The Fastest Way to Get Rid of Your Student Loans
More than one in 10 Americans are still paying for their college degrees.
According to the 2016 survey by the National Foundation for Credit Counseling, 39% of those polled said they weren’t able to save for emergencies because of their student debt. And 30% said they couldn’t save for retirement.
There’s a lot you can’t do while you have huge student loans. But there’s even more you can do once your entire paycheck belongs to you again. You can save more, give more, and cook less. Hello sushi Fridays!
How to Pay Off Student Loans Using the Debt Snowball Method
1. List your debts in order from smallest to largest. After you’ve saved a $1,000 starter emergency fund (to cover small emergencies while you’re getting out of debt), list your debts smallest to largest. Forget about interest rates for now, and focus on the individual amount owed. In addition to your student loans, you will also need to include any other debts, such as credit cards and car debt (but not your mortgage).
Here’s an example:
$350 credit card bill
$1,200 student loan #1
$4,000 car loan
$5,500 student loan #2
2. Pay the minimum on each debt while attacking the smallest one. Put as much money as you can toward the smallest debt until it’s gone—even if it’s not a student loan. Keep paying the minimums on the rest. So in this example, focus on that $350 credit card debt. This may seem counterintuitive right now, but it will help you put more money toward your student loans later.
3. Once that debt is gone, focus on the next one. Now that you’ve destroyed your credit card debt, you can throw more money toward your first student loan of $1,200. Remember to continue to make the minimum payments on the rest of your debts so they don’t go into default.
4. Find more money along the way to pay off debt. Typically, it takes 18 to 24 months to get out of debt using the debt snowball method. This, of course, depends on how much you owe in the first place. But it also depends on what you’re willing to sacrifice in the short term to get out of debt faster. Here are some great ideas to speed up the process:
- Sell everything. Turn that old kayak or jogging stroller into cash with Craigslist, Facebook or an old-fashioned yard sale.
- Earn more. Getting an extra job doesn’t have to be a chore. You can drive for Uber, freelance, or ask for overtime at work. It’s just temporary, so don’t worry about finding a side-gig you can sustain for years.
- Budget better. When you make a budget, you may feel like you got a pay raise. Look for ways to save money, and scale back in all areas of your budget until your loans are history.
- Recruit help. If the debt you’re paying back is for a family member (like your kids), they need to pull their weight. Yes, you signed the loan, but be sure they’re feeling it too.
The whole point of getting out of debt is to free up more money for what you want. Use the debt snowball to gain momentum and meet your goals that much faster. Because the sooner you can pay off your student loans, the sooner you can get on with the good stuff.