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How to pay off college debt fast

December 31, 2007

Once you leave college, one of the most critical things you have to do is deal with the debt you incurred in college. This can seem overwhelming, but making a plan and sticking to it diligently can help you get out of debt fast and help you reach your other financial goals.

If you are lucky enough to start your career right after college, you may feel a newfound freedom in receiving a paycheck each month. All of the sudden you can afford luxuries not possible in college, such as nice clothes and shoes, meals at restaurants and evenings out on the town. But if you graduated with debt, you might want to reconsider these luxuries and prioritize paying off your outstanding balances on your student loans and credit cards.

Credit cards
If you are in the habit of making only the minimum payments due each month, now is a good time to accelerate your payments. Paying the minimum on credit cards and other lines of credit stretches your loan out for years and increases the amount you spent on your purchases, because of interest rates. Accelerating your payments means that you pay more each month so that you can take less time paying off your balance.

Student loans
Don’t forget about paying off your student loan debt, as well. If you have federal Stafford loans, you have three repayment options. The standard plan has fixed payments throughout the term of the loan. The graduated plan starts off with lower payments and then increases as time passes (because your income is expected to grow over time). There is also an income-sensitive plan that calculates your payments according to your income. Choose the plan that best fits your budget so that you can get out of debt and achieve your other financial goals.

Also consider using any gift money, work bonus or tax refund to pay down debt. Tackle your higher-interest debt first, because that will save you more in the long run. If you decide to pay more toward your student loan, make sure to note that the extra payment goes toward paying down principal.

 

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