Student loans are a massive burden for many people. They can be challenging to pay off, especially if you have other debts such as personal loans or credit card debt. This blog post will explore what could happen when you pay off your student loans. We will look at the benefits of doing so and how it could improve your life.
How Much Money Would You Save If You Paid Off Your Student Loans Early?
Paying off student loans early can be a great way to save money, and it can reduce the interest you pay over time and free up more of your finances for other expenses or investments. However, it’s essential to consider whether you have enough financial resources to commit to an accelerated repayment plan. Depending on the size of your loan balance, the amount of time left on your loan term, and the interest rate that applies to your loan(s), paying off student loans early could result in significant savings.
For example, say you owe $20,000 in student loans at 5% interest with a 10-year repayment period. If you paid off these loans within five years instead, you would save approximately $3,000 in interest over the loan's lifetime. Even if you only paid an additional $50 a month towards your loan balance beyond what is required, you would still save more than $1,300 in interest.
On the other hand, paying off student loans early could be even more beneficial if you owe significantly more money—say $100,000—at a 6% interest rate and with a 15-year repayment period. In this case, paying off the loans within ten years could result in savings exceeding $20,000 compared to making payments for the entire 15-year term.
How To Create A Plan To Pay Off Your Student Loans?
Here are some tips on creating a plan to pay off your student loans:
1. Gather All The Documents Related To Your Loans
Make sure you have copies of loan statements, repayment terms, and other details. Knowing exactly how much you owe and who you owe it to is the first step in creating a plan for paying off your student loans.
2. Figure Out Which Type Of Repayment Plan Works Best For You
Various repayment plans are available, so it’s important to understand which option will work best with your financial situation. You can choose an income-driven repayment plan, where payments are based on how much you earn, or an extended payment plan that allows you to stretch out the duration of your loan repayments over a more extended period.
3. Prioritize Your Loans
If you have multiple loans, you may want to prioritize which ones get paid off first. You might first choose to pay the loan with the highest interest rate or the smallest balance.
4. Set A Budget And Stick To It
Once you know what type of repayment plan works best for you, it’s important to set a budget that includes your monthly student loan payments and other living expenses. Make sure your budget is realistic and easy to stick to. Federal family education loan programs offer deferment and forbearance options if you cannot make a payment.
5. Make Extra Payments When Possible
If you can afford it, making extra payments on your federal student loans will help reduce the total interest you end up paying and get those loans paid off faster.
6. Talk To Your Loan Servicer
If you’re having trouble making payments or need help understanding the terms of your loan, reach out to your loan servicer. They should be able to provide advice and answer any questions you have.
7. Stay Motivated
Paying off student loans can take years, so it’s important to stay motivated throughout the process. Set small goals for yourself, and remember that each payment gets you one step closer to becoming debt-free!
What Are The Benefits Of Being Debt-Free?
Being debt-free has numerous benefits that can help you set yourself up for financial success and peace of mind.
1. Lower Stress Levels
Student loan debt can be a huge source of stress and worry, constantly nagging at the back of your mind. Once you become debt-free, this pressure is lifted from your shoulders, and you can enjoy life more fully without worrying about bills or payments daily. Student loan forgiveness can also be a great way to reduce your debt burden and make life easier.
2. More Disposable Income
When you’re not making payments on credit cards or other loans, all that extra money can go toward savings goals or investments instead of wasting away on interest payments. This means that your net worth is increasing, which helps to build financial security over time.
3. Better Credit Score
Paying off debts considerably boosts your credit score. As you pay off debt, the number of available credit increases, which helps to increase your score. Also, having no outstanding debts is a positive sign for lenders and creditors considering approving loans or lines of credit in the future. Debt relief programs can also help boost your credit score by eliminating and settling delinquent debts.
4. Increased Financial Freedom
When you’re not tied down to the burden of federal student loan debt, it’s much easier to take advantage of opportunities that come your way. You don't have to worry about making payments on multiple loans when trying to save up for investment or purchase a new car - instead, you have more freedom and flexibility with money management.
5. Improved Peace Of Mind
Knowing that you’re debt-free and in control of your finances can provide tremendous relief. A solid financial foundation can help create peace of mind, knowing that you don't have to worry about monthly debt or payments.
How To Make Extra Money To Put Towards Your Student Loans
Making extra money to put towards student loans can be a great way to progress on repayment without taking away from your existing budget. Whether you pick up extra hours at work, tutor students, sell things online, or do odd jobs for your neighbors and friends, any money you can bring in can quickly add to noticeable progress toward your loan balances.
Consider using websites like Upwork or Fiverr to find freelance jobs that match your skill set. Not only will this help you pay off debt quicker than if you just made the minimum payments, but it could also provide much-needed variety in an otherwise monotonous job. Whatever route you choose, don't hesitate to get creative in finding ways to bring in some extra cash.
If you need a boost in getting started with tackling your student loan debt, schedule a call with a Money Coach here at Bolder. We would be happy to guide you through creating a budget, paying down your loans, and setting you on the path to financial freedom.
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