1. Balance Transfer For a 1.5% APY Loan
A little known secret about credit cards is that they offer balance transfers with a 0% interest rate for 15-18 months. That means you get a 0 % interest rate for 1.5 years. If you can figure out how much in extra payments you can afford to make over those 1.5 years, you can wipe away a hefty chunk of your student loans paying much less in interest.
The catch is that balance transfers require a fee. The lowest I’ve seen is a 3 % balance transfer fee, which comes out to around someone lending you money at 1.5 % interest per year. There’s no way you’ll get a loan that low anywhere else, so that’s awesome.
The interest rate is hiked up to normal rates after the 0% promo period, so be sure to only borrow the amount you can pay off in that promo period time of 15-18 months.
For example — if you’re sure you can pay an extra $500 a month towards your student loans, for a 18 month 0 % promo period, consider using $9,000 for that balance transfer. You don’t want to get hit with the higher APY after the promo period, so make sure you can pay off this balance before the end of the period.
The balance transfer will get paid towards your student loan, paying it off while you pay a 0 % interest rate to the credit card company.
2. Refinance Your Student Loans
As for the rest of the balance on your student loans, you need to refinance. Refinancing is when you get a lower interest rate on your current loan.
Here’s how interest rates work. The more risky the borrower (you), the higher the rate of interest someone will charge you when you want to borrow money. The safer financially you are, the lower your interest rates will be.
You are a riskier borrower when you haven’t yet graduated college or gotten a job. Lending a 18 year old money is pretty risky. You don’t know if they’ll finish their college education or just drop out and dig themselves into a hole with more debt and declare bankruptcy. Once you’ve graduated college and have a job, you’ll be able to refinance those student loans for a much lower interest rate and save a ton on that interest.
A lot of interest. How much? Here’s an example based on average student loan statistics.
The average American has $40,000 in student loan debt when they graduate. The government interest rate for student debt is currently 4.45% and the average private interest rate for student loan debt is 10%. If we assume a half and half mix of private and public debt, then taking an average 7.25% interest rate in student debt, you’ll pay $38,000 extra in interest if you don’t refinance your student loans. If you refinance to the lowest rate possible of 3.15% currently, you’d only pay an extra $15,000 in interest.
In this scenario, you’d save $23,000 just by refinancing.
It’s amazing how much a higher interest rate will cost you over time.
Checking your possible rate is completely free with Lendkey and doesn’t impact your credit score so take a look and see if you can get a lower interest rate to save a ton of money. Lendkey aggregates the biggest lenders and compares their rates to get you the lowest rate. It’s kind of like what Kayak does for airfare, except Lendkey compares student loan rates for you. They don’t charge origination fees either, so it’s free.
3. Rinse And Repeat
Once you’re done with the first 15-18 month promo period of the 0% APY credit card, sign up for another 0% APY balance transfer card in order to take advantage of those rock bottom lending rates again.
When/if interest rates fall again, you should continue to refinance your student loans, saving you even more on interest.
Student Loan Repayment Tips + Tricks
Extra payments towards combating your student loans are always great and allow you to pay off your student loans even faster. While the above three step plan includes the most important points, if you’re really gung-ho about annihilating those student loans, here are a couple of tips on how to drum up some extra money to get your student loans in check sooner.
Make A Student Loan Payment Every 2 Weeks
There are 52 weeks in a year and most people get paid every 2 weeks. That means you get paid 26 times a year — ever notice that two months out of the year you get an extra paycheck? It’s always such a nice surprise!
Take your current monthly payment, and pay half that amount every 2 weeks. This way you’re paying 13 payments a year instead of 12, without you even noticing.
Make Sure Your $ Is Going To The Principal Of The Loan
I’m not sure why student loan companies do this, but unless you make sure the extra dollars you’re paying go specifically to the principal, the company will keep your money for future payments, meaning that you don’t save any money on interest.
How do you make sure they’re applying it to principal? Call them, email them, etc. and get them to put it in writing that they are applying it to principal to be safe. If you’re writing a check, it should say “Extra Payments For Principal Repayment”.
Always make sure, because you don’t want to be paying extra, but not having it go to principal and not save any money on interest. This concept also applies to mortgages if you’re trying to pay them down early, so make sure to check on that if you’re not sure!
Make A Budget And Reduce Your Current Spending
Chances are that once you got out of college and got a real job, you decided it was time to live it up! I definitely did. For a lot of people, it takes a while to realize how much lifestyle inflation catches up with you and then decide to rein in your budget.
While there are a lot of ways to cut spending, here are a few that might be every day or weekly purchases:
- 11 Tips & Tricks To Save On Groceries (I spend $40 a week!)
- How To Do a No-Fail No-Spend Challenge (Free Printable!)
- Alcohol Consumption will cost you 3 years of early retirement
- Metromile: A Pay Per Mile Solution To Cheaper Car Insurance?
Start Earning Money With a Side Hustle
Sitting down with a budget and saving money is a great way to pay down your student loan earlier, but there is only so much you can save at the end of the day. If you’re already going to the gym or want to lose weight, you should consider monetizing your weight loss.
Increasing your income with only a few hours a week can make a huge dent in your student loans. Imagine spending some time to earn just $100 a week. That’s $5,200 a year!
If you don’t want to spend time learning a new side hustle or skill, you can always simply monetize your existing life instead or use passive income apps.
Apply Bonuses and Raises To Your Student Loans
Keep your lifestyle inflation in check and instead of buying the newest gadget or piece of clothing, put your extra earnings towards your student loan!
Whether a bonus or raise, always pretend you’re living on the same salary you were when you just graduated college to keep that lifestyle inflation in check.
Earmark Tax Refunds For Debt
You should aim to not get a tax refund, because that means you can put that extra money towards paying off debt and earning a return in your savings account.
But if you can’t do it this year, that’s ok! Any tax refunds should be considered extra money for debt, instead of to buy material things. Every year around tax season, there are tons of “10 Things You Should Buy With Your Tax Refund” articles. Do the financially savvy thing and pay off your debt, invest, or save instead of buying things.
Don’t Neglect The Rest of Your Finances
In my step by step guide to managing your finances, paying off extra student loan debt is #4 on the list. You should always pay off the minimum required to make sure your credit score stays high, but there are 3 other things you should consider before making extra payments:
- Emergency Fund – Have 3-6 months of expenses in a high-yield savings account so you have cash on hand in case
- 401k Match (also 403b, 457, TSP, etc) – A 401k match is a 100% return on your contribution dollars. That’s better than saving a small amount on interest
- High Interest Debt – Most often credit card debt, which has APY’s of 20%+. Pay this off because your student loans will have a lower interest rate
Make Sure You’re Getting Cash Back & Apply That $ To Your Student Loans
I get at least 10 % back on most purchases I make by triple dipping on cash back. Credit cards offer cash back, online portals offer cash back, and you can get a small discount by buying a gift card from a gift card company that guarantees the gift card balance.
Every year we get thousands in cash back without having to work for it. It’s always a great bonus.
Claim Your Student Loan Deduction
Did you know you can deduct the interest on your student loans on your tax return? While it doesn’t negate the pain of paying interest, it makes it a tiny bit better. You can deduct up to $2,500 a year on your student loans. There is a ceiling on this benefit though, so if you make more than $80,000 you won’t get that deduction.
Do you guys have any other student loan tips?