Student loans are like death and taxes – inevitable and not something we greet with open arms. If you owe a large amount of debt, it can put a real crimp in your lifestyle. Even if you can afford your debt, it can feel like a ball and chain around your ankle. Today we take a look at how you can ditch your debt sooner than you thought possible without insane austerity measures. If you can just put a little more money aside each week – say $25 or so – you can get yourself out from under your loans so much sooner than you ever expected.
Let’s take a look at some loan scenarios and how $25 a week can make a significant dent in your debts.
Modest loan balance and low interest: If you owe $15,000 at 4.5%, you’ll owe $155 a month on a standard 10 year repayment plan. If you can put an additional $25 a week towards your debt, you’ll cut your repayment period almost in half – from 120 months down to 67. And you’ll also cut your interest paid from $3,810 down to less than $2,000. That’s huge and life changing! This can make it so you can afford a house or a new car or to beef up your retirement account.
Higher loan balance at low interest: Say you owe more like the current average of $29,400 at 5%. Under a 10 year plan, you’d be paying $312 a month and after 120 payments, you would have paid $8,360 in interest. By scraping together an additional $25 a week, you’ll cut your payment term down to just seven years and your interest down to $5,500. This is a 33% reduction in interest and a 7.3% overall savings. This is impressive.
High balance and high interest rate: Let’s now look at a scenario with $50,000 owed at 7.5%. This results in $594 monthly payments on a 10 year plan and nearly $22,000 in interest. With debt this significant, it may not feel like $25 a week extra would make a difference – but it does! You’ll cut two years off your payment term and more than $4,200 off of your interest payments. That’s nearly 24% less in interest and more than 7% less in payments overall.
These three wide-ranging scenarios demonstrate that no matter how big or small your debt, $25 a week is enough to change your life and your debt outcome. If your budget is tight, you may not think you have room in your budget to carve out $25. We guarantee that there is. Take a look at these ideas:
#1 Cut the cable. Keep the internet. This will save $50-$100 depending on your level of service. Learn to live with Netflix and web streaming services.
#2 Ditch the dry cleaners. Every shirt you wash and iron at home will save you $2-3 and pants another $3-4. Febreze your suits and save even more.
#3 Hitch a ride to work. Carpooling or taking public transportation can easily save you more than $100 and will put some adventure into your commute.
#4 Cook instead of eating out. If dining out is a core of your social activity, learn to cook and have friends over to eat. This is radically cheaper if you make smart food choices.
#5 Shop the cheap stores. Skip the classy grocery stores like Whole Foods and shop bare bones grocery stores in out of the way areas for cheap eats to complement strategy #4.
#6 Sever your land line. If you’re in the dark ages and still have a hard line into your house, ditch it and go with your cell phone and you can save a bundle each month.
#7 Kill your cell contract. Major carriers like AT&T charge significantly more than pay-by-the-month brands like Straight Talk and Net10. Switch services and you’ll cut your bill by half.
There are hundreds of strategies you can easily implement to save money and you can switch these up so that one month maybe you eat out and another you ride share so that you can still have fun while saving money. And, once you get in the cost-cutting mindset, you’ll be surprised how addicting it can be to unleash your inner cheapskate…
And as we wrote last week, be sure to request that your extra payments are applied to principal rather than future payments. To check out the impact of accelerating repayments, sign up for Tuition.io’s free student loan tool. Be sure to read our blog every day and also check out our Student Loan Help Center for information on student loan terms and definitions.