If you hope to land a well-paying job, college and university are a usually must in a lot of fields. Sometimes an undergraduate degree isn’t enough; in some fields you’ll need a master’s degree if you want to move up the corporate ladder. Although student debt is considered “good debt” since it can help grow your net worth, those degrees don’t come cheap.
According to the Canadian Federation of Students, the average student is graduating with $27,000 of student debt. That’s a lot of debt for one person to handle, especially when there’s no guarantee you’ll land a well-paying job straight out of university. The good news is there are ways to pay down your debt faster.
Live Like a Student After Graduation
Just like everyone else, new grads need to watch lifestyle inflation. Lifestyle inflation describes how our spending typically goes up during our careers. When you land your first job straight out of university it can be tempting to rent a trendy condo downtown and buy a new car. However, if you want to pay down your student debt quickly, you have to be willing to make financial sacrifices. Keep living at home or with roommates and continue to live frugally. Also, take the transit to work and pack your lunch. The extra savings will really add up.
Pay More Than the Minimum
If you’re only paying the minimum monthly payment, it can take a long time to pay off your student loan and cost you a boatload of interest. By living frugally and not taking on any other debts until your student loan is paid off, you can put every spare penny towards your student loan. Write yourself up a budget and figure out how much you can afford you can repay towards your student debt. Not only will you be debt-free sooner, you’ll save a lot of interest – it’s a win-win situation for new grads!
Make Lump Sum Payments
Another way to pay down your student loans quickly is to make lump sum payments. You’re probably wondering where you’re supposed to come up with money for lump sum payments. Unless you’re related to Donald Trump, it can be tough. The easiest way is to use “found money.” Examples of found money include bonuses at work and cash gifts. Instead of spending this money, set up lump sum payments immediately. These payments make the biggest difference in reducing your student debt. They’re applied directly to reducing your principal and can shave months or years off the length of time it takes to reach debt freedom.
Choose Floating over Fixed Interest Rates
Why pay more interest than you have to? With interest rates showing no signs of going up, it makes sense to choose floating interest rates over fixed. With floating interest rates, you have the potential to save a lot of interest. Floating rate student loans are typically 2.5 percent lower than fixed rate. By paying less interest, you’ll pay off your student loan sooner.