Use that “extra” money to pay off more of your student loans each month and you’ll be paid off and out of debt faster!
A simple Google search for “budget” will return several good budget templates that make it easy for you even if you’re not an accounting expert.
If nothing else, budgeting is just a good financial habit to pick up. Dealing with finances becomes a lot easier when you know how much money you have coming in and how it is being spent.
2. Pay More Than the Minimum Payment
This is the most common advice you will probably get but it needs to be said because it works. If you’re only paying the minimum payment each month, you’re not getting anywhere fast. You might not even be breaking even with the interest you’re piling up! By making larger payments, you’ll be able to pay of the amount you owe at a quicker rate.
Here’s an example:
- Let’s say you have the typical $35,000 in student loan debt that the average student graduates with.
- With a 6% interest rate (typical interest rates range from 4.53–7.08%) and a 10-year loan term (which is also common), you’d be looking at a minimum monthly payment of about $389.
- Because of interest, your total repayment amount would be $46,629. That’s $11,629 more than your original loan.
- But let’s say you decided to pay just 20% more (that’s $77) than your minimum payment each month. That would put your monthly payment at around $466—which means you’d pay off your entire loan in about eight years and save over $2,600 in interest!
- If you paid over 20% more than your minimum payment each month, you’d pay off your loan even faster.
Pro Tip: When you pay more than the minimum monthly payment, the student loan servicers might put that extra amount onto next month’s payment. That pushes the due date back, but you won’t actually pay off your loan any faster. Tell your loan servicer to keep next month’s due date the same and to just apply the extra amount of money to your current loan balance.