How to Pay Off Student Loans Quicker in 2020
Student loans are an excellent way to fund your education and acquire that degree without worrying about finances and part-time jobs. This is why over 65% of pupils take out student loans to support their studies. However, once the studies are over, the debt quickly becomes a burden too difficult to get rid of.
If you’re done with your studies and are wondering how to pay off student loans now, then you’re in luck. We have listed down some of the best ways to pay off your study loans quicker in 2020 so you can soon become a debt-free person.
Switch Interest Rates To Your Advantage
A lot of students did this in 2019, and many are planning to follow the path in 2020. You can switch your federal student loans into a private loan and end up getting a lower interest rate, which will consequently lower your payments, allowing you to pay off the loan quicker than otherwise.
Here is a small example to get your head around it: imagine you take federal student loan of $5000 on a 5% interest rate for 10 years. Your monthly payment would be $94.36, which means you will be paying off a total of $5661 by the end of the loan period.
Now, say you move to a private student loan after two years (you have paid $2000 principal and $264.64 interest of your loan on 5% already) and get a new rate of 4.5%. Now, your remaining principal is $3000 which you have to return at 4.5% interest rate, which means you have to pay off $3212.67 in the next three years at a monthly payment of 89.24$. This means that by the end of the 5 years, you would have paid $5477.21, which is $183 less than what you previously had to pay on a 5% interest rate.
Furthermore, since your monthly payments also drop down from $94.36 to $89.24, you can pay off just a few dollars more every month to get rid of your loan quicker in 2020.
Try Paying A Lump-Sum
Let’s take the previous example where your monthly payments are reduced due to a drop in your interest rates. Since you will be paying off lesser per month, you can save a few bucks and combine them with your savings to pay off a major chunk at once.
Simply save off from any extra expenses that you may otherwise allocate those fancy attires and fun-filled trips, and pair it up with your savings on monthly repayment. This way you’ll be able to pay off loans faster.
Want to hear something great? Making lump-sum payments will allow you to shave off your interest payments, which means that not only will you be able to pay off loans quicker, but will also save a decent amount on repayment.
Benefit From Tax Deduction
If you want to know how to pay off student loans quickly and easily, making use of tax laws can be of great help. There are a lot of rules and regulations that allow taxable income to be reduced by $2500 for the filing year, however, certain terms and conditions may apply like:
- You aren’t dependent on anyone
- You were halfway through your degree at the time of taking out the loan
Furthermore, you can also relieve yourself of $4000 worth of tax deductions for the years you paid your tuition fees on your own. There are several other ways you can benefit from tax laws to save up on your loan repayments and become debt-free quickly.
Another excellent strategy people use to pay off student loans swiftly is to start rounding up payments on the higher end. For instance, if your monthly payment is $75.80, you can pay off a rounded-off $100 bill per month.
For starters, paying off those additional $25 would not sound hefty on your pocket due to our psychological way of thinking (imagine $9.99 sales, which are basically ten dollars, but our mind tells us it’s $9). So after every four months, you will go one month ahead in your payment schedule, which may not sound a huge deal but think of it this way – if you’re in a 5-year plan, you will be able to pay off your private student loan in four years, simply by rounding up your monthly payment.
‘How to pay off student loans quicker’ is one of the most frequently asked questions by students. The abovementioned pointers will help you get on the right track (such as student loan forgiveness for teachers) and pay off private student loans quicker so you can put your mind to ease and start saving up for your future.