How to Pay Off Your Student Loans Fast

Paying off loans for students is a challenging task. Our first salary is not always enough to meet this financial obligation. Plus, for first-time professionals in a new city, it’s an uphill task to set boundaries and pay off the debt. When my husband and I got married, we started our married life with the burden of his student loan. He was fresh out of a B school. It took us a couple of years to pay off the student loan taken in India. In retrospect, we think there were a couple of things we could have done to meet the obligation faster. Here’s what we see other professionals around us do to pay off their student loans:

First things first, before we try to use one or the other method, do the following:

Make a Plan

Know the exact amount of loan payment – principal, interest, and the tax benefit. Understand the monetary benefit of each element before plunging into the decision of repayment. Set a timeline. Not too high, say 5 years. Not too low that it becomes unattainable and the plan eventually fails. Two to three years is a reasonable time frame. Then decide the monthly amount you wish to pay. And lastly, the way you would pay it – post-dated cheques or auto deductions from the salary account. After having a broad framework, use any of these methods to pay the loan faster:

Refinance your student loans with lower-interest loans

I know friends who use their credit cards to refinance their loans. They have an excellent credit history. They got a credit card that has a zero percent interest rate. They have used that card to pay off their student loan. This has helped them to save on the interest for 2 years. But before you do that, calculate the actual cost. Factor in – pre-payment fees, processing fees and tax benefits you avail on the student loan. Do the maths before refinancing your student loan.

Take a part-time job to pay off debt

Many of my friends have done this. They started paying their student loan while they were still in college. They took a part-time job. They used the money to pay off the loan. Some were smart. They used the money earned from their part-time jobs to make investments and paid the student loan later when the loan became due at the time of completion of their degree. Take your pick. Do what suits you. Make sure to ask if there is no prepayment penalty on loan payment, though.

Ask your employer for help

Companies are willing to give such benefits to their employees in an attempt to retain talent. So ask your employer if they can help to repay your student loan. It’s often a part of your salary package. Many Indian companies extend help to their new recruits, especially if you are hired from the campus. Check with your HR. In case you are critical and have the bargaining capacity, you can always ask before accepting the job offer. You can negotiate this as a benefit.

Direct payment from salary account

Authorize direct payment of loan from your salary account. Set the authorization close to the date on which salary credits in your account. This way you wouldn’t have to worry about keeping the balance available for loan payment. With direct payment, you never default on the loan payment. A default reflects poorly on credit history. With these advantages, direct payment from the salary account is opted by majority of people.

Ask parents for help and pay them later

I don’t like asking my parents for help. I feel it takes away the essence of being a responsible adult. However, this shouldn’t stop us from making a smart financial decision. If the interest rate is steep and you are not getting much tax benefit – ask your parents for help. You can pay them like you pay your loan – monthly – but the interest rate wouldn’t be there or you can opt for a lower rate as decided between you and your parents.

Budget and pay off as much as possible every month

Be aggressive. Try to pay off the debt as soon as you can. In addition to setting aside an amount to pay off your student loan every month, try to save as much as you can, and use the remaining money towards loan payment. You can take up freelancing work or part-time jobs to earn extra bucks. I know a blogger friend who used her blogging income to pay off nearly 15% of her student loan. Extra income helps. If not that, budget and save as much as possible. As most of the fresh pass-outs are single, live economically. There is no shame in frugality when you have a higher aim in mind.

If you have paid your student loans faster, please share your success story with us. Your experience can help others. Also reach out to Money View Personal Loans to get easier, faster, collateral-free personal loans. You can apply for student loan here.