How to Pay off Student Loans in 5 Years

How to Pay off Student Loans in 5 Years
How to Pay off Student Loans in 5 Years

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This article first appeared on the Credible blog.

If you have student loans, it can feel like you’ll never get rid of them. The average time to repay student loans is 21.1 years, though the exact amount of time will vary depending on your loan balance and repayment plan.

However, there are ways to potentially pay off your loans more quickly — in five years, for example. This could save you money on interest over time and free you from debt faster. Refinancing can be a way to pay off a loan faster, if you opt for a shorter repayment term. With Credible, it’s easy to compare student loan refinance rates from multiple lenders in minutes.

Here’s how to pay off student loans in five years.

1. Create a budget

Making a budget can help you get a handle on your expenses and figure out how much extra money you can afford to pay each month toward your student loan debt.

If you haven’t created a budget before — or if yours is long overdue for an update — follow these steps:

  1. List all of your current fixed expenses. For example, this might include rent, utilities, car payments, and your minimum student loan payments.

  2. Review your recent bank and credit card statements. This will let you see what you typically spend on non-essentials, like entertainment or dining out.

  3. Calculate how much extra you can pay toward your student loans. Add your expenses together to figure out how much you spend each month, and subtract this amount from your income. The result is what you can afford to put toward your loans to speed up your repayment.

How much you can put toward your student loans each month will ultimately determine how quickly you can pay them off.

You can estimate how long it’ll take to pay off your student loan debt using a student loan calculator.

2. Cut expenses

If you want to pay off your student loans in five years but don’t have a lot of extra cash in your budget, look for areas where you could cut your expenses.

Here are a few common ways to potentially trim your costs:

  • Cook at home. In 2019, the average consumer spent $3,526 on food eaten away from home, according to the Bureau of Labor Statistics. But if you plan your meals and bring your lunch to work instead, you could save money. For example, if you skip three $30 restaurant meals a month, you could put an additional $1,080 per year toward your loans over the course of a year.

  • Get a roommate. The average monthly rent for a two-bedroom apartment in the U.S. is $1,865. If you got one roommate and split the cost, you could free up over $900 each month.

  • Rent a smaller apartment. If you don’t want to live with a roommate, consider downsizing your apartment instead. The average one-bedroom apartment is $267 less per month than a two-bedroom, and you might save even more with a studio apartment. Plus, you’ll likely be able to cut your costs for utilities.

  • Quit the gym. A typical gym membership costs $58 per month. If you cancel your membership and work out at home instead, you could save $696 per year.

  • Cut down on clothing costs. The average person spends $1,883 on apparel and services each year. Consider shopping secondhand at thrift stores, consignment shops, or online resale sites like Poshmark to trim this expense — for example, if you cut your clothing costs in half, you might save $941 per year.

  • Cancel streaming services. Between Netflix, Hulu, HBO Max, Disney+, and other streaming services, your monthly subscription fees can end up costing more than cable. If you have multiple streaming services, cut down to just one or two favorites. For example, if you drop Netflix and HBO Max, you could save about $23 per month — $276 per year.

While you might not be able to cut all of these expenses, trimming your costs in even just one or two areas could still get you significant results.

3. Take up a side-hustle

Getting a raise or even a new job could give an immediate boost to your income, but this might be hard to do. If you need to earn extra money more quickly, consider picking up a side hustle, such as:

  • Tutoring online: You could tutor or teach English online and earn up to $22 per hour.

  • Delivering groceries: Grocery delivery services are booming. If you have reliable transportation and extra time, you might make over $20 per hour by delivering food and household items to people in your area.

  • Selling used items: If you have unused clothing, toys, electronics, or other valuable items, consider selling them on eBay, the Facebook Marketplace, or other sites for cash. For example, DeCluttr reported that the average household has $264 in unused electronics in their home.

  • Helping people move: If you don’t mind lifting heavy objects, consider getting a gig as a mover. This could earn you between $15 and $30 per hour.

  • Doing odd jobs: If you’re willing to run errands, wrap presents, clean homes, or perform other tasks, you could make up to $34 per hour doing odd jobs.

4. Consider refinancing your loan

If you have high-interest student loans, you might be able to reduce your interest rate through student loan refinancing, depending on your credit.

With a lower rate, more of your monthly payment will chip away at the loan principal. This could help you save money on interest and pay off your loans faster.

Keep in mind that opting for a shorter loan term through refinancing could also get you a lower interest rate. It’s usually a good idea to choose the shortest term that you can afford to save the most on interest over time.

How much refinancing could save you

The table below shows how much someone might save if they had the average student loan debt of $33,654 and refinanced to a lower interest rate and shorter term.

In this case, refinancing the student loans could save the borrower $6,325 over time — and would get them out of debt five years faster.

Keep in mind: While you can refinance federal student loans as well as private student loans, keep in mind that refinancing federal student loans will cost you your federal benefits and protections. These include access to income-driven repayment plans and student loan forgiveness programs. However, if you can greatly reduce the interest rate on a federal student loan, refinancing might still be worth it. Ultimately, you’ll have to decide if it’s worth the risk.

If you decide to refinance your student loans, be sure to consider as many lenders as possible to find the right loan for you. Credible makes this easy — you can compare your prequalified rates from partner lenders in two minutes.

How to pay off $30k in 5 years

If you want to pay off $30,000 in student loans with the average 5.8% interest rate, you’d have to pay $577 per month to get rid of your debt within five years. In total, you’d pay $34,632 over the life of your loan.

Tip: Refinancing your student loans might get you a lower interest rate, which could help you pay off your loans even faster.

How to pay off $50k in 5 years

To pay off $50,000 in student loans with a 5.8% interest rate in five years, you’d have to pay $962 per month. By the end of your repayment term, you’d pay a total of $57,720.

How to pay off $200k in 5 years

If you want to pay off $200,000 in student loan debt in five years, you’ll have to put a lot more toward your loans each month to meet your goal.

With the same 5.8% interest rate, for example, you’d have to pay $3,848 per month and would repay a total of $230,879.

Keep in mind that refinancing your student loan debt could help you save money on interest and potentially pay off your loans more quickly. It’s 100% free to use Credible to compare student loan refinance rates from multiple lenders.

About the author: Kat Tretina is an authority on student loans. After dealing with student loans and medical debt herself, Kat Tretina is focused on helping people conquer their debt and boost their incomes. Her work has been featured in The Huffington Post, Entrepreneur, MarketWatch, and more.

The post How to Pay off Student Loans in 5 Years appeared first on Credible.