4 strategies that help pay off your student loans
In a about a month, you'll go back to campus and continue your studies. Although it's a great experience, you can't shake the thought of the student debt you'll have to address after you graduate.
Paying student loan bills on time and in-full is one of many ways you can build good credit, which will benefit you later in life when you're looking to buy a house, start your own business or buy a new car.
Still, that doesn't mean paying off your student loans is an easy task, especially if you're fresh out of college and new to the job market. If you're having trouble keeping up with payments, here are four ways you can stay on top of them.
1. Analyze your spending
Emily Wyn, a contributor to The Penny Hoarder, noted she managed to pay $11,000 of her $24,000 debt in less than four years making $15 an hour. How did she do it? By tracking how she spent her money.
Take a closer look at your spending habits. How often do you go out for drinks on the weekend? Is there a more affordable gym in your area? Is eating out a regular occurrence? According to the Zagat 2015 Dining Trends Survey, the typical American spends, on average, $39.40 every time he or she eats at a restaurant. That means if you eat out twice a week, you're spending about $315 a month. That's $315 that could be going to your student loans.
How can you maintain a budget? There are more than a few apps out there dedicated for this purpose. GoodBudget, Mvelopes and HomeBudget are three examples.
2. Pay more than the minimum
Suppose you're on a 10-year plan. You may be pinching pennies now because you're new to the job market. However, once you acquire more skills and build experience, your pay will probably increase, giving you some extra cash. Use that additional income to pay extra every month - even if it's only $30. Eventually, you'll pay off your college debt earlier, allowing you to use the money originally going to loans on other investments, such as a car or home.
"Refinancing will have minimal impact on your traditional credit score."
3. Consider refinancing to decrease your interest payments
What if you're really good about staying on top of payments, but want to reduce your interest rate? In this case, consider refinancing for higher monthly down payments.
For instance, online lender SoFi noted that if you have a 20-year, $100,000 student loan at a fixed 6.8 percent interest rate, you'll owe $763 per month and pay about $83,201 in interest over the life of the loan. However, if you condense that term to 10, you'll end up paying a little more than $38,000 in interest. That's a $45,000 difference!
Just so you know, refinancing will have a minimal impact on your traditional credit score, according to myFICO. As long as you have a good history of making payments, you should be OK.
4. Capitalize on tax deductions
Believe it or not, you may be able to deduct your student loan interest off your federal taxes. The Internal Revenue Service noted this can be as much as $2,500 per year. You may qualify for this deduction if:
- You were enrolled at least half-time in a program that led to a certificate, degree or other educational credential at a recognized institution.
- The loan was only used to pay for qualified education expenses.
- The loan did not come from a qualified employer.
Times may be stressful now, but by addressing any budgetary issues and strategically paying off your student loans, you'll build solid credit and prepare yourself for the future.