Tricks to Pay Off Student Loans After College

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If you went to college, it’s pretty likely you’re one of the 2/3rds of student who graduated with an average of $23,186 in student loan debt. I’m one of them, and my debt amount is way more than the average.

Now that I’m out in the real world, I have the challenge of repaying that debt in a tough economy. Since consolidation no longer seems to be an option, there are less tricks to reduce interest and payments. For those who have been unemployed or underemployed since their graduation, paying debts off can seem impossible.

I know I’m not the only one trying to manage student loan debt, so I thought I’d share a few tips on how I save money and try to tackle this huge debt. Most of these tips could easily be applied to other debt, so take what you can and use it to eliminate your debt.

Pay a Little Extra

If you’re currently just paying the minimum each month, think about bumping those payments up a bit. With most lenders, anything extra you pay each month will be applied to your principal (check with yours to be sure).

If paying extra seems like an impossible task, try rounding up your payment to the nearest dollar. Once that seems easy, try round it up to the nearest 10 dollars. Then try tacking on an extra $20 a month.

Push yourself to find extra money to devote to paying off your loans. Try money saving tips like bringing your lunch to work, getting rid of cable, eating out less, etc. Take the extra money you save and tack it on with your monthly payment.

Look for ways to earn extra money. Try legitimate online sites to earn a couple bucks, sell old textbooks or other books, or recycle electronics & other items for cash. You may even want to try UPromise to passively earn money back from shopping online, dining out, & grocery shopping.

The point is, whatever extra you can pay down on your principal reduces the amount of interest you’re charged each month. By reducing that interest, less of your payment each month goes to interest, so more of you principal balance is paid off. This has a snowball effect, reducing the amount you owe much more quickly than just making the minimum payment each month. (Read about how paying a couple bucks extra each month lowered my monthly payments)

Prioritize Your Spending

If you’re like me, you probably have a mixture of loans, private & federal, all with different interest rates and terms. Make sure you prioritize your spending. Put the extra cash towards privates loans with the highest interest rate first. Once you’ve conquered those, move down to the one with the next highest interest rate, and so on.

Federal loans usually have the best interest rates and the most flexible repayment plans, so leave those for last.

Look For Benefits From Your Lender

Many lenders have incentives for borrowers with a good track record. You’ll have to check with your lender for specifics, but I’ve seen lenders that will lower your interest rate by 0.25-0.5% just for making on time payments for a specific period of time. Some lenders will even lower your rate just for signing up to have your bill direct debited from your account each month.

A lower interest rate can equal big savings over the long run, so take advantage of these incentives when you can!

Avoid Loan Deferments & Forbearance

Unless absolutely necessary, do not put your loans in any type of forbearance where you aren’t required to make payments but interest still accrues. This is how many graduates’ somewhat manageable student loan debt balloons into a seemingly unclimbable mountain.

Unfortunately I’ve had to put my loans in forbearance a few times, and I’ve seen first hand the problems it causes. Basically, what happens is your account keeps accruing interest and then at the end of the forbearance period, that unpaid interest becomes capitalized interest, which means your lender can now charge you interest on that capitalized interest. You’re basically increasing the amount of principal balance you owe. After a few months or a few years of forbearance, your debt can snowball in the wrong direction.

If you cannot make payments on your loan and there is no other lower payment plan or option that works for you and you must do the forbearance, then make whatever payments you can (if there’s no penalty). Even if it’s only $10, make that $10 payment, because that’s $10 that won’t be added to your capitalized interest.

These are just a few of the ways to tackle student loan debt. Now, my dear readers, how are you dealing with your debt, or how did you pay off your loans? Let us know.


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