Frugality is definitely a great skill to learn while in college. Funds are generally low and college expenses are always on the rise. Now as a graduate, you most likely have a hefty a student loan you have to pay and, if you’re on top of your finances, you know how damaging missing a payment can be on your credit. And once you’re behind on payments, if you’re debt to income ratio is really high, it can be extremely difficult to catch up: garnished wages, collection fees accrue, withholding of tax refunds. It’s a huge mess.
However, the flip side is that if you pay your student loan off quicker, you can save tons of money. Say, for instance, you owe $25,000 at 3.86% interest (the current rate for Federal Stafford Loans) and pay it off in ten years. In total, you would have paid $5,174 in interest. Alternatively, you can refinance student loans, and if you pay it off in 8 years, it’ll only cost you $4,099 in interest. That’s over a thousand dollar difference in two years!
To the normal person that might not be a big deal, but to you, a frugal, debt-fighting penny-pincher, your frugality senses should be tingling in overdrive! The trick is to pay as much as you can afford on a monthly basis to save on thousands of dollars on interest payments. Below are a few tips that should help you increase your monthly payments.
Taking Advantage of Discounts
Interest Rate Reduction: Many lenders offer discounts which are aimed at keeping borrowers loyal and not seeking to consolidate their loans with other lenders. For instance, making on-time payments to your loans for a number of months will earn you an interest rate cut, 1% at 36 months and 2% at 48. Also, you can earn a .25% interest rate discount if you have your loan payment automatically deducted from your checking account.
Pay More Frequently: In addition to interest rate cuts, if you choose to pay your student loan off bi-weekly rather than monthly, you’ll end up paying less interest as it’ll have less time to accumulate before your next payment. This also decreases the amount of time it takes to pay off your loan because you’re essentially making an extra payment each year when you pay every other week (26 annual payments) as opposed to monthly (12 annual payments). That’ll shave a year or two off the life of your loan which, as mentioned before, can save you some serious cash.
Wouldn’t it be nice to be rewarded for your frugality? We’ll, these businesses try to do just that!
SaveUp.com is an interesting company that encourages people to be responsible with their finances with neat incentives. Whenever you make a loan payment, increase your savings or watch an educational video on the site, you earn a credit. These credits can be used to win prizes like cash for groceries or home improvement, gift cards from Apple or Best Buy; they’ll even make a credit card or car payment for you! It’s a free rewards program that, if you keep living your frugal lifestyle, will allow you to pay your debt off a little quicker.
SmarterBucks is another rewards program that provides help specifically for student loans. The whole purpose of this program is to help its members pay off student loans quicker with thousands of dollars in savings on interest payments. You simply shop for everyday items like normal by using the online SmarterBucks Marketplace and you earn rewards of up to 10% cash back that would then be directed toward your debt. You can multiply the amount of rewards you earn by asking your friends and family to set up accounts and do their shopping through SmarterBucks to earn rewards that’d be directed to pay down your loan.
The Student Loan Interest Tax Deduction is another great way to get your college expenses paid a bit faster. If you have a qualified student loan, the amount of interest you’ve paid during the year or $2,500, whichever’s the lesser amount, will be deducted from your taxable income. This amount can then be directed toward the principle of any loan with the highest interest rate saving you some money and decreasing the life of the loan.
The Public Service Loan Forgiveness Program will definitely benefit those who work in public service. If you have a loan under the William D. Ford Federal Direct Loan (Direct Loan) Program, have made 120 payments, and are working in a public service job, you’re eligible to have your loan forgiven.