STUDENT LOANS: REPAYING DEBTS FASTER
Student loans may not be paid overnight, but we want to pay it off in a fastest way possible. Is it possible?
Before anything else, one has to recognize this responsibility. The borrower should know why he incurred this debt in the first place. Otherwise, he won’t be able to repay his student loans at all.
Come up with a payment scheme after acknowledging this responsibility. You may apply a trick being used for mortgages to a student loan. A borrower may repay the debt biweekly, instead of monthly, to reduce several years off of the mortgage. By doing so, you gain two things: First, less time for interest payments to accrue, and additional payments to the loan every year. In other words, paying every other week is tantamount to 26 annual payments. Now, that is a less painful way of repaying student loans faster.
However, the only downside to settling loans biweekly is if you are seeking a discount for automatic payments directly debited from your bank account. Therefore, the creditor will more possibly take out payments once a month. Ignore not an interest rate deduction. You may send in another half payment instead on the two months per year in which you get three biweekly checks. That way, you may cut down the interest rate you pay and your repayment period.
Adding small amounts every payment does the trick, too. Yes, you may not be able to afford an additional payment every year. But you can increase your payment to $5 a month or $25 every other month. By doing so, you can save up to 200% of the extra payment you give.
But a piece of advice, though: Be careful of using all the spare cash for paying off student loans, especially if you have a credit card with high interest rate. On that note, it is better to use that additional money in lowering your credit card balance.
Of course, forget not the best part of the student loan tax deduction — tax refund. It can be used to pay off student loans faster. Just like any other types of tax reduction, the amount of a student loan interest cuts down the income on which you are paying taxes. For instance, the marginal tax rate for your income level is 15%, multiply the interest being paid on the student loans by 25% at the end of the year. Such refunds may cut more than a year off the repayment schedule.
One more thing: never use debt. We all know money is tight. But you can get out of debt if you will use debts in repaying the loans. Refrain from opening any new accounts, and freeze credit cards, if necessary.