Graduating in Debt: Easy Ways to Pay Off Your College Bills Faster

It?s no secret that higher education is a great way to get ahead in life. But it?s also no secret that many students find themselves beneath a pile of debt by the time they hold that degree in their hands. What are students to do? Graduating in debt is a situation that needs to be addressed sooner rather than later.

Graduating in Debt: Easy Ways to Pay Off Your College Bills Faster
Graduating in Debt: Easy Ways to Pay Off Your College Bills Faster
It?s a fact that people with higher degrees make more money in their lifetime than those without one. Unfortunately, the cost of that degree is rising every year. The good news is that if you plan correctly, you can pay off your student loans quickly without having them follow you around for 20 years. Here are a few things you can do after you graduate to help manage that student loan debt so you can live the life you want.

Never Pay the Minimum Payment

While the monthly payments may be a little cheaper, if you only pay the minimum amount, it can take nearly two decades to pay off your loan in full. Plus, you?ll be paying a lot more money toward interest than you would if you pay the loan off early, making the total cost of college even higher than it already is.

The best part is that you don?t even have to pay a lot more than the minimum amount to make this strategy effective. Sure, the more money you can pay each month the better, but even $20 extra a month can help make a dent that can lower your total term by years.

It?s simple math. Imagine adding an extra $100 to your payment each month. This means that you?ll have put an extra $1,200 toward your loan each year. After just 10 years, that?s an extra $12,000. That can be as a quarter or so of a large student loan!

Put Any Raises Toward Your Student Loans

Hopefully, you?ll land a job that you enjoy and can advance in once you graduate. That is, after all, one of the biggest reasons to go to college. And if you want to really pay down your student loans faster, you can opt to apply any raises you receive toward your loans.

According to some studies you may be able to expect around a three-percent raise to your base salary each year on average. This means that if you make $40,000, you can expect an additional $1,200 or so each year on average. If you want, you can apply this to your student loans. If you?re hurting for money, you can put every other raise toward your debt so you can use the extra cash for other things if you need to. In reality, it?s about $50 extra every two weeks, so you may not even miss it if you apply it directly to your debt.

Consolidate Your Loans

If you?re like most students, you probably have a few different loans that you?ve taken out over your college career, each with a different interest rate and terms. Certain websites can help you consolidate all of those loans into one lump sum, not only giving you a better overall interest rate but making payments easier as well.

Loan consolidation companies will usually work with you to determine a good monthly payment that you can afford and may offer flexible payment options and terms. Of course, a lot of these conditions will affect your credit score, so if you have a bad score, you may end up paying more than if you have a good one. But, one of the benefits of consolidation is that it usually helps your credit score because the payments are easier to make.

When Graduating in Debt, Create Additional Sources of Income

There are different ways you can do this.

Get a part-time job. This is certainly the simplest way to create an additional income source. But the downside is that it will eat up a lot of time, since your income will be commensurate with the number of hours that you work. To minimize that problem look for part-time jobs with above average pay.

Gig work. This is fast becoming a “thing” in the 21st Century. As traditional employment arrangements break down, gig work is becoming the new normal. It could include ventures such as driving for Uber or working from your home computer as a virtual assistant. The advantage is that you will have control over both your time and your income.

Start a side business. A side business offers probably the greatest chance of paying off your student loans. Not only is it a chance to earn more money, but you could be building the business of your future. My journey into freelance blog writing started out as a side business, but quickly grew into my main gig. Think about what you like to do, and what your good at, and how you can monetize it. If you can, you’ll have the start of a viable side business.

The key to this strategy of course is to dedicate the additional income source(s) specifically to paying down your student loans. Is you simply blend the new revenue into your regular spending, it will be a complete waste of your time.

Apply Any Cash Windfalls to Your Debt

If you are ever lucky enough to win a decent amount in a lottery or if you come across a good-sized inheritance, think about applying some or all of that money to your student loans.

Throwing a large sum of cash at your debt can really help reduce the length of the loan and help save you money because you won?t pay all of the interest if you just make regular payments. It?s a good idea because many spend slowly waste their windfalls and are soon left without anything to show for it in a few years. By applying some or all of the cash to your loans, you are setting yourself up for success in the future.

Don?t let the fear of debt stop you from getting a degree. There are many ways to manage your loans and pay them off early.

Francesca Hayward is a financial advisor who works primarily with families. She is always looking for new money tools and tips, and when she finds them, she loves to post her discoveries on a variety of finance and family websites.

( Photo by a.mina )

8 Responses to Graduating in Debt: Easy Ways to Pay Off Your College Bills Faster

  1. Planning to pay off your student loan debt includes making sure you get a degree with real earnings potential . I really like the idea of “gig’ income being used to retire the student debt even sooner.

  2. Hi Mike – I like the gig work idea too, since I spent a good deal of my early blogging years doing just that. I can recommend it and know that it works. Excellent catch about making sure you get a degree with real earnings potential. Too many students are graduating with big debts and soft majors. Very bad combination.

  3. I did something unconventional to get rid of my student loan. Granted this will not work for many, if not most, people.
    I had to take out a mortgage loan to pay some other debts on the estate I inherited so I took enough out to pay off the rest of my student loan. My loan rate was about 8% interest and the mortgage loan was about 3%.
    I figured at my age (60 something) I was going to die holding that loan if I didn’t get rid of it soon and St. Pete would send me away from the Pearly Gates if I hadn’t finished payment. They have made it so even death or profound disability can’t erase those damned loans.
    You haven’t mentioned one thing student borrowers need to know: The loan interest takes a big whack off of your income tax burden. While you still have the loan, make sure and deduct the interest off your tax bill. Your loan servicer will send you a statement every tax year. The amount you can deduct will be on that statement.

  4. The interest deduction is a good catch Mary, but I do believe it’s limited based on your income (I’ll have to do some research on that one). Your strategy to roll it into the new mortgage was brilliant. At least there it’s a secured loan (you can sell the house to make the loan disappear) and deduct the full interest on your tax return. Of course, as you point out, the overall payment is lower, with that 3% interest rate. Brilliant strategy.

    I think it’s also worth advising that anyone who takes student loan debt needs to consider the prospect of repaying it. I have a strong suspicion that a lot of students and their families think that student loans are magic money from Heaven that they won’t really have to repay. I think that also explains why so many students go to colleges that are clearly beyond their financial reach. If only their 25 or 30 year old selves could talk to them at 18 it would all be straightened out before it becomes a life crisis.

  5. The deduction is limited to $2500 of interest subject to additional income limits. At higher income levels the deduction can actually cease. By the way if your income is too high for the deduction I often tell my tax clients to take out a small home equity loan. The interest from that loan is deductible as long as the taxpayer itemizes. The money from the HELOC can be used to retire the student loan.

  6. Thanks Mike, I knew there was some substantial limitation on student loan interest, but it’s one of those shadowy remnants sitting on a shelf somewhere in my brain. Excellent strategy moving the debt to a HELOC, which probably also has a lower rate of interest. It’s what Mary did with her debt and it’s brilliant. And it also removes debt from bankruptcy exemption, should that ever become an issue.

  7. Your advice of ?throwing all the money you can? at student loans is what I see recommended a lot on the internet. However, I?ve crunched my personal numbers and throwing all of the possible money I can at my particular (federal student loan with fixed interest) situation I would pay it off in 9.5 years with little to no other saving. Or, I currently qualify for the public service loan forgiveness program and I can pay the minimum on it for 9 more years and have the rest forgiven and have a retirement and savings for potential house or investment. I need to keep a qualified employer but still at least at the end of 10 years I walk away with something more than just cleared student loans. And I don?t consider my loans to be astronomical. Something for those who already have student loan debt to consider. Obviously if I could go back in time I would probably change some of my choices but until I build my wayback machine I?ll be dealing with my present situation.

  8. Hi Victoria – Too many students, and their parents, don’t realize how crippling these loans are. You’re faced with a choice to put your financial life on hold for the better part of 10 years for a financial decision you made when you were barely of legal capacity to do so. Given the amount of time you have on that loan it might be better to concentrate extra funds for savings and retirement. You won’t pay off your loan faster, but having extra money may open up some options later.

    The extreme length of student loans forces debtors to find a way to “live in peace” with their debt. That means finding a way to optimize your finances while you’re servicing the debt. And who knows, maybe a future presidential candidate will propose and succeed in implementing some sort of student debt forgiveness plan. The way things are going now student loans are a full on scandal. They’re turning millions of young people into indentured servants.

Leave a reply