If you’re a doctor, lawyer, or have spent several years working on your degrees, it’s common to acquire more than $100,000 in student loan debt. But you don’t have to accept that debt as a way of life for the next decade or more. There are ways to knock out your debt faster than you might think– but it takes discipline, focus, and cost minimization. Here are some ways to start chipping away at your loans:
Make Your Own Student Loan Debt Payoff Schedule
If your loans are set to be paid off over 25 years, you don’t have to stick to that timeline. The longer it takes you to pay off those loans, the more you’ll pay in interest. Therefore, it’s smart to pay off your debt as quickly as possible.
“We calculated exactly how much we would be paying in interest if we stayed on a 25 year schedule. We would have paid over $400,000 in interest alone, totaling over $1 million in loan payments over 25 years!” they said.
“We were not willing to pay $1 million for ‘tuition.’ Our original plan was to pay off our private student loans in 3 years, then pay off our federal student loans in 10 years” said Darko. “Instead, we became even more aggressive with our debt payoff. By April 2015, we had paid off our entire private student loan debt – $130,000 in only 6 months!”
Focus on One Loan First
Just like the Darkos focused on private student loan debt before moving on to federal loans, you should also choose one debt to pay off first. This helps you stay focused on your goal. A good tactic to help you stay motivated is to choose the smallest loan first and contribute as much money towards that debt as possible.
You could also choose to pay off the loan that has the highest interest rate first to potentially save yourself more money in the long run. Either option will help you focus better on your payoff goal than trying to pay them all down at once.
If you are curious to see which option reduces the most time and interest paid on your loans, PowerPay.org will outline the different options for you. After inputting your balance and interest rate, PowerPay will show you the difference between paying off the smallest loan first and the loan with the highest interest rate.
Meanwhile, make your regular payments on any other loans. Once you have paid off one loan, take the amount that you were contributing toward that debt and apply it to the next one. This will create a “snowball effect” to help you reduce the interest paid and amount of time it takes to pay off all of your student loans.
Guard Against Lifestyle Inflation
If your education has helped you land a higher paying job, the temptation is usually to improve your lifestyle proportionally. Maybe you’ve been waiting to move to a bigger house or buy a newer car. Resist that temptation and instead put that money toward paying off your loans.
Increase Your Income
Even if you’re making more money and cutting back on expenses, you still might need to find more money to pay off your loans as quickly as you’d like. You might need to increase your income temporarily to reach your goal. For Nii Darko, this approach worked:
“We are happy to report that as of New Year’s Day 2017, we have paid off 74% (over $440,000) of our student loans!”
For seven straight months, Nii went to work as an independent contractor to make additional income, which helped launched Nii and Renee’s physician placement business Equal Access Health.
Learn About Payment Plan Options
You may have been automatically enrolled in a loan repayment plan, but did you know there are actually seven different types of student loan debt repayment plans?
If you are paying off more than one federal student loan, consider consolidating your debt. Working with one monthly payment is a convenient way to manage your debt and track your progress.
Your federal student loans can be fixed or graduated, increasing over time. They can also be based on your income, whether that be discretionary or your annual salary. Being aware of that flexibility allows you to find a plan that works best for your budget and long-term goals.
Don’t Forget About Refinancing
Refinancing can save you a lot of money in the long run, especially if you have private loans. However, there are important pieces of information to look into before you decide if refinancing is right for you:
- There may be an origination fee or application fee associated with refinancing. These fees could be so high as to outweigh the benefits of a lower interest rate.
- Make sure you know if your new rate would be variable or fixed.
- If you work for a non-profit organization, you may be eligible for public service loan forgiveness. Check that you will not lose your eligibility if you choose to refinance.
- If you were at any point to be become unemployed, understand what options are available to you. Federal loans allow you to apply for forbearance and either stop or reduce your monthly payment for up to 12 months. Read the fine print when it comes to any refinancing where this is concerned.
Steep student loan debt can feel suffocating, but if you take the time to break it down into a more accelerated payment plan, it becomes more manageable.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes you too should have access to financial resources and fee-only financial planning. For more information on the services offered, contact Katie today.