Posted by The TaxAdvocate Group, LLC

Ways to Quickly Pay off your Student loan

Ways to Quickly Pay off your Student loan

Today, for many young people, a student loan is one part of the university experience, which generally follows them for decades, even after graduation. The best-case scenario is that it costs money and forces you to set some of your other financial goals. The worst-case scenario is that it can ruin your credit and financial security.

Paying off student loans quickly is not always the easiest thing to do, but here are some important tips that can help you get through paying off the loan faster.

Make additional payments the right way

There is never a penalty for prepaying student loans or paying more than the minimum. You can make an additional payment at any time of the month or make a larger payment on the due date. Anyone can save a lot of money.

For example, suppose we owe $ 10,000 with an interest rate of 4.5%. If you still pay $ 100 a month, you would be debt-free more than five years in advance if you subscribe to a 10-year payment plan.

However, there is a big caveat – administrators of student loans, who receive these invoices, can apply the additional amount to be paid the following month. This anticipates the due date, but will not help you to repay student loans quickly.

Instead, ask your administrator, online, by phone or by mail, to apply overpayments to your current balance and keep next month's due date as planned.

Choose the most extensive payment plan for student loans that you can quickly pay

The student loan plan with the lowest monthly payment may seem to be the best option because it offers more money to spend today. This can be a good option if you are eligible for student loan forgiveness programs like PSLF (Public Service Loan Discount). But if you pay the loan yourself, choosing a smaller monthly payment can extend the term of the loan and may even cost you more long-term interest.

When you choose a student loan payment plan with a higher monthly payment, each payment will have a more significant impact on your balance, allowing you to pay off more quickly. But be sure to choose a loan payment plan that you can afford. Failure to pay your monthly fees may result in late fees and reduce your credit score.

Take advantage of tax and credit deductions

There are two types of tax deductions that can help reduce the tax burden on recent students and graduates.

Deduction of interest tax on student loans

By deducting student interest tax, you can reduce your taxable income to $ 2,500 for interest paid on student loans in the year the request is made. To benefit from this deduction, you must:

    • You have paid interest on a loan on your behalf.
    • Have been enrolled at least part-time in a licensing program when applying for the loan
    • Introduce yourself as an individual employee or "married, filing a joint declaration."
    • You have a modified gross income (MAGI) of less than $ 80,000 as an individual contributor or $ 160,000 if you submit a joint statement
    • No one else claims you as an employee on your tax return

Registration fees and tax deductions

The second type of deduction can reach $ 4,000 per year for tuition and fees. Unlike the interest rate deduction on student loans, it can only be claimed for the years in which you paid the educational costs. This will usually be an option only when you are in school or returning to school while paying student loans.

To qualify for this, you must have paid qualified higher education fees, including tuition and fees, but not accommodation, meals, transportation, etc., by yourself or a student qualified (spouse or employee you claim) exemption from reporting.

If you are still studying or have returned to graduate school, you can also receive tax credits, which directly reduces the amount of taxes owed.

Pay more than the minimum

If possible, pay more than the minimum each month, but do it carefully. Some creditors may charge extra money for next month's payment or spread it over all loans, which will not have the desired effect. Send an additional payment with instructions to the lender stating that you want to apply additional funds to the main balance of your loan with the highest interest rate. Please contact your loan manager at a later date to make sure you have requested the payment correctly.

You may need to make budget changes to free up additional money. You can also use year-end bonuses, tax refunds, and other unexpected income, although you can't count on them to help you every month.

Refinancing when a better interest rate is found

Be aware of the interest rates on student loans, even after graduation. If they fall, consider refinancing. This will reduce the rate of increase in the balance so that each payment will have a more significant impact on the principal, and you will be able to repay the loan more quickly.

Only private student loan companies offer to refinance. Federal student loans do not allow this, although it is possible to consolidate more direct federal student loans into one direct consolidation loan if desired.

Private student loan companies generally do not offer a variety of payment options provided by federal student loans. Still, they may offer a lower interest rate, especially if you have good or excellent credit.

Look for employers who offer help paying off student loans

A growing number of employers are offering student loan assistance as an advantage in attracting young graduates. Each company has its system, and some can apply for several years before being admitted to the company. Ensure you have an in-depth understanding of each company's policies before applying to understand what you will expect from them.

Do not pick a company just because it offers student loan repayment assistance. And remember that the money they pay is always taxable, just like there regular income. Do the math: If another company pays you more than the student loan, avoid help, and get higher wages.

The above suggestions may require short-term sacrifices, but be sure to do so to save money in the long run, so that you can reach other financial goals faster.

Reduce your budget

The last thing you can do to pay off your debts is to reduce your monthly expenses as much as possible.

Either it is $50 less per month because you canceled the cable or $200 more per month because you cut down on eating out, find additional space to manage your budget, to pay off your student loans.

Conclusion

It's easy to talk about how to pay off student loans faster, but working on it is the hard part. Once you have decided on loan repayment strategies that suit your financial situation, establish a plan that includes regular checks to keep you informed.

Although you may have to make short-term sacrifices to pay off your student debt faster, you will reap the benefits as soon as you are free from loans and happy to make the extra effort (and funds) to pay off your student debt loans.

The TaxAdvocate Group, LLC
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