Wednesday, 1 May 2019

How to Quickly Pay Off Your Student Loans

How to Quickly Pay Off Your Student Loans

What I'm going to share with you today is a strategy that will allow you to pay off your student loan debt faster and you will able to do this without having to change your lifestyle, your current income or having to send double payment to your student loan lender,

If you follow along with me I will give you all the tips that will allow you to figure out how quickly you can pay off your student loan debt as well as how much money you will be able to save if you implement the strategy I'm about to walk you through step by step

A lot of you have student loans that range from $10,000 and I've seen as high as $80,000 or more, maybe you went to medical school or you went to law school chances are having a significant amount of student loans that you can bear

Student loans are what's called an amortized loan and chances are your student loans may vary from 15year, 30 years, I even heard that they're introducing a 50 years student loan which is insanely crazy which I strongly advice the banks not to do it.

  • You're 24 or 25 years old, chances are you're going to be 55 or even 60 by the time you pay off your student loan which is ridiculous.

Here is the idea behind the strategy

Let Get Started
  • You Borroowed: $80,000
  • Period: 15 year
  • First Year: $0 per month interest
  • Second year: $0.6% interest
  • Monthly paypment: $715.59
  • $80,000 x $0.6 = $4,800
  • $4,800 in interest in 1 year
  • New Balance: $84,800, in 1 year
  • Your education is not $80,000, it's $128,806.31

For the first year, no payments were made, so this is going to stay at $80,000

Let's me break this down

Let's say you borrowed $80,000 to pay for your education and it's a 15 year amortized loan, and currently, the monthly payment is $0, minimum payment per month at $0

The reason I started out with a zero dollar per month payment at $0 interest is that this loan right now is in deferment. But do banks ever really give out loans at $0 interest? No.

Deferred interest does not release your 0% interest but how many of us had made the mistake of thinking that you don't have to make payments, your interest is 0%, it's not.

What happening is the bank is still going to charge you interest, they're just not going to make you pay for it until the deferment period is over and all the interest that got accrued is just going to get added to the principal balance of your loan.

Let's say you called up the bank and they say the interest they are charging you is actually $0.6% and let's say that the loan was deferred for a period of one year and they did not make any minimum payments at all and 

Let's find out how much interest accrued during that period of 1 year

We have to take the principal balance and multiply by $0.6%

  • $80,000 x $0.6 = $4,800

Like I said before, for the first year no payments were made, so this is going to stay at $80,000, but as soon as that first year's deferment period was over, you're going to get hit with almost $5,000.

Of course, the loan enters a repayment so once you start making the minimum monthly payments or more gradually the loan starts to decrease over time.

It's nice that the bank is willing to defer payments for a student that are looking to find a job in their field for some period of time but they're still going to make their money back. 

Now since the loan entered repayment you have to figure out what the minimum monthly payments would be and if you don't know you can call your lender.

Paying off the Student Loan

To pay off all your debt you're going to need a tool. A banking tool equivalent of this is a line of credit and a line of credit that you can use is either a credit card or personal line of credit "PLOC"

Whichever one you choose the strategy will work the same. If you already have a credit card you may want to pull the banks in your area and inquire to see what type of personal line of credit account you can get then compare the interest rates and the limit then pick the tool that has the best turns, of course, that would work the best for the strategy that I'm about to show you 

  • Net Monthly Income: $3,500
  • Monthly Living Expenses: $2000
  • Cash Flow: $1,500
  • PLOC: $20,000 Limit at 8% Interest
  • Balance Carrying From Start: $15,000

With this banking tool in place, we want to start attacking the principal balance of our student loan

  • Balance Carrying From Start: $15,000
  • Take $15,000 out of PLOC
  • Make a principal only payment toward your student loan balance

The reason you want to make sure that this payment is applied as principal only pay down and not as a regular payment is that you don't want this money to go toward paying down interest.

The PLOC is now your checking and savings account combine in one, your income will be deposit into that ploc account. Your personal line of credit carrying a $15,000 from start and you can take that out to make a payment toward your student loan.

With this personal line of credit, you will be able to pay off your debt.

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