The holiday season is a time of giving and spending time with loved ones. According to Deloitte, Americans expect to spend an average of $1,387 per household during the end-of-year festivities.
While that figure is down 7% from the same time last year, saving at a time of year when spending is the norm could help you with your student loans. If you’re wondering how to pay off student loans more quickly, the holidays may be a perfect time to start.
How to save money during the holiday season
Whether or not you can afford to spend during the holiday season, curtailing some of your costs could help you get ahead on your student loans. Here are some ways you can cut down on your holiday spending.
- Set a budget: Creating a budget for gifts, groceries, decorations and other holiday-related expenses is crucial to saving money during this time of year. Think about how much cash you have to use for holiday spending, then set some goals on how much you want to spend, so you’ll still have some money left over for student loan payments.
- DIY gifts: Spending time crafting a gift for a loved one can not only save you money, but it’s also more meaningful. That said, it’s important to avoid making your own gifts unless you have the skills to do it well. One idea is to give the gift of your time. Whether it’s to help cook or clean, babysit or share a one-of-a-kind experience, your thoughtfulness can go a long way.
- Reduce your travel: According to Deloitte’s study, Americans are expecting to spend 34% less on travel this holiday season compared to last year. This is primarily due to the coronavirus pandemic, which has wreaked havoc on the economy and the travel industry in particular. However, if you do have plans to travel, consider cheaper ways, such as driving instead of flying or staying home and visiting loved ones virtually.
- Shop deals: The holiday season offers some of the best retail deals of the year, but you might miss some if you’re not willing to do a little research. Start by running an internet search for the best holiday shopping deals, where you’ll find plenty of offers from top retailers. Also, if you find a deal on a specific product, search for that product online to see if you can get a better price elsewhere.
Put your extra savings toward your student loan debt
If you’re wondering how to pay student loans early, one of the best ways is to make additional payments. Your regular monthly payment includes a mix of interest and principal, but if you make an additional payment in the same month, less interest has accrued, which means a higher proportion of what you pay goes to paying down the loan balance.
Here are some of the benefits you gain from making larger payments on your student loans:
- You’ll save money on interest charges.
- If you do it consistently, you could shave months or even years off your repayment term.
- Paying off your debt early gives you access to that cash flow sooner, so you can use it for other important financial goals.
That said, this approach isn’t the best option for everyone, and it’s important to consider potential drawbacks as well:
- It can be counterproductive if you’re working toward student loan forgiveness or repayment assistance.
- If you have credit card debt, you’ll likely get more benefit from paying down the higher-interest debt first.
- It may not make a big difference if you can’t do it consistently.
As you prepare for holiday season spending, take some time to consider your financial situation, and decide the best course of action for you.
How student loan refinancing can help you keep saving
If you’re wondering how to repay student loans more effectively with or without extra payments, look no further than student loan refinancing.
Refinancing allows you to replace one or more existing student loans with a new one through a private lender. Depending on your situation, the process comes with several potential benefits:
- Lower interest rate: If you qualify, you may be able to score a lower interest rate than what you’re paying right now, saving you money on total interest charges and also potentially reducing your monthly payment.
- Payment flexibility: If you want to reduce your monthly payment even more, you could opt for a longer repayment term. Conversely, if you want to pay off student loans early and you can afford a higher payment, you could opt for a shorter term. It also simplifies your debt management by reducing the number of payments you have each month.
- Choice of lender: If you have federal student loans, you weren’t given a chance to choose your loan servicer. While you can change your servicer by consolidating your loans with the government, your options are still limited, and that process increases your interest rate slightly. With refinancing, you’ll have more options from which to choose, and you can make your decision based on a variety of factors.
All that said, refinancing isn’t for everyone, especially if your income and credit history aren’t in good enough shape to qualify for the best terms. Also, if you’re working toward federal student loan forgiveness or loan repayment assistance, or you anticipate needing access to income-driven repayment plans, you may be better off sticking with your federal loans, at least for now.
If you’re considering student loan refinancing, use Purefy’s rate comparison tool to compare loan offers from multiple lenders side by side.
Should I pay off student loans early?
Whether you’re looking to make additional payments on your student loan debt, refinancing your loans or both, it’s important to ask yourself whether paying off your student loans early is the best path for you.
Again, if you have high-interest credit card debt, it may be better to focus on eliminating that first, as it will save you more money on interest. Also, consider your other financial goals. If making additional payments makes it difficult or even impossible to save for retirement, you may end up regretting your decision down the road.
As with any major financial decision, take some time to consider your situation and what you want to do with your finances in the short and long term. Also, take advantage of the current pause on student loan payments to research all of your options to find the best approach for you.