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  • 3m.

    The Smart Way To Pay Off Your Student Loans

    All federal student loans (and some private loans) allow you to prepay your debt without penalty. Using this option can help you pay less interest overall and get you out of debt faster.
    By Bridget Casey - Updated: September 15, 2016

    What You'll Learn

    • Loans eligible for prepayment.
    • How making payments helps your credit.
    • Why you may pay less overall with prepayment.
    Woman sitting at a desk with a computer

    Student loans can come with generous repayment timelines, which may mean small(ish?) payments for you. Paying that minimum might seem enticing, but it doesn't make sense to spend a decade paying for a 4-year degree—which is a great way to reduce your debt.

    In repayment, you have to follow a lot of terms and conditions. However, with federal student loans, one thing you're always allowed to do is pay them off early. Private loans may allow you to do this, but some do charge a fee for early payment. Check your loan's paperwork to find out its prepayment terms.

    If prepayment won't cost you anything and you can afford it, consider taking advantage of this option. Here's why it's a smart choice.

    You'll Have To Repay Them Anyway

    No, you really will. No matter how crushing your debts become, most people don't realize that, except in certain cases, you can't discharge your student debt—and bankruptcy isn't always one of those instances.

    Unfortunately, too many people don't realize this until they're already having trouble making payments. Avoid this situation by understanding that whatever you borrow, you have to pay back. The sooner you come to terms with that reality, the easier it will be to start making progress.

    You Can Help Your Credit

    There's always a lot of noise about having "good credit" as a prerequisite to succeeding in adulthood. When it comes to making major purchases like a home, securing the required loan requires means convincing the bank that you can be trusted to pay back what you borrow.

    Regularly making student loan payments, while not much fun, can serve a worthy purpose in your adult life. They establish that you have a steady repayment history, which communicates to future lenders (for that house, a car loan, etc.) that you know how to manage money responsibly.

    You Pay Less Overall

    A regularly spoken but often ignored truth: the faster you kill your debt, the less you pay overall. The smaller you make your student loan balance, the less there is to accumulate interest.

    My student loan interest accrued daily, so I couldn't help but quantify that amount as things I would have rather purchased. For example, my debt grew by $2.75 per day when I started my repayment plan. Every day, I saw that amount added to my balance, and I thought about how much I would have rather spent that $2.75 at Starbucks. Ugh.

    Paying your debt off faster will cut those interest costs, and let you enjoy the things you really want (like coffee) guilt-free.

    You Will Be Out Of Debt Faster

    Do you need any more incentive than this? The sooner you vanquish your debt, the sooner you can start spending money elsewhere.

    It was really important to me not to carry my undergraduate student debt beyond my 20s. I just couldn't fathom being in my 30s and still paying the bill for my first-year Calculus class. That would be the ultimate, "I can't remember what I bought!" moment: grappling with my student loan bill long after I'd forgotten how to take a derivative. College was a good time, but it's important to move on—especially financially.

    Por Bridget Casey - Actualizado: 15 septiembre 2016
    Woman sitting at a desk with a computer
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