So you’ve got a side-hustle and student loans. You’ve reached peak millennial, my friend — but unlike basically every other “peak millennial” stereotype out there, this one could be seriously advantageous to your financial situation.
See, if you can side-hustle your way into an extra $100 a week — that’s four hours of work at $25 an hour, or just two hours of work at $50 an hour — you could save thousands of dollars on your student loans over the course of your repayment period.
The power of pre-payments
When you make a regular student-loan payment, some of that money goes to repaying your debt, which is the part of your payment that’s applied to your principal. That part of the payment is the part that’s directly responsible for lowering that horrifyingly large balance you’re staring down.
The other part of your payment goes toward interest. That money isn’t reducing your student loans by a single cent. Instead, it’s the money you’re paying to keep your head above water and make sure that the interest on your loans doesn’t keep growing and leave you with an even higher total balance.
When you make a pre-payment on your loan, however, it’s much more powerful than a regular payment because the entire payment is applied directly to your principal.
Here’s an example, in case this all seems really vague and not all that powerful yet.
Let’s say your regular payment is $400. Of that $400, $275 gets applied to your principal loan balance, and $125 goes toward paying the interest on your loans. That payment only reduced your loan balance by $275.
If you made a $400 pre-payment, your loan balance would drop by the full $400. You’re effectively gifting yourself another $125, and you’re one step closer to having those loans gone for good.
The math behind your side-hustle advantage
Finding an extra $400 in your budget is easier said than done, unless you can make an extra $400 by side-hustling. If you can, you’re setting yourself up for a huge monetary advantage when it comes to your student loans if you send that entire $400 chunk of side-hustle change to pay off your loans.
Let’s say you’ve got $35,000 in outstanding loans, at 5.7 percent interest. If your regular monthly payment is $400, your loan will cost you a whopping $10,200 in interest if you stick with your regular payments and your set payment schedule.
If you added a $400 monthly prepayment to your student loans, you would save $5,872 in interest over the course of your loan repayment.
Five thousand, eight hundred and seventy-two dollars! That’s an amount of money for which a lot of us would hustle.
Your timeline to student loan freedom
The math behind prepayments isn’t just advantageous in terms of paying less interest over the course of your loan, either. Those side-hustle-powered payments are accelerating your timeline to debt freedom, too.
If we keep going with the same example, your $400 monthly prepayments wouldn’t just shave thousands of dollars off the total cost of your loan. They would accelerate your loan repayment timeline, from 9.4 years to 4.3 years.
That’s right: You would be student-loan-debt free more than five years faster if you hustle your way into an extra $400 monthly payment toward your loans.
If I don’t have a side-hustle, where should I start?
There are a lot of different side-hustles out there, from digital products to physical products to the sharing economy. If you need to narrow down your choices to pick a side-hustle that will help you crush your student loans and save money on interest, here are some helpful questions to ask yourself.
- What do I enjoy doing? Think about the hobbies you have that you already enjoy. Is there a market for what you do? Would someone pay you to do those things or buy the product of your hobbies?
- What am I better at than most people? Now, consider any special skills you have — and trust me, you definitely have at least a few special skills. What does your day job pay you to do? Is there a market for that skill? Could you help other companies or people with it?
- What resources do I have that I could leverage? Lastly, consider if you have any resources you could offer to other people for a price. Think “you can sleep on my couch in NYC for $50 a night.”
Hopefully, those questions have left you with one, if not several, ideas of ways you could side-hustle your way into an extra $100 a week to destroy your student loans and save a bundle on interest while you’re at it.
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