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How to Pay Off $30,000 of Student Loans in 3 Years

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College is expensive. It probably won’t surprise you to learn that the average graduate leaves school with more than $29,800 in student loan debt.

It’s a difficult situation to be in. Few students pay off these loans within 10 years. Even former President Barack Obama didn’t pay off his student loans until he reached his 40s.

This long time frame is a problem; the longer it takes you to pay off that debt, the longer it will be before you start building your financial foundation.

If you want to retire your student loans in three years, here’s a five-step plan that can help do just that.

1. Take an oath

I know you are reading this because you are fired up about getting out of debt, and that’s great. But believe me, when all your friends are packing up the car to go to Vegas for the weekend or making plans to go skiing next month, that fire in your belly just might fizzle out.

You can pay off your debt fast, but to do so, you and everyone in your household will have to be committed to the process. Some people can pay off their loans without making any big changes to their lifestyle. But most people find they need to do things a little differently if they want a very different (and positive) outcome.

That’s why the first step is to promise yourself that paying off your student debt is a priority and you are going to get it done in three years or less. Unless you are 100% on board with this plan, it’s going to be hard to keep going when things get a little uncomfortable.

Are you willing to sign on? Great. Let’s go on to the next step.

2. Refinance your debt

The next thing we want to do is cut back the interest you currently pay for the debt you already have. That way, more of your payments will go toward the principal rather than interest charges.

If you have good credit, you could qualify for a lower interest rate by refinancing your student loans. When you refinance, you work with a private lender to take out a new loan to pay some or all of your current student loans. The new loan will have completely different repayment terms than your old one, including interest rate, minimum monthly payment and length of repayment.

Although you can refinance both federal and private loans, there are some downsides to refinancing federal loans. You’ll lose out on certain protections and benefits, such as access to income-driven repayment plans. However, if you’re focused on getting out of debt as quickly as possible, refinancing can be a smart way to achieve your goal.

If you decide that it’s for you, compare offers from multiple refinancing lenders.

3. Repay the most expensive debt first

Now that you’ve done all you can to reduce the interest rates on your loans, it’s time to use some fancy footwork to get out of debt faster. The idea is to use as much money as you can to pay down the principal rather than wasting it on interest that only makes your creditors rich.

You did some of that already in the step above by refinancing to your lowest rate possible. Now, you can take this idea to the next level by using the debt avalanche method to pay off your loans.

With this approach, you tackle the debt with the highest interest rates first. To get started, list all of your loans and their interest rates. Continue making the minimum payments on all of them, but put any extra money you have toward the loan with the highest rate. For example, let’s say you have the following loans:

  • $10,000 federal student loan at 4.45% interest
  • $5,000 private student loan at 9.00% interest

At 9.00% interest, the private student loan is the most expensive form of debt you have, so it makes mathematical sense to try to pay that one off more aggressively. Paying it off ahead of schedule will help you save more money in the long run.

If, on the other hand, your finances are limited, you might want to build some momentum by paying off loans that have smaller balances first. In that case, compare the avalanche and snowball repayment methods.

4. Do the math

At this point, you’ve rearranged your debt and debt payments to optimize the power of your dollars. And you’ve also organized your financial life in a big way.

These are big wins, and you’ve accomplished a great deal. Still, taking these steps might not be enough to shave seven or more years off your debt schedule.

To do that, you have to gather a little more information. The first step is to calculate how much money you’ll need to pay off your debt in three years.

Let’s keep things simple and assume you owe $30,000, and your blended average interest rate is 6.00%. If you pay $333 a month, you’ll be done in 10 years. But you can do better than that.

You can use our student loan prepayment calculator to estimate that you’d need to pay $936 each month to put those loans out of your life in three years.

Doing the math is the easy part, but coming up with that extra cash is tough. That’s where our next step comes in.

5. Increase your monthly payments

You can earn money for debt repayment by either spending less, earning more or doing a bit of each. This step is harder than the previous four, but it’s not impossible.

Go through your bank and credit card statements for the last three months. Circle each item you can live without for the next three years. If it’s an ongoing expense that you really don’t need, such as an entertainment subscription, cancel it right away. If you see a pattern of unnecessary spending, like dining out or expensive vacations, make immediate adjustments.

If you have already cut back to the bone, think about ways to earn more money. One of the best ways is to launch a side hustle, where you can make extra cash on your schedule. Working just a few hours a week can bring in hundreds of dollars each month, which you can apply to your debt repayment.

The most important thing is to stay focused. Celebrate your progress even if you can’t get this done in three years. You’ll be amazed at how good it feels to see those debt balances melt away. Once you get a little success under your belt, it will be easier to find additional ways to apply more money towards your debt.


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