3 Ways Autopay Helps You Pay Off Student Debt Faster
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An easy way to make sure you don’t miss any payments on your student loans is to set up automatic payments. Not only will using automatic payment allow you to “pay and forget” your monthly student loan bills, it will also likely get you 0.25 percentage point reduction on your loans.
Here’s how you can use automatic student loan payments to stay up to date on your bills and save money on interest, specifically:
How Automatic Student Loan Repayments Work
If you’re trying to pay off your student loans, signing up for automated loan payments can be a smart approach to alleviating that debt. With automatic payment, your payments will automatically be sent by your bank to your lender, instead of manually sending them to you each month.
There are three main ways to automate payments:
With this automatic payment method, you communicate your bank account details to your loan manager. By doing this, you authorize the lender to withdraw your student loan payment from your account each month.
By setting up automatic student loan payments with this method, you can ensure that your payments are always on time and that you will never miss one. Additionally, lenders may offer a discount on your student loan interest rate for setting up automatic payments.
The most common rate reduction offered by the federal student loan services – and many private lenders – is 0.25 percentage point on your interest rate. With a lower interest rate, you’ll earn and pay less interest over time, which save you money.
There are some drawbacks to this method, however. Since you don’t control the payments, you have less flexibility and control over them. And if your bank account runs out, an automatic payment could overdraw your account and incur charges from your bank.
However, if you are interested in save on interest and can keep your bank account well funded to cover monthly payments, enrolling in automatic student loan payments might be the best way to go.
Another common method to set up automated loan payments is to use automatic debit from a bank account through online bill payment.
Banks typically offer this feature to customers who log into their accounts online or through a mobile app. You can enter your lender as the beneficiary and set an amount to automatically pay the lender each month.
The advantage of direct debit is that it gives you more control over your money. You will not have to give the lender access to your Bank account, and you can update or change your payment settings at any time. You can also set up alerts to receive an SMS or email from the bank reminding you when your student loan payment is due.
One potential downside is that these types of payments can take a bit longer to process. Using this method, your bank usually prints an authorized check and sends it to your payee by mail, which may be delayed. To avoid late payments, set up your bill payment online a few days before the due date of your loan.
Paying bills online can be the right choice if you are more comfortable in controlling your payments. It is also an easy to use method if you want pay more than your minimum student loan amount every month and pay off your debt faster.
Many federal student loan officers does not directly accept credit card payments, but it may be possible to find private lenders or loan refinancing services that do this.
If your student loan officer doesn’t accept credit card payments, this will likely require automatic monthly withdrawals from the card. You can also check if your credit card issuer offers an online bill payment feature, if you prefer this method.
There are some potential benefits of making student loan payments with a credit card. For example, if you pay with a loyalty card, you could earn points or miles on your student loan payments.
This method can also offer a little more flexibility for the reimbursement of the credit card debt. Since the payment is made against your credit limit, it will not fall due for another payment cycle. This might give you some leeway for a month when other expenses arise.
However, there are some major downsides to paying with a credit card. Credit card companies charge a processing fee to payees, which is why many lenders do not accept this type of payment. If these charges are passed on to you, they could offset any rewards you earn with your credit card.
Credit card debt comes with a high interest rate. So if you don’t pay off the balance in full each month, you will have to pay significant interest charges. And if you use credit cards to cover automatic student loan payments because you can’t afford it, it can quickly turn a bad debt situation into something much worse.
Even if your student loan issuer doesn’t accept credit card payments, you may be able to get a card with an introductory APR of 0% and transfer the loan balance to that. A balance transfer is different from paying your student loan with a credit card, but you’ll need to find a credit card issuer that allows student loan balance transfers (and make sure your student loan manager has it). also accepts).
Additionally, you should keep in mind that your 0% rate would only be available for a limited time, after which the interest rate could be much higher than your student loan rate.
Overall, setting up automatic student loan payments can help you keep track of payments and free up mental energy for other financial tasks.
But whichever method you choose can help or hurt your student loan. reimbursement targets. Make sure you carefully review each automatic payment method and take the time to understand how they might affect your loans before purchasing one.
Finally, even if you opt for automatic payment, it may also be a good idea to divide your monthly payment in half. Manufacturing bi-weekly payments will equal 26 payments per year – or 13 full payments – which is one more payment than you would on the standard 12 payment cycle.
This way your budget won’t feel stretched, but you can pay off your debt even faster.
Rebecca Safier and Laura Woods contributed to this report.