5 Strategies to Pay Off Your Student Loan

Congratulations! After years of hard work and dedication, you’ve finally achieved the educational qualifications to jumpstart your career. Now comes your next challenge – paying off that hard-earned education if you took out a student loan. Don’t panic. Learn in this article how to manage repayments with 5 strategies.

Maximise the interest-free period on your student loans

Education is expensive. Depending on your area of study and whether you studied overseas, student loan debt can vary. While it may be tempting to delay repaying a student loan much later once you’ve established your career and have more savings, you’ll be missing out on a valuable opportunity to pay back your student loans faster.

This is especially if the student loan you took offers an interest-free grace period after graduation or allows for early repayment. Put aside money every month towards paying off your student loan’s principal amount before interest starts to accrue.

Start setting up a long-term financial plan

Affordability is an important factor when it comes to paying off any loan. As soon as you land your first job, you should start thinking about your financial gameplan for the future. This includes figuring out how to balance divvying up your salary for savings, expenses and loan repayments.

Hence, creating a budget is vital to juggle various financial commitments and responsibilities. A well-planned budget enables you to do two key things: pay off your principal amount during the interest-free period and save up for future expenses.

Start by deciding on a monthly repayment amount that is affordable and sustainable for you by working backwards. Review your other financial commitments like insurance premiums and living expenses. Deduct them from your monthly salary and commit to a monthly amount that is achievable for you.

For example, while 10% of your monthly income might be doable for some it might not be for others. Although the goal might be to pay off your debt as fast as possible, a regular commitment is equally important.

You may need to periodically review monthly repayments based on your income or financial commitments. With a pay increment for example, you may choose to shorten the loan repayment period by increasing the monthly repayment amount. The faster you pay back your student loan, the faster you can free up income for future savings and investments.

Amidst these responsibilities, do not neglect committing a sum of money toward personal savings in your monthly budget. The general rule of thumb is 15-20% of your income. This will enable you to have more financial flexibility to pay for future commitments like a wedding, home, insurance, and investments.

In summary, everyone’s education loan amount and budget are different. However, there are a few things you can do to help pay it off faster:

• Don’t defer your repayments as your interest rate will increase.
• Do try to pay more than the minimum amount to pay it off sooner.
• Do try to increase your education loan repayments as your income increases.

Use smart spending to grow your savings and pay off your student loan faster

Smart spending is about using your income wisely to maximise savings while repaying your student loan debt. This means reviewing your spending habits to pay off your student loans faster. This frees up monies to save, invest or even treat yourself.

Some ways you use smart spending to maximise your savings include:

• Reviewing your budget periodically to find ways to reduce spending. For example, saving on transport by using public transport instead of a taxi or cutting back on entertainment expenses.
• Curb impulsive purchases and practise delayed gratification.
• If you use a credit card, always pay the outstanding amount in full and on time. Don’t forget to tap on the rewards and privileges available as a treat for yourself.

Maximise savings and improve cashflow while paying down your student loan

Our final tip requires financial discipline and some savvy.

When possible, consider investing some money while you pay down your student loan. You may also consider saving more money than what was budgeted for. Doing either, or better yet both, can improve your cashflow. The additional cash on hand may be channelled towards increasing the student loan repayment amount.

Although setting aside some funds for investing and savings may reduce the amount of money available to spend, it affords some financial flexibility in the future due to possible returns on investment. Thus, having a well-thought-out budget that is frequently reviewed is helpful to identify areas to cut back on.

If you’re just starting to learn how to invest, a regular savings plan might be suitable to save and grow your money. Citibank Regular Savings Plan allows you to begin investing in investment funds from as low as S$100 a month. You can choose a desired calendar date for the monthly investment order to be set up and processed automatically.

Disclaimer:

Terms and Conditions apply for Citibank Regular Savings Plan. Visit this page to find out more.

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