In the United States, the student loan debt has surpassed the credit card debt recently for the first time in history. Similar situations can be seen across the globe due to the rising tuition fees, and students are seen buried in debt for the next couple of decades as soon as they get out of the college.
You do not need to rely on traditional means of one payment every month towards your student loan to pay off your dues but can develop a repayment strategy to accelerate the process of repayment. It may put some financial limitations on you for the first few years, but it is worth it and would free you from the student loan debt faster than you anticipated. In this article, we would discuss several ways you can integrate with the repayment strategy of your student loan.
Pay More than Your Monthly Instalments
It is a standard practice adopted by most students trying to get rid of their student loan fast. Pay more than the monthly due towards student loan would eventually help you reduce the tenure of your loan amount. Most of the banks allow the students to increase their EMI, which helps in reducing the tenure. It may increase a bit of financial pressure on you depending on your monthly income but would go a long way in disciplining you financially.
Making the repayment of student loan your priority is essential to stay committed to the repayment strategy, and increasing your student loan EMI is a part of it. You do not have to be radical with the increasing the EMI as it can potentially backfire. Make sure that you consider increasing the monthly payments to only the amount that you can safely handle without disrupting the basic lifestyle needs.
Refinance Your Student Loan
Different banks offer different rate of interest on the student loan, and if you find there are other banks that are offering a lower rate of interests, consider refinancing your loan from that bank. Even a small difference in the rate of interest on a student loan can compound to a huge sum in the long-term. While considering refinance, also consider the processing and service fees that the new and the old banks charge on it because it would help you decide whether the switch is actually beneficial or not.
Make Additional Payments towards Loan from ‘Found’ Money
The bonuses and incentives you get at work, as well as the inheritance money or cash gifts you receive from family and relatives, should be taken into account when you have a debt to pay. Instead of diving into lavish expenses and splurging, it is better to contribute a portion of it towards your student loan. Any amount you pay over your monthly installments towards student loan would be highly beneficial in cutting the principal amount of your student loan. The resulting difference from one or two payments may not be huge, but it would make a huge difference in a few years. It would drastically ease the burden on you and ensure that you can get into the comfort zone financially much sooner than you expected.
Make Investments Targeted Towards Repayment of Student Loan
The market is filled with many different investment options with the promise of offering short-term and long-term benefits. Do your research and find out about the investments avenues that offer considerable returns within the tenure of your student loan. Investment in SIPs and mutual funds can accumulate generous returns over a period of time. The returns from these investments would enable you to foreclose your student loan much sooner than its actual tenure.
However, it is suggested that you take your time and do careful research before picking any investment product. Calculate the returns it provides and aligns it with your student loan amount and tenure. Make a repayment strategy and integrate these investments in it, and you would find that it would become much easier to get rid of the student loan if you stay disciplined and committed to it.
Investments in the stock market have the potential to offer great returns in short period of time but make sure that you cut your dress according to your cloth else you may end up digging a deeper debt hole for yourself. Sticking to mutual funds and SIPs is ideally suggested, but if you can make investments in the stock market with the traditional long-term approach, it is recommended as well. The high-returns potential of the stock market can be beneficial, but invest as per your risk profile and do so in only fundamentally strong scripts.
Seek Financial Help If Possible
The students usually join a job right after completing their college and life gets really hectic after that to make time for developing a financial strategy, leave along student loan repayment strategy. If this sentiment resonates with you, do not hesitate to seek the assistance of the professional financial planner. The professional financial planner would assess your financial health, including income, assets, debts, and expenses.
Assessing all the aspects of your financial health accurately would provide the financial planner with the information he or she needs to develop a student loan repayment strategy that is conducive for you. It would obviously call for making some expense cuts and limiting some unnecessary financial expenses you may be used to, but the benefits it provides would be tremendous. A financial planner would assist you with finding investment products for you as well as assist you with looking for banks offering a lower rate of interest for refinancing. The professional financial guidance would go a long way in developing a result-oriented student loan repayment strategy and sticking to it as well.
These are the few ways you can adopt to pay off student loan much faster than its stipulated term. Stick to your repayment strategy and keep giving any extra cash you find towards the student loan. Student loan doesn’t have to be a hassle or burden if you are confident of your income and repayment strategy.
Founder and Chief Investment Officer @Goalwise
Ankur founded Goalwise an online mutual fund investment platform in 2015 to serve as a ‘Fitbit to investing’. They pioneered an investing approach making it easier for users to set, track, and achieve their long and short term financial goals. A passionate Algo-investor, he honed his skills as a Researcher and Portfolio Manager at leading hedge funds such as WorldQuant and Oxus investments. He is an alumnus of IIT Kanpur where he pursued Computer Science and Engineering.