How To Pay Off Your Student Loans Faster
While getting a tertiary education is a great thing, student loans can be a little less great. When you finish university and get out into the workforce, you often want to make the most of earning a full-time wage and start saving for the future, but this can be hard when you have accumulated a lot of debt. Although your HELP or HECS debts are interest-free, as inflation increases so does your loan, so the faster you can pay it off the better. As well as this, student fees are set to keep rising while the repayment threshold has been lowered, which can make paying back your loans more of a challenge depending on how much you’re earning. Here is how you can get to work paying off your student loans faster.
- Pay Off Other Debt First
In many ways, a student loan is the best type of loan you can have because of its low interest and high payback threshold which means, compared to some other types of loans, you don’t necessarily have to rush to pay it off. For this reason, while you should be focused on getting the amount you owe down, you should also focus on clearing any other debts you might have as well. This is a matter of prioritising your debts and recognising which ones could cause you the most financial damage if not paid off quickly. If you have debt from a personal loan or credit card, make a concerted effort to pay this off first before you start tackling your student loans. If you put your money and effort into paying off your student loans, while accumulating debt in other aspects of your life, you won’t be any closer to financial security. If you are struggling with credit card debt, use a site like RateCity to help you make decisions about consolidating your debt and finding a card with an interest rate that will suit your circumstances. The faster you pay off your ‘bad debt’, the sooner you can focus on your ‘good debt’.
- Let Your Employer Know
It is important to let your employer know about your student debt so that it can be arranged for your repayments to be deducted from your pay. This involves filing a tax file declaration form to alert your employer. Having your repayment deducted from your pay means that you know exactly how much money you have to spend each month since your employer does the work of making the payment for you. This can help with your financial decision-making while allowing you to chip away at your debt bit by bit each week. Depending on your salary, between 4% to 8% of your payslip will go to your repayment amount.
- Make Extra Payments
Once you’re earning a regular wage, it can be easy to get into the mindset that your debt is taking care of itself due to your regular repayments. However, depending on the size of your debt, ignoring may be detrimental in the long run. Although it is a low-interest loan, it can still grow over time, so it is worth considering making extra, voluntary repayments so that you can pay back the loan faster. If you have had a particularly good month of saving, or come into some extra money, consider making a voluntary contribution. HELP debts are indexed to inflation at the beginning of June each year, so making a voluntary repayment before this date helps to reduce the amount of debt subject to inflation in June. However, keep in mind that there is no point making a repayment if it is going to give you extra financial stress or if you have other debts to pay off first.
- Earn Extra Money
If you are interested in making extra contributions to your student debt, without putting financial stress on yourself, consider looking for extra work or a means of earning a passive income. Whether or not you have already attained a graduate job straight out of university or currently paying off your student loan in your established job role, you can still look for extra avenues of income. You can earn extra money to put toward your debt by investing in shares, running a blog or website or completing a weekend part-time job such as dog walking or becoming a rideshare driver. You can also find ways of selling items that you no longer need, such as clothing, electronics and household items that can earn you a significant amount of money and put towards decreasing your student loan.
Paying off your student loans can be a lengthy process – it takes time, dedication and a consistent commitment to being money-conscious. How you choose to handle your debt is up to you, but making smart financial decisions can ensure that one day you can live debt-free and enjoy financial security.
Author: Emily Burgess
Bio: Emily is a senior content writer with CourseGuru.com.au. She is a recent University graduate and enjoys writing about educational and career orientated topics.