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Useful Tips on How to Pay off Student Loans in 5 Years
How to Pay off Student Loans in 5 Years – Sometimes the problem isn’t about getting a loan; the main has always been how to repay. Perhaps you’re on a loan debt and you’re out of idea what to do, don’t worry, and just read through this article to know how to pay off student loan in 5years
1. Negotiate with Debt Collectors
Communication is everything and it doesn’t matter the amount or type of loan debt you’re in, chatting with the firm that you owe money is a great way to start reducing that amount.
“Many credit card companies will be willing to put you on a five-year fixed-rate plan if you request it,” said Ash Exantus, director of financial education and financial empowerment coach at BankMobile. “This is a great option because it allows you to know exactly what you need to pay on a monthly basis with no surprises.”
This also applies to student loans. If you have federal loans, you have a choice of repayment plans that fit your financial state, plus income-based ones.
If it’s a medical bill, you can try talking with the doctor or hospital about your bills. Even if it’s a utility bill, ensure you talk to the company to see what can be worked out. You could knock hundreds to thousands off what you owe.
But there are some caveats to consider. Most credit card companies will request that you close your card to get the five-year plan, according to Exantus, which might have a negative impact on your credit score.
Certified public accountant (CPA) Michael Eisenberg, a member of AICPA’s National CPA Financial Literacy Commission, warned that forgiven debt could be subject to income taxes just like your paycheck because it’s considered income. So, it might make sense to talk with a CPA.
2. Consolidate your Debt
Apart if taking to the companies to which you owe money, you should consider debt consolidation.
“Getting a debt consolidation loan can be helpful if you have accounts with high interest rates,” said Sean Fox, debt expert and co-president of Freedom Debt Relief. “These loans, available from independent lenders, often have lower rates than credit cards along with a strict payment schedule that keeps people on schedule for paying off the debt.”
Consolidating high-interest debt into one monthly payment with a lower interest rate can save you money in both the short and long run. You could wind up paying less every month, and you’ll pay less in interest.
For instance, if you have $10,000 in credit card debt at a 15.00% interest rate and are making monthly payments of $220, it would take you five years and seven months to pay off the debt.
By consolidating that debt into a personal loan with a 10.00% interest rate, you would pay off that amount seven months faster, pay only $212 a month, and save nearly $2,000 total in interest.
3. Adjust your Budget
The next would be to adjust your budget and by adjusting your budget, I mean you should reduce your spending level. This will help you regulate where you’re overspending, where you can cut back, and how much more money you can put toward aggressively paying off that debt in five years.
“Dig deep into the various lines on your budget and look for ways to reduce expenses,” said financial blogger David Bakke. “You can use an online resource such as Mint, an Excel spreadsheet, or even pen and paper to get an idea of where your money goes each month.”
Find your fixed costs (mortgage, rent, utilities, etc.) and where to decrease your spending as part of your debt-reduction plan.
“Believe it or not, there are plenty of ways to save on things like utility bills and gas for your car and even subjective spending categories like entertainment,” said Bakke.
Here are some budget areas to reconsider:
- Subscriptions and memberships: Netflix, newspapers, gym, etc. Take a look at what you pay for monthly in those areas and cancel them for easy savings.
- Cable: If you’re paying $100, $200, or more for your cable or satellite TV service but you’re getting most of your content on the web, consider releasing yourself from the monthly charges that you might have signed up for years ago.
- Credit card and bank fees: If you’re paying fees (look at your statement), shop around for no-fee credit cards and checking accounts.
- Insurance: Look for lower rates on similar coverage for your home and car.
4. Choose a pay-down method
You’ve negotiated your debt, consolidated your remaining debt, and come up with a budget. Now you need to choose how you’re going to pay off that debt.
“Make an honest assessment of whether you can pay down credit card and other debt on your own,” said Fox. “Set an amount each month that you can allocate to paying the debt. This should be more than the combined minimum payments on all credit cards.”
He suggested choosing between two methods for debt payoff:
- Debt avalanche:Make minimum payments on each debt besides the one with the highest interest rate. For that debt, pay the minimum plus any more that you can. Repeat this process every month until that debt with the highest rate is paid off. Then, keep going with the same monthly total amount. But allocate the money you used to pay off the highest-interest debt toward the debt with the second-highest rate. Keep following this program until all debt is paid off.
- Debt snowball:Pay the minimum on all debt. Then, apply the remaining money from the monthly total you’ve allocated to the debt with the smallest balance. After that debt is paid off, continue paying the minimum on all debt and putting the remaining funds to the second-smallest debt. Many people are more successful with this method because of the satisfaction they get by eliminating an entire debt, one at a time.
5. Take on a Side Hustle
This is the most important of them all; you have to hustle to make earn money. Few people have followed this step and where able to pay off their debt.
Example is Grant Sabatier. He not only paid off $30,000 in debt in five years but also became a millionaire by taking on multiple side gigs besides his full-time job.
Kevin Han, creator of personal finance blog Financial Panther, tried closely every side hustle available to pay off his $87,000 in student debt in under three years.
“Why shouldn’t I still find ways to make extra money?” he previously told us of why he works many side hustles while still being a full-time lawyer. “It only helps with future financial goals.” That financial goal could be paying off your debt.
Do everything you can to earn extra money. Driving for Uber, selling unwanted items on eBay, or delivering pizza are great ways to get extra cash to put toward that debt.
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