The Personal Finance Podcast - 7 Ways to Pay Down Your Student Loans Faster

Episode Date: March 17, 2021

Episode 45: 7 Ways to Pay Down Your Student Loans Faster Got questions? Ask me on Instagram Here. @mastermoneyco This is the fastest way to get a response from me.  Personal Capital Free Wealth Management and Budget App  CIT BANK (Best Savings Account) Why you should pay down your student loans  Why Student loans are a burden  Student loan paydown hacks  How to stay on track  How to refinance your student loans  Want to read more?  Check out all the Stuff I Recommend!  M1 Finance Best Place to Invest  Personal Capital Free Wealth Management and Budget App  CIT BANK (Best Savings Account) ** Some links may be affiliate links and we earn a small commission at no extra cost to you. We only recommend products we truly believe in.  Check us out on social fam!  Twitter Dollar After Dollar Instagram Learn more about your ad choices. Visit megaphone.fm/adchoices

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Find your advisor at IG Private Wealth.com. On this episode of the Personal Finance Podcast, we're going to talk about the seven best ways to pay down your student loans faster. Buddy and welcome to the Personal Finance Podcast. I'm your host and the founder of Dollar After Dollar.com. And today on the Personal Finance Podcast, we're going to be talking about the seven best ways to pay down your student loans fast. If you have any questions for, me if you want to ask me any questions follow me on instagram at dollar a f t r dollar on instagram we had a bunch of people shooting over questions you can hit me up with a dm you can shoot me questions in the comments section but we just started this instagram and we want everybody to go ahead and follow that instagram if you have questions is the fastest way to get a response from me we've had a number of people already getting great value on instagram so follow us there so today we're going to be

talking about the seven best ways to pay down your student loans fast. And as most of you know, and a lot of listeners listening to the personal finance podcast, either have student loans or have paid off their student loans quickly. And what we're going to talk about today is how you can do it as fast as possible, because that's what most people need to do, because student loans will suck the life out of your personal finances. It will hold you down in wealth, specifically if you have high high interest rate on your student loans, which most student loans have, then you absolutely need to work as hard as you possibly can to get rid that debt. Why? Because once that debt is gone, you can start pursuing other financial goals.

Goals like investing more money. Imagine, for example, you took the money that you're spending on your student loans. Say it's $500, $1,000 a month. Some people have astronomical student loans. And you invested that money instead. Just $500 a month, transferring that from your student loans to yourself, to your bank account, building you wealth, and investing that money in an index fund at an 8% return is going to net you over a million dollars within 30 years. And that's the power of getting rid of this student loan. So if you want to get rid of it as fast as possible, which I know most of you that have student loans do, then we're going to show you how because the problem is getting worse and worse.

In 2021, the time I'm recording this, there is $1.7 trillion in student loans. 44.7 million Americans today are carrying student loan debt. That's a problem. And the problem is ever growing. And a lot of people are waiting for the government to bail them out or for other things to happen. And you just can't do that with your money. You have to be proactive. You have to take the initiative with your money so that you can get ahead.

Because the people who wait for bailouts never get ahead. Even if a bailout comes up, they're lucky. And we all know there's a difference between getting lucky and working hard. And you have to go after that to be able to pursue wealth. If you want to get wealthy, you have to become proactive. That $1.71 trillion is $739 billion more than the total U.S. credit card debt. That's the amazing fact about this. This is one of the biggest problems financially for people in the United States.

So I'm going to tell you right now before we get into these seven ways that this is not easy to do. It's one of the hardest things you have to do within your personal finances is get rid of debt, specifically student loan debt because student loan debt is a monster. And that monster has high interest rates. And those high interest rates will eat into you in the timeline for you to be able to pay off your student loans. You're going to hear a lot of gurus out there. They're going to tell you things like, hey, pay down the lowest balance first. Get rid of that.

Psychologically, it's great for you because then you get rid of a specific debt. And then you move on to the next one. Now I'm going to tell you the fastest way to do that is to not pay down the lowest balance first. The fastest way to get rid of any type of debt, specifically your student loan debt, is to pay down the highest interest rate first. Mathematically, it makes sense. Everyone knows it, but money is psychological. So at the same time, a lot of people just want to get those quick wins. I'm telling you, don't go after those quick wins.

Pay down the highest interest rate first. Throw every extra dollar you have at that highest interest rate if you want to get rid of it. And then you will be successful in paying down your student loans. much faster than the person who's just going at the lowest balance. Now, if you have multiple student loans, then paying down the highest interest rate is a must for you. If you don't have multiple student loans, you just have one student loan,

then implement all of these strategies so that you can increase the amount that you pay down. Because the sooner you get rid of this thing, the sooner you get rid of this ball and chain, the burdens, the faster you get rid of it. And the faster you get rid of it, the sooner you can start propelling yourself to building wealth. So let's get into the second.

best ways to pay down your student loan debt. So the first one I want to talk to you about is to refinance your student loans. If you have a massive student loan balance, then refinancing your student loans is a must for you, especially if you have a high interest rate. The worst thing you want to do is to send all your student loan payments to interest. Because guess who makes the money off that? Whoever holds your loan, you're not making any money towards your net worth. Only the person who's holding the loan is making that money.

So how do you figure out how high the interest rate needs to be? If you have an interest rate higher than market value, so you can look at the average market value, and I'll show you some sites that you can do that here in a second, but you can look at the average market value and say, hey, anything above 4 to 5% is really getting high for my student loans. So let's say you have a $50,000 student loan, and your interest rate is 7%.

That is an astronomical number to pay an interest. So you need to refinance your student loans if it's at 7%. My rule of thumb is anything over 5% automatically go ahead and look into refinancing that. Anything below 5% then you're going to have a bunch of contributing factors. Things like the balance, how much is left on your loan. So if you have like say $5,000 left, then just go after it and try to pay off that $5,000. But if you have a high balance, then look to refinance because interest rates right now as I'm recording this episode are extremely low on all fronts.

So if you go ahead and refinance, you're much more likely to get a lower interest rate than what you have now, especially if you graduated, say, five, six, seven, eight, nine, ten years ago, you're definitely going to have a lower interest rate because they are so incredibly low right now. Now, what's a good website to refinance your student loans? Well, there's one called Credible. And Credible is really cool because you can see a bunch of different student loan distributors and see what the best interest rate is. There's companies like Lend EDU.

So far, you've heard of all of them. But each one of those sites can kind of show you the average rates, and you can see exactly which one is the best for you. because what you want when you refinance your student loans is transparency. That's the biggest piece to this, is having transparent information so that you can make your best decision. And if you can get that student loan interest rate down from, say, 7, 8, 9% to 2 to 3%, you're going to make a massive difference in your paydown schedule because you're going to be able to pay down that student loan debt so much faster. Now, you've got to make sure to look into how much is this going to cost you to refinance your student loans?

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So what you want to do is look and see, hey, how much extra cash do I have? And once you figure that extra cash out, you're going to go ahead and allocate as much of those dollars as you can towards your student loans. Now, one question that comes into play all the time is should I pay down my student loans or should I invest? A lot of people can't do both. Well, if you can't do both, do the best you can to start investing, especially if you're young, start investing a little bit of money at least, and then use the rest of the money to pay down that student loan so that student loan can catapult your investing money later on down the line. But try to at least invest a little bit because as we know, compound interest is so important for people who are younger, you know, in their 20s.

It's so important for people that age. So make sure you're at least investing a little bit of your income. You know, get your 401k match. Put a little bit into your 401k or your Roth IRA, just so you can get the ball rolling because you can't gain those years back. And so it's important to do that. And then once you have that plan in place, figure out how much am I going to invest

and how much am I going to throw towards my student loans? Because with the average person graduating college with over $30,000 in student loans, this is a daunting task for most people, especially when you graduate and you have an entry-level job, making $30, $40, $50,000 a year. That's not an easy task to tackle when you have to pay your rent, your mortgage, your car insurance, everything else.

I know how hard this is. But what I'm trying to show you here is, by setting up this plan, you could say to yourself, hey, here's what I'm going to pay off this student loan based on what I have now? What am I going to do when I get raises? What am I going to do when I increase my income? And that's how you set up this plan so that you can tweak it and you can use things like percentages. So every time you get a raise, you put another 50% of that raise towards your student loans. and you put 30% towards investing.

Something like that. That will allow you to stay the course. And staying the course is one of the biggest pieces when trying to pay down your student loans fast. Now, if your main goal is to pay off these student loans and you would have put all your money allocated towards your student loans, fine. It still increases your net worth.

It's not a bad thing. But investing early on is also extremely important. Just know what you're foregoing. In fact, there's a story, and it's gotten so bad for people. There's a story that a lady faked her own. death. I'll leave a link to it in the show notes just to get out of paying her student loans. But if you just put a plan into play, stay strong, and go after it, it's really not as daunting of a task as it would be if you were just trying to throw the minimum payment every single

month and pay the high interest. Number three, you've heard me say this a million times and I'm going to say it again. But if you want to pay down something faster and you're not getting far enough ahead as you think you should be, you need to increase your income. Now, a lot of you maybe at an entry level job or the second level or middle management or something like that. But increasing your income is going to catapult the amount of money that you can throw at your student loan. And if you want to pay that bad boy down, you truly need to increase your income in some way, shape, or form. Now, we've had an episode where we talk about multiple side hustles. Over 25 different side hustles that you can look at for passive income. There's other ways that

you can do it where we've had episodes talking about how to ask for a raise at your job. Both of those systems will work. And trying to implement ways to actually increase your income to put it towards your student loans is extremely important. Now, you guys know I hate those side hustles that are things like walking dogs or driving for Uber, but if those are going to increase your chances of paying down your student loans more during that time, that's not a bad idea if you need to pay down those loans faster. Because if they're sucking out the life of you, you have no extra money at all because you just can't even pay the minimum payment barely, then this is the time where you have to at least start with that so you can get your other side hustles going and build those side businesses that way,

or you increase your income at your job. Because increasing your income just another $500 and doubling your student loan payments is going to reduce the amount of time significantly on when your student loans are paid off. And that's the biggest goal here. We want to pay off these loans as fast as possible. And let's not sugarcoat it. One of the ways, one of the biggest ways to do that is you're going to have to put your butt to work and you're going to have to make extra money in some way, shape, or form. Nobody wants to hear that. Nobody wants to do the extra work. But at the same time, how bad do you want those student loans gone?

How bad do you truly want to build wealth? Number four, negotiate your salary. Now, if you haven't heard the episode where we talk about how to negotiate your salary, go back and listen to that episode. I even wrote a free e-book for you guys that you can utilize and has scripts and everything in there that you can utilize to negotiate your salary. Because increasing your income at their job, where you spend the most of your time

is one of the fastest ways to truly start building wealth and truly to be able to pay down these loans faster. You're spending all your time there. So why not focus your energy and time into increasing your income? Now the system that I put into place is about a six-month system to get the raise.

It's not a get-a-raise quick scheme. It's a system where you're going to discuss your raise with your boss six months in advance and what you have to do to get to that point and that you guys are going to stay in communication throughout that whole entire time frame. That's going to be the piece

that's going to get you to that raise. Trying to just walk into your boss's office and say, give me money, please, I want a raise. It's never going to work. And then what a lot of people resort to is fake quitting, which is extremely dangerous to toy with your job that way, but people will fake quit, hoping they give them a raise to stay.

And most of the time, it doesn't work, especially if you're not that great of an employee. So learning how to negotiate your salary and using the system that I put out for you guys because that's worked for me and it's worked for my wife multiple times in the past is the best way to go about negotiating your salary and increasing your income. The next one, if your money's getting away from you, we have multiple episodes on this, but create a budget. I know you don't want to hear the board budget, but you're going to need to get a hold of your spending to increase the amount

that you can throw at your student loans. And sometimes you have to make sacrifices for a year or two to get yourself out of a situation that you don't want to be in so that you can be in a much better situation in the future. And let me tell you, when I was younger and I didn't make a lot of money, I made significant sacrifices to pay down debt to get rid of all these different items and to increase my income all within a compressed time frame, two to three years. And what it did was it set me up for the next five, six, seven years to take my foot off the gas. But really honing in on those two to three years, making sure I have all my systems into place and getting rid of all my mistakes because debt truly is a mistake. But sometimes you're born into situations where you have

no other option but to get a student loan, as did I, as did everybody else. So you have to do that. But at the same time, focusing your time and energy for a short period of time to set you and your family up for a long period of time is some of the best time well spent. Doing all of these things, creating a budget for the short term, and we've talked about a couple of budgets before. So if you haven't listened to those budget episodes, I'm not going to go into detail in it again here, but go listen to those episodes and create a budget so that you can have more cash available

to spend on paying down your student loans. That's what you're there to do. So it's creating freedom for yourself. The budget is creating somewhat of a restriction on your spending, but it's creating freedom because you're paying down those loans. And once those loans are gone,

you're going to be way better off in the long run. The next one, automate your student loan payments. So one of the biggest things that you need to do is automate all your bills. But one of the big ones here is your student loan payment. And here's some of the pros on why you want to automate your student loan payments. A, you never miss a payment. So most of you that listen to the personal finance podcast know I talk about automation all the time.

So if you automate your money, you're never going to miss any payments. And if you're prone to missing payments on bills and things like that, then you need to automate everything. But specifically the student loans. And this automation will allow you to pay your bills right on time and you don't even have to think about it. And automation also will allow you to make extra payments. So since we want to pay off our student loans faster than the average, Joe, you can set it up on your account where you make auto payments greater than the amount due. So let's say your student loan payments $300. Well, you can automate it to make it $400

every single month. It keeps you accountable and allows you to pay down that much faster. So every three months, you're making an additional payment. This means that it's letting money leave your bank account before you can miss it. That's what the key is on making those extra payments. And then some student loan companies will actually allow you to get a better interest rate if you automate your payments. So when you automate your student loans, a lot of companies will reduce your interest rate by, you know, 0.25%, which may sound like nothing to you. It may sound like, whatever, why would I even do that? But it can add up to hundreds of dollars by the time you end up finishing out that student loan.

So make sure you look into automation, and if they don't show that offering to reduce your interest rate, contact your student loan provider and say, hey, if I automate these payments and it guarantees that you guys are going to get this money, can you reduce my interest rate a little bit? And see what they say. and you can use the caveat that you're going to go to a company like Credible and find the best interest rate if they don't comply with you. Number seven, and this is a big one, make bonus payments on your student loans. So if you just make the minimum payment every single month and you don't increase the amount

that you're paying on your student loans, you're going to pay your student loans over the course of, say, 30 years. And nobody in this entire world wants to be paying down their student loans for 30 straight years. Why would anybody ever want to do that? But when you're in debt and you start making extra money, maybe you get a raise at your job. Maybe you get a tax return, which is the big one, because most of you who listen to this podcast, who are W2 employees, you get a tax return. And it's the government giving you your money back and saying, hey, here's your money back. Thanks for the free loan. But for a lot of people,

it's a forced savings account for you. So let's say you get a $3,000 tax return. What are you going to do with that money? Well, if you have student loans, it would be very prudent of you to pay down your student loans with that additional $3,000. So imagine you, you'd be a $3,000. So imagine you. You have a $20,000 student loan and you put that additional $3,000 every single year towards your student loan that you get in your tax return. You're going to make significant progress towards paying down your student loans if you do that. Just think about it. In five years, that's an additional $15,000.

Guess what? Poof, that student loan is gone in five years. And that's why it's so important to make bonus payments. Because that's my favorite question to ask people who always complain about money. Hey man, what do you do with your tax return? And chances are if they struggle with money, they'll describe 10 different things that they're doing. None of which are responsible, none of which go towards their student loans that they constantly complain about. They may be planning to buy a four-figure watch or buy another car so they could tow their jet ski or take a trip to a visa.

It doesn't matter what they want to do. But that's what keeps happening. Why not put it towards your net worth? Why not put it towards building wealth? If you already have your loans paid off, put it towards investing. You already gave it out as a free loan to the government. why not use it for something that's going to actually be beneficial to you and your future. And here's another hack.

If you want to make extra payments but not sure how you're going to be able to do it, consider making biweekly payments. And you can automate this as well. So if you want to be a debt paydown ninja, then bioliquely payments will help you cut through student loans by over a year if you do it. Here's the math behind biweekly payments. There's 52 weeks in a year. So if the payments are biweekly, that means there's 26 payments.

26 payments of half payments equals 13 full payments. So when you make a biweekly payment, you're going to make the payment in half. So let's say your payment is $500 a month. You're going to make a $250 payment every two weeks. Every time you get paid, you can automate it right out. That's the time I would do it is. Every time I got my paycheck, boom, $250 goes straight to my student loan. What that's going to do is allow you one additional payment every single year.

And when you have that one additional payment every single year, in 12 years, you're going to actually reduce your student loan payments by an entire year. That's the beauty of having bi-weekly payments. The same thing goes for your mortgage, it's another hack to pay down your mortgage faster or any other types of debt. But doing this will allow you to squeeze out an extra payment every single year, which is going to reduce the amount that you're paying an interest in the long run and gives you momentum. It gives you a feeling of control. And it's something we don't usually associate with our student loans. But once you start making these extra payments and seeing that balance go down, then it's time to get competitive.

It's you versus the student loan company. Who's going to win? The faster you pay it down, the faster you win. And that's what I want for each and every one of you listening to this podcast. I want everybody to get rid of that student loan debt. The reason why is it's crushing you financially. It's crushing you. It's holding you back from building wealth. It's holding back you and your family from doing the things that you want to do. Maybe you want to travel more. That's another reason to pay down the student loan debt. There's so many goals and so many financial goals that everybody has and think of your why. What is your why? Why do you want to get rid of this debt? and use that why to truly, truly fuel you inside to get rid of this debt.

Because it's your responsibility. The government's not going to bail you out. And if they do, fantastic. But you cannot rely on something like that and wait on something like that by just making the minimum payments and allowing your student loan debt to snowball on you. Because that's what it will do. It will reverse snowball on you. And then you have a major problem.

So imagine what you can do with that extra income coming in every single year. Imagine what you can do with your extra $500 to $1,000 every single month that you spend on that stupid student loan. And what can you do to get rid of it? Because it's completely worth it. And the only person who can get rid of it is you. And you have to set a plan in place and do whatever you can to knock that thing down. Again, if you have any questions about this episode, hit me up on Instagram. Dollar A-F-T-R, dollar.

And we'll see you on the next episode. Thank you guys so much for listening. And if this is your first time listening, consider subscribing so you never miss an episode. And share this episode with a friend. And don't forget to leave a rating and review on iTunes as well, because our goal is to bring as much value to you as possible. And we're trying to spread this message that money can buy freedom. That's what money is there to do, is to buy more freedom. So thank you again so much for listening, and I hope you have a great day.

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