The statistics about student loans can be alarming: nearly 43 million Americans owe close to $1.3 trillion in student loans, with the average graduate owing $37,172. The total for individuals who decide to go on to law or medical school can be over $100,000. The current delinquency rate on student loans is 11.6%, and the average payment for borrowers ages 20-30 is $351 per month. For many graduates, it’s a real challenge to keep up with student loan payments on top of the other expenses that come with early adulthood. Some people have decided to put off purchasing a home or starting a family because their finances simply do not allow for these important parts of life. For others, student loan payments are quite manageable, and they’re faced with some decisions about how to use their remaining income. It can be difficult to decide if it’s best to try to pay off student loans early or to invest more in retirement or purchase a house. There are some great benefits to increasing your student loan payments, so it’s wise to give this option some serious consideration.
Benefits of Paying More
$100 may seem like a lot of money to cut out of your spending, and you may wonder if paying that toward your student loan will even make a difference. However, even if you don’t have much room in your budget, you may be able to make just a few changes in your spending that will have big impacts on your bottom line. Packing your lunch and brewing your own coffee instead of ordering out at work can save you some cash. You can probably think of other small ways to trim your spending as well.
So what happens when you put just $100 extra toward your student loan payments each month? It could turn a 10-year repayment period into a seven-year plan. This means you’ll be free of your debt and can start saving and investing three years sooner! You’ll also decrease the total that you’ll pay over the life of your loan(s). Decreasing the time you’re paying the debt means less interest paid. This could save you thousands of dollars.
After your student loans are paid off, you can choose where that money goes. You can increase your retirement contributions, fatten up your savings account for emergencies, or start a new account for a vacation or down payment on a house. By being disciplined with your budget until this debt is paid off, you give yourself more freedom for years to come.
Take Small Steps
If you don’t have $100 to spare, even $50 or $25 can make a difference in the long run. Think of ways you might be wasting money, and make that money work for you. It’s a good idea to look at your loan terms and repayment plan. There may be an option that’s better for you such as income based or paye. By lowering your required payment, it will be easier for you to make extra payments and get rid of your debt sooner.