How to Pay Off Student Loans FAST

YAY! You want to get this debt out of your way and I’m genuinely so happy for you. Having a mountain (or even a small hill) of debt can negatively impact your financial success and wealth building capabilities for several years if you’re not careful.

But no worries! Here we are going to break down the fastest ways to get out of student loan debt (this works for any other kind of debts too!).

Disclaimer: I am not a financial advisor and this is not financial advice.

List ALL of Your Debts

FIRST, you need to list your debts.

Write down every single debt you have (including your credit cards and your car). EVERYTHING. YES, getting rid of extraneous credit card debts will allow you to pay off your student loans faster (I’ll explain this later).

List the total balance, monthly payment, interest rate, and due date. If you have several student loans, be sure to list the loan number so that you know exactly what loan that information is referencing.

Keeping yourself organized during this part of the process is important. Plus, once you get all your debts cleared, looking back on this will feel like a huge accomplishment.

Need help? I’ve got you covered! I’ve created a mini-debt workbook to help you list all of your debts. And the best part is its FREE!

Believe it is Possible

This isn’t going to be easy. Sorry, but I won’t sugar coat this for you. Paying off debt is hard, but the longer you push out your payments the more expensive your education becomes (or the car or your clothes you charged!).

Reducing your debt is a key component to building long term wealth. Reducing your debt will allow you more financial freedoms. The more financial freedoms you have, the bolder choices you will make.

I took this screenshot after I paid off my first private loan! It’s a relief every time I see it. This can and will be you. Trust yourself and the process.

Define your WHY

NEXT, you need to come up with your WHY. This is a crucial part of the process because paying off your debt is going to be tough. You need to know your WHY to help fuel you when you want to give up.

I was stressing about my student loan debt ever since the very first second I took out the first one out. There were a couple years in college where I basically forgot about it, but then it all hit me again 10x harder as I approached graduation.

Then I realized how big my payments were going to be. And TBH, I wouldn’t have been able to afford to move out on my own until I got my debts payed down. That started fueling my WHY.

My WHY: I want to be able to buy a house within the next couple years. But, I want the house to be a blessing and not a financial curse.

My WHY: I want expand our little family. To add a dog to our little family and maybe babies too. But, I want them to be a blessing and not create financial stress.

My WHY: I want to be able to invest more of my money. I work hard for my money and my money should work hard for me too. Instead of working to pay off interest, I want to work to gain interest.

These are just some of my WHYs. There are so many reasons to strive to live debt free.

So, how do YOU get debt free?

Understanding Your Debts

You have your debts listed and your WHYs to fuel you, but do you know what you’re working with? Many of my friends either took out student loans blindly because that was the only way they could afford to go to school, or their parents were completely in charge of the finances and they didn’t pay attention to what that meant for them.

Regardless of how you got here, we are here now so we’re going put that behind us and we’re going to work with what we’ve got.

There is a lot to know about loans and how they work. I’m going to cover a couple key terms you need to understand in order to start your debt free journey.

Federal Loans

Most likely if you have loans then you have some kind of federal loans. After filling out the FASFA, the government offers you loans (and potentially grants too, but you don’t have to pay those back) based on your family’s income.

These loans offer the most protection, repayment options, and these are the only loans that will be eligible for government assistance (i.e. CARES Act, any COVID stimulus packages, or potential student loan relief from the federal government). If your interest rates are relatively low, DO NOT refinance federal loans. You will lose any government benefits and protections if you refinance.

Private Loans

Private loans are through a private lender like Sallie Mae or Citizens Bank. These loans tend to have higher interest rates and you will not receive any government assistance on these loans. For example, payment deferments via the CARES Act only applied to federally funded loans and did not apply to private loans.

These loans often require a cosigner. If you needed your parents to apply with you in order to receive private loans, they are equally responsible for the balance of your private loans. That doesn’t mean they are morally responsible or that they “should” pay for the loans you took out. This simply means that if you don’t make your payments, then collections will also come after your parent’s wages or that they will not be able to take out that auto loan because you defaulted on your private loan. If you have a cosigner, you’re risking their credit too.

Private loans come with the most risk because unlike federal loans, these will never go away until you pay them off. Even if you were to die, your family would be slammed with your private loan bills. And that just makes matters worse.

Private loans are good candidates for refinancing, but remember that refinancing just means you will be converting your loan into another private loan. This is why it is important to try to avoid refinancing your federal loans, if possible.

Subsidized

Subsidized loans are typically only seen in federal loans. This means that the federal government agreed to pay the interest on your loans until they come due. You are not charged any interest until your first billing cycle. This is the best kind of loan!

Unsubsidized

Unsubsidized loans accrue interest during the entire life of the loan. Meaning, interest starts accruing the day that loan is issued to you. Most (if not all) private loans are unsubsidized.

Typically, a portion of federal loans are issued as unsubsidized. If you have not hit the end of your grace period yet, then you will be able to see the amount of interest that you have accrued so far. If you are proactive enough and are able to pay off your accrued interest before your grace period ends, you will be able to avoid compound interest.

Compound Interest

Compound interest is the worst kind of interest. This means that any unpaid interest just gets tacked onto your remaining overall balance to accrue even more interest. This is why knowing your accrued interest before your grace period ends can be extremely helpful.

Let me show you why…

Per se, you just graduated this month and you see that you have $800 of accrued interest on your unsubsidized loans. If you do not pay that interest before your grace period ends, then you will start gaining interest on that accrued interest. That means you’re paying interest on the interest you accrued during the life of your loan. That’s like an $800+ fee for taking out loans (AKA money that didn’t pay for anything but the bank’s bills) and now you’re going to pay interest on that.

Compound interest is just paying interest on more interest. That’s like getting charged a fee for having a fee. Pay off any accrued interest that you can to save as much money as possible!

Choose a Method

Choosing a payoff method is important because you give your money purpose and direction. This will allow you to see the changes happening instead of just making aimless payments every month.

If you only pay the minimum payment on all of your loans, you won’t notice much of a difference in any of your debt balances. It will feel like you’re just throwing money away every month for nothing. BUT, we can do better than that and I will show you how!

The Debt Avalanche

The avalanche method works by paying off your debts one by one, starting with the debt with the highest interest rate. This is the most mathematically “correct” way to approach paying off debt, but actually isn’t my favorite way (more on that later!).

To do this method, list your debts from highest interest rate to lowest interest rate. You will pay the minimum balance on all of your debts, except for the debt with the highest interest rate. For this debt, you will pay the minimum balance PLUS any extra money you have that can go towards debt payments.

After you have paid off a loan, you will take the money you would have spent on that loan payment (the minimum payment + the extra money), and apply it to the loan with the next largest interest rate.

Each time you pay off a loan, you take those payments and apply it to the next loan. As you pay down multiple debts, your subsequent highest interest rate loan will get bigger and bigger payments. The more you move through the method, the faster each loan will get payed off.

The Debt Snowball

This is the most popular way to pay off debt and for a good reason. This is how I am tackling my debts and I think it is the best way to go about paying off debt even though it will cost you slightly more in the end (this is Dave Ramsey’s method of choice too!).

To do the snowball method, list your debts from smallest balance to largest balance. If you have multiple federal loans but you have one monthly payment that applies money to all of the loans, then count that as 1 big loan.

You will pay off your debts starting with the smallest loan to the biggest loan. Pay the minimum payment on all of your loans except for the smallest loan. For the smallest loan, pay the minimum payment PLUS any extra money you can pay towards your debt. Each time you pay off a loan, take that payment and roll it into the next loan payment.

Psychologically, this is the most rewarding way to pay off debt. You are able see your debts getting paid down faster and it feels like you’re getting more small wins to keep you going.

Plus, each time you pay off a loan, your total monthly minimum payment will go down much faster than if you use the avalanche method. For example, if you have 4 loans that each have a $100 minimum payment, once you pay off one of those loans, your monthly minimum payment goes down to $300 per month instead of the original minimum of $400 per month. The intent would then to be to add that extra money onto the next loan, but if you have an emergency, at least your total minimum monthly bills will be less in case you get into a strapping situation.

This is another prime reason why I like the snowball method the best because you will carry less overall risk. The more debts you clear, the less risk you have. Each time you pay off a loan, that is one less payment you are responsible for each month. And this might be even more important if you have a cosigner on your loans. Each time you pay off a loan with a cosigner, that cosigner is released from that legally binding debt (which also helps their credit score and their ability to apply for their own homes and loans).

Prepare for Tackling Debt

HOLD ON!! Before you jump right in, we need to prepare for the journey… Once you have organized your debts, found your WHY, and have chosen your method, it is time to prepare for your payments.

Paying the minimum payment on your loans is really only acceptable if that is truly all you can afford. And by that I mean, you literally have no money left after you pay for shelter, food (reasonable groceries, not fast food and restaurants!), water, and transportation. In order to get out of debt fast, you MUST pay more than your minimum payments.

First, before you start full steam ahead on your debt free journey, you need to have your emergency fund in place. Set aside $1000 in your savings account and do not touch it unless you have a true emergency… A flat tire on the side of the road is an emergency. The semi-annual sale at Victoria Secret is not.

With any extra money you have, you’re going to use that for your loan payments. And yes… I mean if you have $5000 in your savings right now, I want you to take that $4000 and pay it towards your debts.

Sounds crazy right? Take a deep breath. It’ll be okay.

This is hard… I know it is, but it will help in the long run.

If that is too extreme for you, then it’s okay to keep a little extra but truly don’t keep too much. If you have thousands of dollars laying around in saving accounts and checking accounts, your money is being incredibly lazy.

Your money is hardly gaining any interest at all when it could be used to knock out loans that are COSTING you interest. Think about it this way: having thousands of dollars sitting in the bank is costing you money because your debts are racking up interest much faster than your saving accounts are gaining interest.

But, TBH the Dave Ramsey method of the $1000 emergency fund is a little too harsh for me, but I don’t stray too far from it. Again, I work hard for my money and I want my money to work just as hard for me. So, even though I keep a little extra, I put any excess money to hard work.

Here’s how I do it:

I keep $1000 in my emergency fund. I only touch this if I have a true emergency. If I use this fund then I immediately replace it as soon as I can (replenishing your emergency fund takes priority over excess debt payments). I have $500 set aside for any emergencies for my cat, and I keep an excess of $500 in my checking account as an extra buffer and peace of mind. After I pay for necessities, rest all goes towards my debt snowball.

Figure out how much extra money you can throw at your debt each month, and stick to the plan. The more you pay now, the less you will pay in the long run.

This post has been all about student loans and debt repayment. All of the information you need to understand the basics of paying off student loans FAST.