- 1 take out loan to pay off debt
- 2 take out loan to pay off debt
- 3 How does one use debt consolidation to pay off a home loan?
- 4 How does one obtain a debt consolidation loan using the equity in your home?
- 5 Is it a smart decision to get a home equity loan to pay off debt?
- 6 Can you use your Stafford student loan to pay off debt?
- 7 Can a home equity loan be used to pay off other debts?
- 8 Is it better to pay off debt yourself or use debt consolidators?
- 9 Is it true when consumers build up a lot of debt they may choose to apply for a bill consolidation loan that they can use to pay off their other bills?
- 10 Where can one find a debt consolidation loan calculator?
- 11 Where can one get debt consolidation home equity loans in the US?
- 12 Where can one go to get a debt consolidation refinancing and home improvement loan?
- 13 Where can one find a government debt consolidation loan?
- 14 What are the advantages of a debt consolidation home loan?
- 15 What is the purpose of debt consolidation home loan refinance mortgage?
- 16 Where can one find unsecured debt consolidation loans?
- 17 Where can one get an unsecured loan for debt consolidation?
- 18 Where can one obtain information on debt consolidation secured loans?
- 19 How can one achieve debt consolidation on their student loans?
- 20 Where in Toronto can one obtain a personal loan to consolidate debt?
- 21 Where can one go for a debt consolidation loan for bad credit?
- 22 Where can one get an unsecured debt consolidation loan?
- 23 How to Pay Off Student Loans Fast: 15 Ways to Deal With Your Debt
- 24 A Simple Trick To Get Out of Student Loan Debt Faster
take out loan to pay off debt
Debt is a tricky beast to tame, partially because debt is socially acceptable up to a certain point. There are even commercials that joke about people being up to their eyeballs in debt. Sadly, that’s the reality for many people.
The feeling of being in debt is often awful and completely overwhelming. Whether you ended up in debt due to spending more than you earn or you ended up in debt due to a nasty accident, most people want to be debt free. They just don’t know how to get there.
Everyone hopes there is an easy way out of debt. Unfortunately, there isn’t. Getting out of debt requires hard work. You must spend less than you earn and put the difference toward paying down your debt until eventually you pay your debt off in full. Even though paying off debt isn’t easy, it doesn’t stop people from trying to offer “easy” solutions.
One of the more common get out of debt traps are debt consolidation loans. While these loans themselves aren’t traps, they don’t always work. Sometimes these loans are unsecured personal loans that come with lower interest rates than credit cards, but still higher interest rates that secured debt. Other times you’ll be convinced to take out a home equity loan or line of credit that comes with a relatively low interest rate but is secured by your home.
Regardless of the form your debt consolidation loan takes, you might have heard you’ll pay off your debt faster if you consolidate your debt to a loan with a lower interest rate. This statement can be true depending on your individual circumstances, but only if you suddenly change your money habits from accumulating debt on a regular basis to being a money master. That doesn’t always happen.
People generally have good intentions when they consolidate their debt at a lower interest rate. They work hard to pay off their new debt consolidation loan for a few months. They start making progress. Then, one of a handful of things might happen that causes a major setback.
No matter how dedicated you are to paying off your debt, it’s easy to get frustrated with slow progress. This is especially true if you have a large amount of debt. In the beginning, more of your payments will go toward interest than at any other point during your loan repayment. Sadly, that means the amount owed on your debt will be declining at the slowest rate in the beginning, assuming you make the same payment every month.
At some point, you’ll usually wonder if being debt free is really worth the sacrifice. You’ll find yourself spending money on a one time treat that you probably shouldn’t buy. Then, that one time treat turns into a regular thing and you’ll be racking up debt before you know it. This is one way the debt consolidation loan trap gets you. Once you start incurring debt again, you’re in trouble.
My wife and I faced this challenge during our massive debt pay off. My wife had over $80,000 of student loan debt when she graduated from college. We were dedicated to repaying the debt, but the high minimum payments were depressing. Then, when we realized most of those payments went toward interest, we were even more depressed. Thankfully, we decided to pay extra toward the loans which ended up reducing the amount paid toward interest much faster than if we stuck to the original loan schedule. Being debt free is totally worth the frustration.
Unexpected expenses can derail any debt pay off plan. The problem is what happens after the unexpected expense pops up. Many people put all of their money toward debt pay off, so they don’t have anything left in reserves when the unexpected expense hits. One common solution is taking out the credit card to pay for the expense.
While using a credit card to pay for an unexpected expense isn’t the end of the world, it can bring up other issues, too. Now that you’re paying a debt consolidation loan and a credit card bill, what’s adding a few more purchases to that credit card bill? It is a slippery slope that can lead you to even more debt than when you started.
In an ideal world, everyone would be fully employed. The world we live in is far from ideal. Recessions pop up every few years and those recessions often bring layoffs. If you survive layoffs, you could lose your job for other reasons. Regardless, a drop in income is a real possibility you could face while paying off debt.
When you’re paying off a debt consolidation loan, you probably don’t have three months of expenses in the bank. The money to keep living has to come from somewhere, though. Often that means turning to credit cards and destroying your previous progress.
Falling off the debt pay off train doesn’t always happen because of a negative financial event. Many times people simply drift back to their old spending habits over time. It’s hard to break bad habits.
Spending more than you earn is definitely one of those habits that is hard to break. Sometimes it takes hitting true rock bottom before you can change your spending ways and successfully use a debt consolidation loan.
Using a debt consolidation loan to get rid of your debt can be a very positive experience, as long as you’re committed to the process. If you want to have the best chance of succeeding in your debt pay off goal, you may want to consider doing some of the following in addition to using a debt consolidation loan.
Having a small emergency fund will work wonders as you pay your debt off. When those unexpected expenses or low income months hit you in the face, you’ll have a tool at your disposal that doesn’t involve taking on more debt.
Of course, having cash sitting in the bank will cost you a bit of interest on the debt you owe. That cost could easily more than pay for itself. Would you rather lose a tiny bit of interest leaving $1,000 or one month’s worth of expenses in the bank or risk taking on even more debt and falling off the debt pay off wagon when you hit a bump on your journey?
The size of your small emergency fund is up to you. It could be as small as $500 or as much as a couple months’ worth of expenses. Think about what financial roadblocks could cause you to stop your debt pay off and save enough to cover those issues. You won’t be able to cover everything, but covering most of the potential issues is better than none.
Any time I make a goal public, I’m much more likely to accomplish that goal. Announcing your debt pay off goal can work wonders toward holding you accountable to paying off your debt. Even if you don’t want to announce your goal publicly, pick a couple family members or close friends you can count on and tell them. Hopefully, they’ll check in to see if you’re still on track to reach your goal and help you work through any problems you face along the way.
Rewards can be powerful motivators. You should use them in your journey to pay off your debt consolidation loan. Come up with goals like not charging money on your credit card each month or paying off $500 toward your loan balance each month. When you achieve one of these goals, reward yourself.
Of course, spending money would be a counterproductive reward, so choose something that doesn’t involve spending. Consider taking a walk down your favorite trail or spend a few hours hanging out at your favorite park. Sometimes having a goal with a reward attached is all you need.
Just paying off debt can be the reward for some people. For others, they need a goal bigger than just paying off debt. What do you want to do after you pay off your debt consolidation loan in full? Save up and go on a vacation? Save up and buy a boat?
The post debt plan is up to you, but having one may just be the motivation you need to stay on track. Just remember, any post debt pay off goal should not involve getting into more debt with a car, boat, RV or any other type of loan.
Once you have post debt goals, accountability partners, planned rewards and a small emergency fund to back you up, you may think you’ve got plenty of tools at your disposal to pay back your debt. I think there is one more powerful tool you should consider using. The tool is the power of being constantly reminded of your goal each day.
You can write your goal on your bathroom mirror so you see it each day when you wake up. Another option could be setting up your wallpaper on your computer to remind you of your goal. You could do the same thing with your cell phone. Whatever you choose, make sure you’ll see the goal early during every day so you can remember to work to make progress toward your goal throughout the day. This could help you make smarter money decisions to put more money toward your debt.
Debt consolidation loans can be great tools to help you pay off your debt faster. Figure out ways to avoid the common gremlins that can throw off your plan and set up systems to help you accomplish your goal. If you can do those things, you should be well on your way to a debt free life.
take out loan to pay off debt
If you take money out of your 401k to pay off your debts, you may regret it later. Taking out a loan or an early withdrawal will reduce your eventual retirement account and may force you to work longer.
By taking money out of your 401k account, you reduce the benefits of tax-free compounding that are key to building up a substantial balance. Experts recommend trying other alternatives first, including lifestyle changes to reduce your spending.
This is especially true if your employer matches your contributions. In order to get the maximum benefit from your 401k, you should always contribute enough to get the maximum employer match.
If you face a real emergency, and have no other safety net, it's acceptable to tap into your 401k plan, financial planners say. But if your problem is that you are living beyond your means and need to pay back your creditors, watch out. You could be paying your way right out of a secure retirement.
Just over half of all 401k plans make loans available to employees, according to the Employee Benefit Research Institute (EBRI). This is seen as an incentive to get employees to participate in the plans, because they are more likely to sock money away if they know they will be able to access it in an emergency.
But you should really think of your 401k as off-limits until retirement. Don't use it as a safety net. You can set up other vehicles for forced savings that will enable you to get at your money without penalties. For example, you can have your bank automatically take money from your checking account each month and deposit it in a money market account.
According to the EBRI, individuals between 30 and 59 years old are the most likely to take out 401k loans.
For younger people, retirement may seem a long way off, but remember that when you retire you want to live off your savings. You don't want to start working again at age 75! Since the amount you'll receive from Social Security probably won't be enough to sustain your lifestyle, your 401k balance is vital to your retirement happiness.
Taking out a loan can have a big effect.
Taking out a loan on your 401k can have a drastic effect on your eventual balance at retirement if you stop contributing to the account while you are paying back the loan.
Here is a hypothetical example of what a loan can do to your retirement savings. Say a participant (George) is 35 years old, earns $40,000 a year, and has a 401k balance of $20,000. He contributes $2,400 a year (6% of his salary), and his employer match is $1,200 (3%). Assume he gets an annual return of 8% on his account. If he continues saving at this rate until age 65, his nest egg will be about $583,723. (This is assuming all factors remain constant.)
But George wants a new car. He could afford a compact, but he decides that an extra $10,000 will let him get the Sport Utility Vehicle he wants. He takes out a $10,000 loan on his 401k and pays it back over five years, at an interest rate of 5%. He can't afford to continue making his contributions while he is paying back the loan, though. When he reaches age 65 his account will be worth $458,673.
That difference of roughly $127,000 in principal translates into a loss of $7,620 a year in retirement income, assuming a rate of return of 6%. That's about $630 a month - quite a chunk of cash.
Consider this. Elizabeth Allen, a Certified Financial Planner in Michigan, has a client who at 71 years old was forced to get a part-time job to make up only a $100 shortfall in her monthly income. "There was nothing we could cut from her budget. The only way for her to live was to earn that $100."
In George's case, he could have minimized the negative effects if he had continued contributing to his 401k in addition to paying back the loan. In that case, he would have ended up with $578,275 in principal, or a shortfall of just $5,000.
So, if you absolutely have to borrow from your 401k plan, make sure you pay the loan back as quickly as possible, and continue to make contributions to the plan in addition to the loan payments.
Another point that is often overlooked is that you will be taxed twice on the loan amount. The money you borrow is money that you contributed before taxes. But you pay it back with after-tax money (unlike your contributions, it is not deducted from your paycheck before taxes). When you withdraw the money at retirement it will be taxed again.
. But taking an early distribution could be even worse! Say George decided simply to withdraw the $10,000. (He could do this if he were changing jobs, for example. But remember, if you are still working for the same employer you can only take an early distribution in a hardship case.)
The problem is, he would have to pay about 50% in taxes and penalties, so he would actually have to withdraw $20,000 in order to get $10,000 cash. That means starting over with the 401k, and a further reduction in the balance at retirement.
How's Your Spending Behavior?
Calculators available on the Internet that seem to give a simple answer about whether you should take a loan on your 401k don't necessarily tell the whole story because they cannot take into account one huge variable -- your spending habits.
Here's a story related by Ms. Allen about one of her clients. The 50-year-old woman cashed out her entire $125,000 account to pay off her credit card debt and that of her two daughters, as well as to put a down payment on a home. She only saw about $62,000 of the money however - the rest went to the IRS and the state of Michigan.
Now, says Ms. Allen, a year later, this person has run up more credit card debt - only this time she doesn't have her 401k to bail her out. She has taken on a second job. "She'll be working for the rest of her life, and that's sad."
This case, while extreme, illustrates the problem with using money earmarked for retirement to take care of immediate needs. Once it's gone, it's gone. Also, many people overlook the fact that 401k money is the only money you have that is protected from your creditors. They can't touch it, even if you declare bankruptcy.
Before you mortgage your retirement (and possibly commit yourself to a life sentence of work) you should look at every other possibility for reducing debt - a home equity loan, debt consolidation, even taking out a second mortgage on your home, experts say.
Even if you end up losing your home, it won't be as bad as ending up without retirement income, says Russell Hall, a CFP in Wichita, Kansas. "You can probably get another home. The worst thing is to lose your retirement future."
This is for educational purposes only. The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.
How does one use debt consolidation to pay off a home loan?
Would you like to merge this question into it?
Would you like to make it the primary and merge this question into it?
How does one obtain a debt consolidation loan using the equity in your home?
Is it a smart decision to get a home equity loan to pay off debt?
Can you use your Stafford student loan to pay off debt?
Can a home equity loan be used to pay off other debts?
Is it better to pay off debt yourself or use debt consolidators?
Is it true when consumers build up a lot of debt they may choose to apply for a bill consolidation loan that they can use to pay off their other bills?
Where can one find a debt consolidation loan calculator?
Where can one get debt consolidation home equity loans in the US?
Where can one go to get a debt consolidation refinancing and home improvement loan?
Where can one find a government debt consolidation loan?
What are the advantages of a debt consolidation home loan?
What is the purpose of debt consolidation home loan refinance mortgage?
Where can one find unsecured debt consolidation loans?
Where can one get an unsecured loan for debt consolidation?
Where can one obtain information on debt consolidation secured loans?
How can one achieve debt consolidation on their student loans?
Where in Toronto can one obtain a personal loan to consolidate debt?
Where can one go for a debt consolidation loan for bad credit?
Where can one get an unsecured debt consolidation loan?
How to Pay Off Student Loans Fast: 15 Ways to Deal With Your Debt
Dealing with student loan debt is tough. You’re probably no stranger to the student loan crisis we’re facing, as Americans now owe an incredible $1.3 trillion (and growing) in student loan debt – more than all our credit card debt or even our car loans.
Seven in 10 college students will leave school with loans in 2016, averaging a whopping $37,172 in student debt. But for those who pursued advanced degrees, switched majors, or went back to school, that number can be significantly higher. In fact, according to the Federal Reserve Board Survey of Consumer Finances, almost 19% of borrowers owe $50,000 or above (with 5.6% owing more than $100,000).
For some, student loans are a necessary burden throughout college that lead to a better paying job in the field of their choice. To others, student loans may have felt like free money in a sense, or just something to deal with after graduation. Whatever the case may be, student loan debt is leaving today’s college graduates burdened right from the start, drowning in debt — and stress.
Recommended Student Loan Refinancing Companies
Before you throw in the towel, know that you can manage your student loans in a smarter way, pay them off faster and cheaper, and live a debt-free life. Here are some ways to deal with student loan debt:
Depending on your loan type, your lender may grant you a grace period after you graduate (or stop attending the college), where you don’t need to make any payments toward your loan. Avoid the tempting option of simply ignoring your debt during this period. If you still have the luxury of a grace period, now is the time to fully understand your loans, make a game plan, and, if possible, start making the payments you’d normally be making anyways.
For example, if your loan payment is going to be $250 per month after your six-month grace period expires, start paying that amount now. Not only will you get out in front of your loan to the tune of $1,500, you’ll already be in the habit of putting that $250 aside each month.
Even if your grace period is long gone, the first step in dealing with your student loans is to really understand what you’re dealing with. It’s easy to turn your brain off, make your minimum payment (if you can even afford it), and not give it another thought. But to actually make an impact, you need to know how your loan works. Here’s how to understand your student loan debt:
It would seem crazy to someone that has never had a student loan, but yes, it is very possible and extremely common to not be aware of all your loans after graduation. Since you can’t go back in time to tell 18-year-old you to keep track of every detail of each loan you take out, you’ll have to put in the legwork now.
For starters, check the National Student Loan Data System to find any federal loans. To check what you owe to private lenders, contact them directly. Another option is to order a free copy of your credit report to see who your lenders are.
Some loans offer the chance to switch to an income-based repayment plan based on what you’re earning. If you’re unable to make your payments at all, you can apply for a temporary deferment.
Step 3: Familiarize yourself with each loan’s details.
If you’re dealing with multiple loans, which is often the case, then try to first tackle the loan with the highest interest rate. Besides the interest rate of each loan, understand what the minimum payment will be and which loans would qualify for things such as a deferment, loan forgiveness, and a better payment plan.
As I mentioned above, you could have the option of choosing a better payment plan, such as Income-Based Repayment or Pay-As-You-Earn. These options give you a more manageable minimum monthly payment based on what your current income is. You may also wish to explore student loan consolidation if you are having difficulty keeping track of multiple loans at once.
I get it. You’re done with ramen noodles and cheap, used furniture. You worked your butt off in college, you’re finally making some money (hopefully) at a job, and you deserve to start living better, right?
Wrong. Face the reality of your debt situation, and work toward paying off these loans. You probably lived quite simply in college, so why stop now? The longer you can keep living a bare-bones lifestyle, the faster you can pay off your student loans.
- Continue living with roommates to share rent and expenses.
- Skip the concert tickets, pricey dinners, and expensive bar tabs in favor of free things to do such as pot-luck dinners with friends, free museums, and outdoor activities.
- While you may need some dressier clothes for work, try not to go overboard. Invest in a few pieces of flexible, good-quality outfits for work and continue to dress on the cheap outside the office.
- If you live in a city, try to get by without a car. Either way, limit your driving by taking advantage of public transportation, carpooling, planning efficient routes, and walking or biking whenever you can.
- Cut other costs whenever possible, and find ways to save money that work for you.
- It doesn’t have to be ramen and canned tuna, but cook at home whenever possible instead of going out to eat.
Remember, every $100 pair of shoes you don’t buy is another $100 to help you pay off your student loans faster. Every time you skip a $30 dinner out, you’re $30 closer to debt freedom.
Once you know what your payment is going to be, create your monthly budget, and stick to it. When you’re making your budget, try to trim anything you can and put that additional money toward your debt. Find ways to save money so you can budget more toward your debt repayment.
Student loans may not be the only debt you accrued while in college. According to Debt.org, the average college student has $3,200 in credit card debt on top of their loans, and that estimate may be modest. Don’t ignore your credit card debt while dealing with your student loans. Once you lay out what you’re paying in interest every month, you can make the best strategy for dealing with your debt.
This is easier said than done, but it’s the best way to put a dent in your student loans. Here are some ways to make more money:
- If you’re currently employed, try to negotiate a larger salary or promotion. Can you take on more responsibilities at your job to earn more?
- Pursue opportunities for overtime or extra shifts.
- Apply for jobs with higher paying salaries.
- You can start your own side business based on your interests.
- Get a part-time job. If possible, opt for one near your home or work so it doesn’t become a huge hassle.
- Tap into the sharing economy: Try driving for Uber or Lyft, renting out your apartment on Airbnb when you’re away for the weekend, or pet sitting and dog walking with a service like Rover.
- Sell your unwanted belongings at second-hand or consignment shops, online, or at a yard sale.
- Offer your services: Do you play a musical instrument? Start giving lessons. Know a subject inside and out? Let people know you’re available as a tutor.
Once tax season rolls around, don’t forget to deduct your student loan interest. You can reduce your taxable income by up to $2,500 on any interest you’ve paid for that tax year. Your lender should send you this information, but you can also request it or get it online. It may not make a huge difference, but every little bit helps.
9. Look for jobs that pay your debt or offer student loan forgiveness.
The main point of getting that ridiculously priced degree was a job, right? So why not get a job that helps reduce your debt while still earning an income? In an effort to attract the best talent, some employers are now offering help with student loan payuments as a standard workplace benefit, along with a 401(k) and more typical perks.
Depending on your industry, you can also search for a job eligible for studentloan forgiveness. If you work in a public service career — at a nonprofit organization or in local government, for example — you can usually get loan forgiveness after making payments for 10 consecutive years.
Many times, loan forgiveness is offered when a certain area, such as a low-income area or rural community, is lacking a specific profession. Some of these jobs include teacher, law enforcement, doctors, lawyers, dentists, social workers, firefighters, speech pathologists, nurses, psychiatrists, and more. Keep in mind many of these opportunities come with many requirements and stipulations. You may have to sign a contract to work for a designated amount of time or live in a certain area. If you don’t complete your contract, you may be asked to return any student loan assistance you have received or not get that assistance at all.
As if paying down your student loans isn’t great enough, you can also help people while doing it. Organizations such as AmeriCorps, VISTA (Volunteers In Service To America), Peace Corps, Teach for America, and National Health Service Corps all offer some type of student loan forgiveness or reimbursements for your dedicated service.
New to the volunteer scene are Zerobound and SponsorChange. Both these organizations connect organizations in need of volunteers in exchange for money towards your student loan debts. Just like careers that offer loan forgiveness, there’s plenty of stipulations to earn this. Depending the program, only certain loans may qualify. As with any loan forgiveness, be sure to fully understand what’s required of you.
In an effort to get young, educated professionals to come, many destinations offer student loan assistance if you move there. Kansas; Detroit; Niagara Falls, N.Y.; and Saskatchewan, Canada are all places that are willing to give you some type of reimbursement for moving there. Just like with the other types of student loan forgiveness options, there are strings attached. You might have to live in a certain community or neighborhood, work at specific company, or commit to staying there for a designated amount of time.
If you don’t want to move to these specific areas, moving can actually help you tackle your student loans in other ways, too. Moving closer to your job lowers commuting costs. Consider downgrading or moving to an apartment with a cheaper rent. If you’re not currently tied down to a job, you can move to an area with lower costs of living. If you can move to a more walkable location, you may be able to sell your car. Between a car payment, insurance, maintenance, gas, parking, tolls, registration fees, and other costs, think about how much you could save by not owning a car. These can all result in you putting that extra money towards your student loan debt.
Enrolling in automatic payments can lower your interest rate, depending your lender. While it may only be small amount, that fraction of a percentage point can really add up over time. For example, Sallie Mae offers a 0.25 percentage point reduction of a loan’s interest if you qualify for auto-debit. But even if you won’t get a break, automating your payment can eliminate the possibility of late fees and missed payments, which only add to the debt pile.
Depending your loan type, you may opt for a deferment if you’re in school, unemployed, experiencing an economic hardship, an active military member, or another approved situation. If that’s the case, opt to continue making interest payments on your loan to help alleviate the burden once your deferment ends.
This is a simple, free way to put a small amount of money towards your loans. In fact, its one of our Best Credit Cards for Students. Create an account, plug in all of your credit cards and loyalty cards, and earn cash back on certain products or at specific stores. If you are buying anything online, click through the link on the website, and you can earn 5 percent cash back. Since you’re dealing with your student loans and won’t be doing much shopping, you can also share the link with your family and friends and let them earn money for you. You can opt to link this directly to any Sallie Mae student loan you have, or you can get a check back.
That much-sought after next phase after graduation could be expensive. You’re next goals may be marriage, purchasing a car, or buying a home. These can be great options if that’s what you want and can afford. However, if you’re already dealing with overwhelming student loans, going deeper into debt for these isn’t the best move. The average wedding cost is $30,000 and much higher if you live in a large city or have expensive taste. Opt for a less traditional, cheaper wedding or wait until you can afford the wedding of your dreams.
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A Simple Trick To Get Out of Student Loan Debt Faster
The question at the top of many people’s minds is: How can I pay my student loans off faster? Yet all some experts seem to want to talk about is why it’s unwise to take out student loans in the first place. To someone who already went to college and has loans to repay, this is far from helpful.
If you’ve got student loan debt, there’s one easy trick you should know about that can help you pay it off faster without annihilating your budget: Make biweekly payments on your student loans.
How Biweekly Payments Work
The concept of biweekly payments is simple — so simple that the immediate value might not be apparent. Here’s how it works:
Split your monthly payment in half. Pay that half amount every other week. Let’s say you’re paying $1000 per month on your student loans. Instead, pay $500 every other week. The easiest way to do this is line it up with your paychecks.
So, if you get paid every other Friday, for example, then deduct one half of a monthly student loan payment from your paycheck and apply it to your loans. It may take some adjustment if you’re used to paying once a month, but it’s worth it.
Why? Because paying every other week means there will be two months in the year that have three half payments go out instead of two and that equals one whole extra payment per year.
How Much Money This Trick Can Save You
One extra payment doesn’t sound like much, right? Let’s give it a test! Here’s a breakdown of my own loans:
- I owe Sallie Mae approximately $12,000; I owe Great Lakes approximately $36,000. This equals a total of approximately $48,000.
- My interest rates are consolidated at a fixed 4.5%
- My monthly payments break down to $134 and $250 for a total of $384.
- I used this calculator to see how much biweekly payments could save me and this was the result: Making payments biweekly can save me approximately $2,100 and take a whopping 19 months off my plan!
In other words, by splitting my monthly payments of $134 and $250 in half and paying $67 and $125 every other week, I’ll save over $2,000 in interest and I’ll pay my student loans off almost two years faster. All by simply switching the way I pay!
Who This Works for, Plus One Important Reminder
Biweekly payments can work for you whether you’re paying on private or federal loans. In fact since private loans come with much higher interest rates, this method could save you even more money.
But, in order to make biweekly payments work for you, there’s one very important thing to remember: both of the half payments need to be in before the next month’s due date. If only one makes it in before the due date, you’ll end up getting penalized for paying under the minimum.
Whether you get paid once or twice a month (which could make initial setup slightly more challenging) or biweekly, be careful to time your payments correctly so that you never end up paying under. Once you do that, you can sit back and watch your loan balances decrease faster!