Everyone craves to attain financial freedom and to become debt-free. Paying off your student loans can be the first step towards financial freedom. The focus here is not just paying off your student loans but paying them faster.
A question might strike your mind:
What does paying off student loans faster mean and why is it important to do so?
Paying off your student loan faster means getting rid of the loan debt amount before the completion of the repayment tenure. It has many benefits:
- It will reduce your financial burden at a young age.
- Saves you from paying a huge interest amount. Suppose, your loan tenure is of 15 years and you manage to repay the loan for say in 10 years. This will save you from paying a huge chunk of interest on your education loan. This is because you managed to pay off your loan 5 years before the completion of the loan tenure.
- You can start focusing on your financial goals earlier. A loan repayment takes up a huge sum of money from your salary. But if you manage to clear all your debts in the earlier phase of your working life, you can start focusing more on your other financial goals and creating assets for your future.
- Paying off your student loan faster without any defaults will help you to build credit scores as well as it will make you eligible to get a car loan, home loan etc. easily without any hassles
But how can you do it?
Here is the descriptive list of 12 strategies which will help you to get rid of your student loans as early as possible:
1. Internships during college:
Many companies offer internships to college students with a good amount of stipend. Doing internships in college will not only help you to get an extra sum of money to pay off your education loan but it will also help you to upgrade your skills and become more productive. So it’s a complete win-win situation for you.
Want to know more benefits of doing internships, head over to this article: Internships after higher secondary: A boon for students
2. Making good use of your hobbies:
We all have some or the other hobbies which we like to do to refresh ourselves. But what if these hobbies help you earn money? Isn’t it amazing? There is a lot of work related to hobbies such as writing, gaming, photography and many more.
Want to know how your hobby can help you economically? Read our article on: Hobbies which can earn money
3. Prepare a budget and stick to it:
This is the most important aspect for a healthy financial life. Preparing a budget helps you to understand your purchasing power. It will help you analyze things such as your sources of income as well as your spending habits very easily.
Following a budget wisely is as important as preparing it. You have to be disciplined in your spending habits to save as much as possible for paying off your loans.
Sticking to your budget is crucial even after you become debt-free. This way you will be able to invest more and earn more in future. But once you become debt-free you will be able to spend your money without any restrictions.
4. Find your payoff date:
You have to do a little research and find your pay off date. Knowing the time period in which you have to pay off the loan can be helpful to make accurate plans for repayment. But our focus here is paying off your student loans faster. So, knowing your pay off date in advance will be helpful to take necessary steps to pay off your loan beforehand.
5. Know all your debts:
Before making any plans to pay off your loans make a list of all your debts. In the list mention the principal amount, interest rate, repayment tenure, pay off date and all other details. You can make columns and mention the dates and amount of repayments you do on all the loans. This small step will help you to be organized in your repayment tenure.
6. Pay loans with higher interest rates first:
If you have taken multiple loans, my suggestion is to focus on paying off the student loan with higher interest first.
Does it mean you have to neglect the other loans with lower interest rates?
No, not at all. Paying off loans with higher interest rates first will save you from spending huge amounts of money on the ‘higher interest’. Once you have paid it off you will be free from that huge burden and can focus on quickly paying off the other loans as well.
7. Pay more than minimum payments:
This is the simplest way to reduce your student loan burden faster. Paying more than minimum payments will help you to repay your loan faster and would be very effective in the long run. Be it Rs500 or Rs1000, just try to add a little more and also to increase the amount every time. You just have to make sure that your extra loan payments are being applied to the principal amount. You can talk about it with your loan provider.
8. Refinancing your student loans:
Refinancing your student loan is a very popular method for borrowers. It basically means combining all your loans into one and taking another loan from a private lender to repay the original loan. Refinancing can also be done for just one loan. Usually the private lenders offer loans at lower interest which becomes really beneficial for the borrowers.
Is refinancing your student loan a good idea?
Yes it is if you get a new loan at a lower interest rate. A loan with a lower interest rate will allow you to pay more towards the principal amount. But if you don’t get loans at lower rates, then refinancing is not a good option for you.
9. Specify your goal:
Usually when people get a job they change their lifestyles. This increases their spending habits which ultimately leads to decrease in savings. And then they don’t save enough money to repay their student loans. But if your first goal after course completion is to pay off your loans and debts which you have taken for your education, you will be able to get rid of it faster. And then you have all your life to increase your spendings and fulfill all your wishes as a debt-free individual.
10. Part time jobs:
Making a side hustle would definitely help you a lot. Doing part time jobs will pay you a significant amount of salary which you could use to pay off your student loans faster. You don’t have to become a robot and work 24*7 to make extra money. You can go for a part time job if you get some sort of extra time in your current job, which you think you can use more productively by doing a part time job.
11. Make good use of your raises and bonuses:
Promotions, raises and bonuses often tempts an individual to spend more. But if you spend that money on paying off your student loans, you will be able to save a lot of interest payments. And once you accomplish this goal, you will have all your money to spend as you wish without the burden of any liabilities.
12. Avail all the tax benefits
You should take advantage of the tax benefits which you will be getting. This will help you to spend less on taxes and more on repaying your loan.
Tax benefits available for students: Interest paid on education loans/ student loans are allowed for tax deduction, under Section 80E of the Income Tax Act. It can be availed only for higher education courses. The deduction is available for a total of 8 years starting from the date on which you begin to repay the loan.
Repaying your loan within this tenure would definitely help to channelize your tax payments to your loan repayments.
Closing thoughts: Stay focused on your goal
Remember what I told you in the very beginning of this article- “The focus here is not just paying off your student loans but paying them faster.“
You just need to put some extra effort to become debt-free and pay off your student loan as early as possible. Analyze your current financial situation, make plans to improve it and try your best to follow your plans.
If you will stay focused on your goal and give your best, you will be able to accomplish it faster than you would have ever thought. And once you completely pay off your student loan: ‘the first step towards financial freedom’, you will be able to start focusing more on all other financial objectives of your life.
So, stay motivated and accomplish your goals. All the best!