Program will pay up to $60,000 in student loans for lawyers who go into public defense.
These payments will be up to $10,000 per year and require a three year commitment as either a state prosecutor or a state public defender. You can also check-in with your law school about other repayment grants for public service. Many law schools, including top programs like the Yale School of Law, offer loan forgiveness grants to alumni who go into public interest law.
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