Student loan debt is on the rise. Many recent graduates and working professionals are still struggling to find ways to pay off their student loans. We are here to help. Here are some of our favorite creative ways to pay off your student loans.
10 Creative Ways to Pay Off Your Student Loans
Majority of college graduates today have a student loan debt. According to the student loan debt statistics for 2018, the average student loan debt for the class of 2017 graduates was $39,000, which is an increase of 6% from the previous year.
The average student loan balance is increasing at a faster clip than wages. That is a serious problem.
An overview of how student loans have impacted the ability to retire
A lot of Americans are over-burdened by the student loan debts now than ever as the number of students who have applied for student loans has increased. There are different types of student loans and some loan stipulations provide you with funding enough to live off your student loans. The option of living off student loans has increased the possibility of more students getting the chance to study.
The student loan burden has however had a major impact on the way Americans save, spend and live their lives. According to the Federal Reserve Board of Washington, DC, an increase in student loan has led to a significant decrease in home ownership.
It is imperative to determine if it’s better to pay off student loans or buy a house. A study by Nerd Wallet has estimated that students who graduated in 2015 will have to delay retirement until the age of 75 or majority will be forced to remain unretired because of the student debt burden.
This leads me to wonder how can you creatively pay off your student loans to better your financial future.
A story on a creative loan repayment strategy
I love this story about Ray Laureano from Student Loan Hero. Ray and his wife decided on a non-traditional plan for debt repayment:
“Conventional financial advice says that if you follow the debt avalanche repayment strategy, you make the minimum payments on all of your debt and put any extra money toward the debt with the highest interest rate.
For Ray, that approach didn’t seem effective enough. Instead, he talked to each loan servicer and entered the lower-interest loans into forbearance; in other words, he paused payments on those loans.
With his other debt payments on hold, he put all of his extra money toward just one loan with the highest interest rate. When that loan was fully paid off, he tackled the next highest-interest debt, and so on.”
This is definitely unconventional and goes against what I would typically do (I’m old school).
What are our favorite creative ways to pay off your student loans?
Our 10 Creative Ways to Pay Off Your Student Loans
If these alarming statistics are anything to go by, a majority of American families will struggle to achieve financial freedom in their earlier years. To reduce such possibilities, there is a need to find creative ways to pay off student loans debt. It’s quite amazing how much flexibility you have once you completely repay off your student loans.
Let’s explore 10 clever ways to pay off student loans.
1. Establish a clear debt payoff plan
This may seem pretty simple. If you want to resolve debt issues, the first thing you should do is to create a realistic plan. Having a plan in place is crucial as it will help you to make the right choices in regards to your finances.
Your financial statements can be a way to determine your financial position. You can use personal financial ratios to compare different elements on your personal financial statements and establish the way forward. The personal finance ratios help to determine your financial status in terms of how much debt you owe and what your current net worth is.
Ensure that you consider your financial position when creating a suitable debt payoff strategy.
Utilize the free personal finance and wealth resources tools available to create a budget and to check your progress. For example, FinAid offers a free Student Budget Calculator which can help you create a budget.
You can use Personal Capital to fill in your information and a budget will be created for you and they will send you the progress updates to keep on track. Once you have a clear plan in place, it will be easier to see the progress you make with different creative ways to pay off student loans.
I usually pair my Personal Capital with WeVest as well. Wevest has an awesome feature that shows your debt-free date based on your interest rate and monthly payments. By combining these both together, I end up monitoring my personal financial ratios effectively.
2. Prepay down the principal amount
Another creative way to pay off your student loans is to first pay off extra principal whenever possible. This will help you to reduce the interests you will pay over the life of the loan. Since interests are calculated based on the principal amount, when you reduce the principal amount, it will automatically translate to lower interest payments.
It’s amazing how many people do not know that you can prepay your student loan debt. As you maintain an automatic debt repayment strategy, you can watch your credit score increase as the timeliness of your payments improves and your history of payments is established.
Try using a service like Credit Sesame to monitor the improvement of your score over time.
3. Pay off variable debt with high-interest rates first
Just like in any other debt-payoff strategy, clearing the loans with the highest interest rates first is a creative way to pay off your student loans. This is because interests can accumulate and you may end up paying a lot more.
In most cases, the student loan rates from the private lenders usually fluctuate and can hike to an extreme level at some point. So it is prudent to pay them off and handle the federal loans gradually since their rates are stable.
See Related: How to Pay Off Student Loans on a Teacher’s Salary
4. Pay more than the minimum balance on an automatic basis
The repayment on your student loan may be long, maybe 10, 20, 25 years or more. This gives you the advantage of paying lower monthly payments and can be good when facing financial hardship.
However, your financial situation would improve if you can afford to get rid of debts as soon as possible. It can reduce the amount of money you spend on interest in the long run and help you get rid of debt sooner.
Try to increase your monthly payments. It doesn’t have to be an equal amount each month. Look for ways to save more and to increase your income.
Determine how much you’re able to save and how much extra bucks you can create and use it to pay a higher amount than your minimum balance. You can save a lot by cutting your spending and unnecessary expenses like a gym membership, drink tap instead of bottled water, eat at home not out, cut the cable cost, and use public transport, among others.
This can help you dedicate the little money you save to meet your financial goals like to pay off student loans or save for a house.
Another creative way to pay off your student loans is to create extra sources of income, for instance, get extra jobs, start an online business without investment, earn cash backs on your everyday expenses, sell stuff you no longer use or need, among other sources of free money to pay off student loans.
This will reduce the period you take to pay off the debts and help you pay off your debts faster.
To get rid of your student loans faster, it’s crucial that you think out of the box to find additional clever ways to pay off your student loans. Establish a clear repayment plan upfront.
5. Take the student loan tax deduction and reserve that portion to pay off more debt
This is one of the most straightforward creative ways to pay off your student loans. If your income doesn’t exceed certain limits, the student loan interest of up to $2,500 can be deducted on your federal tax returns. It is possible to take this deduction even if you don’t itemize.
Find out whether your income tax bracket qualifies for a deduction and claim it. The deduction can significantly reduce the amount that you’re paying in interests. It is a creative way to pay off your student loans and can save you more money.
6. Consider consolidation or refinancing your student loan
You may also want to consider the debt consolidation option where you source for one large loan to help you pay off other loans. The Federal student loan consolidation is for federal loans only and is a move by the Education Department to help you lower the monthly payments but it lengthens your pay off period.
Private student loan consolidation also called student loan refinancing involves replacing multiple student loans, that is, Federal, Private or a combination of the two with a new single private loan. It is a financial move usually through a private lender and helps you to get lower interest rates and thus saves you money. Student loan refinancing is a creative way to pay off your student loans. By refinancing your student loans, you are able to save significant amounts of money that would have been paid towards interest.
I refinanced student loan debt that had interest rates of greater than 10%! I used SoFi to refinance these student loans. This really saved me. I was able to pay off more student loan debt and become student loan debt free faster.
7. Create automatic payments
Create an automatic repayment plan from your checking account each month. Some student loan lenders offer a discount to such arrangements and thus it will not only help you pay off the loan faster but also reduce repayments.
Another creative way to pay off your student loans is to ask your employer to pay it on your behalf and then you can be getting a lower wage in exchange for the one-time payout toward your loan.
To the extent possible, try setting up automatic payments that are greater than the minimum payment amount. Right at the get-go, I looked up my Wells Fargo routing number and automatically set up payments. Even for amounts larger than the minimum.
8. Explore student loan forgiveness
In some extreme cases, it is possible to apply for student loan forgiveness, cancelation or discharge. There are eligibility criteria to qualify for this that you have to pass through at first. Some of the criteria include: If you’ve been working full-time for the government or nonprofit organizations and you’ve been repaying your debts and has made at least 120 monthly payments you can be eligible for the public service loan forgiveness programs if you become permanently disabled if you are a teacher among others.
The US Federal government has paid out more than $150 Billion per year to pay off student loans. There are dozens of other grant sources such as the Single Mom grants, Teachers grants, grants from college, grants for the disabled students, and grants from private or not for profit organizations among others.
Find out the eligibility and the stipulations you can meet to get the loan forgiveness which is a creative way to pay off your student loans.
9. Evaluate alternative repayment plans
This is one of the most creative ways to pay off your student loans. If you have a federal student loan, you can call your loan provider to work out an alternative repayment which is a creative way to pay off your student loans. There are numerous alternative ways to pay off student loan which include but not limited to:
- Graduate Repayment: This is a plan to increase your monthly payments every two years over the ten-year loan period.
- Extended Repayment: This plan allows you to stretch out your loan over a longer period say 25 years instead of maybe 10 years and will lead to lower monthly payments.
- Income Contingent Repayment: This plan calculates payments based on your adjusted gross income which should not exceed 20% of your income for up to 25 years and after which any balance on your debt is forgiven.
10. Increase your income AND maintain the same lifestyle
I cannot stress this point enough for paying off your student loans. This is one of the most effective creative ways to pay off student loans. This also applies to your debt-free lifestyle. You must focus on finding ways to increase your income over time. Start with the following simple plan, this can go a long way:
- Increase your income by excelling at your current job
- Venture into 2-3 alternative income streams to increase your side hustle income
- Maintain your lifestyle to ensure that you are spending the same amount of money each month (on a long-term average). Just because you increased your income you should not increase your expenses
- Use the extra income to accelerate your student loan debt repayment
- Rinse and repeat
I found that small wins went a long way in my debt repayment strategy. I’d enter small things like the following:
- Entered cash giveaways
- Even flip phones for extra income
- And finished surveys online using Survey Junkie, you can read how to use Survey Junkie in our review. Here are several other apps that pay you real money
Also, even if I made only $50 for doing a freelance job, I ensured that went to my debt repayment strategy. Here are several online jobs that allow you to increase your income while working remotely. You can use some of the best freelance websites to get started right now.
Why paying off your student loans is important
There are numerous creative ways to pay off your student loan and these are just but a few. Getting rid of debt will help you achieve financial freedom faster. I paid off nearly $70,000 of student loans in less than 5 years. You can do it too if you have a strategic plan to pay off your student loans by following these simple steps: live frugally, save at least 50% of your income and prepay your highest interest rate debt first.
Remember that student loans are non-asset based debt that has no income producing asset attached to it. This debt needs to be eliminated as soon as possible.
Here are some inspiring quotes about financial freedom to keep you motivated. Paying off your student loans is a very important step to achieving financial freedom.
What are you waiting for? Start paying off your student loans now. Do you have other creative ways to pay off your student loans? I’d love to hear them in the comments below.
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Great tips! I’m eagerly awaiting the day I’ve paid my student loans in full!
These are great tips! I especially like number 4, paying more than the minimum. I think that’s a very important one with all bills. ?? Great post.
Thanks, it’s quite informative