It’s a new year and with it come a few resolutions. Chances are that if you’ve accumulated student debt, you’d want to reduce its amount significantly in 2016. The good news is that a couple of strategies can help you accomplish the goal and get out of debt faster.
Without further ado, here are some of the top ways to pay off student loans fast in 2016.
Make Large Payments
Have you gotten a nice job right after graduating from college? If so, congratulations! You’re still young and you don’t have such a big number of financial responsibilities. This is the main reason why you can begin treating your student loan as a mortgage.
Making large payments will reduce the principal quickly. This strategy will bring down the payback period. A shorter payback period means that you’ll make the loan less expensive because you’ll be paying an interest rate for fewer months.
The problem with this strategy is that it requires fiscal discipline. If you’re earning a nice salary, chances are that you’ll feel tempted to spend a lot of it. Get in the habit of immediately setting the loan repayment money aside in the beginning of the month. What’s left after will be available for you to spend on anything that your heart desires.
Consider Loan Consolidation
Choosing student loan consolidation can work as an opportunity for paying off student loans faster if you pay close attention to the terms and conditions.
Grouping several loans together allows you to pay for just a single loan per month. As a result, it becomes much less likely to miss a payment or be late and get penalised. The problem with this approach is that you have to be careful about the term and the interest rate. If you aren’t, chances are that you’ll end up paying back more money than originally intended.
Make Payments More than Once per Month
Yes, making at least two payments per month can make it possible for you to get rid of student loans faster.
Making payments more frequently will bring the interest down. The bi-weekly payment strategy is once again a popular tool in the world of mortgages. By applying this strategy, you can reduce the payment period by a couple of years, which reduces interest. Even if you can afford to make an extra five-dollar payment per month, you’ll still see the benefits in the end of the loan term.
To make use of this strategy, however, you’ll have to go through the loan agreement first. There could be some limits or penalties that will decrease the attractiveness of the strategy.
Build Your College Repayment/Emergency Fund
If you don’t get in the habit of setting some money aside for college debt payments, you’ll potentially find yourself in trouble sooner or later. Right now, you’re earning a steady income. What will your situation be in the end of the year? In two or five years?
Start building a college repayment fund as soon as you graduate and get hired for that first job. The money set aside can be used to make the repayments during financially-challenging periods or they can be used to increase the size of the monthly instalments every now and then.
Doing something as simple as putting the money in a savings account will give you the added benefit of an interest rate. There are various other options for increasing the amount. You may want to talk to an investment consultant and choose the safest possibility for “growing your fortune.” The sooner you get started with investing, the more money you’ll end up having in the long run.
Auto Debt Enrolment
This final strategy isn’t exactly a way to get out of student debt faster but it can help you make timely payments. This way, you’ll be free from having to deal with penalties that can increase the loan repayments.
Auto debt enrolment means that the student loan provider will have access to the funds in your bank account, making the respective monthly deduction automatically. This way, you will never skip a payment or miss a deadline. Also, you’re not going to be tempted to spend the money on something else.
Some financial institutions have deductions and other special bonuses for the borrowers that enrol in an auto debt program. Check for such possibilities – a discount could come in the form of a fixed sum or an interest rate deduction.