How to Chip Away at Your Student Loans in Five Easy Steps

The average student who borrowed federal funds has $36,510 in debt, and those with private loans have $54,921. Around half of borrowers are still paying student debt twenty years post-graduation. With the increasing cost of tuition, it’s no surprise that student debt has burdened millions of households in the United States.

Whether you use debt simulation techniques or automatic debit, paying off your student loans takes dedication and persistence. Although you might feel like you’re drowning in debt, remember that there’s a light at the end of the tunnel.

Are you ready to finally pay off your student loans? Consider using the five steps below to chip away at your debt.

Pay More Than the Minimum

Taking an aggressive approach and paying more than the minimum is an excellent strategy to chip away at your student loans. If you pay over the minimum, more of your money goes towards the principal, and less goes to interest. Many financial experts suggest making payments over the minimum from the git-go and increasing them over time as your income rises.

When you use a debt simulation tool, you can better understand the benefits of paying a little extra each month. You can use Chunk’s debt payment simulation to find ways to minimize interest and project when you’ll be debt-free. Our software also allows you to view all your debt in one place. 

Enroll in Automatic Debit

When you enroll in automatic debit, the lender will automatically deduct payments from your account each month (or bi-weekly). As with other forms of debt, auto-payments help you avoid making a late payment (which can lower your credit score). Not only that, but you can also incur fees – increasing your overall cost of debt.

The convenience of automatic debit isn’t the only advantage – you can also save on interest. Many lenders give you a 0.25% discount. Although it doesn’t sound like much, a 0.25% drop in interest can save you thousands, depending on the amount and terms of your loan. If you have federal student aid, you will need to find your loan servicer to begin the automatic debit enrollment process.

Refinance Your Debt

Refinancing your student loans is a great way to save money in the long haul, especially when interest rates are low. Imagine that you have $30,000 in student debt, and the loan’s term is five years at an interest rate of 6%. Your monthly payment would be roughly $580, and over the loan term, you would pay $4,800 in interest.

Now, pretend that interests rates drop significantly, and you have the option to refinance the debt at a rate of 3%. If you refinance, you would now pay $540 per month (a savings of $40). You would also pay roughly $2,350 in total interest (a savings of $2,450). With the lower money payment, you could pay extra towards the principal and reduce the time it takes to repay the loan.

You can use Chuck’s paydown feature to better visualize how long it will take to repay a loan at a lower interest rate. It’s also vital to consider loan origination fees when you refinance and ensure that they do not outweigh the interest savings.

Look for Loan Forgiveness Programs

Although it takes a bit more effort, finding a loan forgiveness program pays off in the long run. These programs either pay a portion of your student loan or the entire balance. Many people consider loan forgiveness programs if their goal is becoming debt-free on low income. Loan forgiveness programs target people in specific professional and geographical areas and those earning under a certain income threshold.

The U.S. Department of Education maintains a comprehensive list of student loan forgiveness programs. Some of the most popular programs include:

For example, imagine that your school abruptly closes in the middle of the semester. Under the Closed School Discharge program, the U.S. Department of Education would discharge various student loans, including the William D. Ford Federal Direct Loan and Federal Perkins Loan.

Make Bi-Weekly Payments

A not-so-secret tip to chip away at your student loans is to make bi-weekly payments. If your loan compounds daily, you’ll pay less interest when you make multiple payments in a month. Most lenders allow you to set your automatic payment to bi-weekly instead of monthly. However, if you’re not making automatic payments, you should check with your lender beforehand. There’s a slim chance that the lender may apply both payments to your statement at the end of the month, which wouldn’t provide any benefit.

Your desire to be debt free may seem like a distant dream, but if you follow the above steps, you can chip away at your debt much quicker than expected. Be sure to use Chunk’s handy tools to help you project your future debt-free date and track all your student loans in one place.

Ready to start your journey to

financial freedom?

Ready to start your journey to

financial freedom?

Ready to start your journey to

financial freedom?

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