CINCINNATI - Can a simple swipe of a debit card help shave years off your student loan?
According to Fifth Third Bank - the answer is yes.
And now, there's an app for that.
Last month the Cincinnati-based bank released Momentum - an app that allows users to round up purchases to the next dollar when you pay with your Fifth Third debit card. For example, add another 55 cents to your $9.45 lunch, or $1 on every purchase, if you choose. The payments are routed from your Fifth Third bank account to your student loan servicer.
Free of charge.
While the idea of so-called micropayments is not unique, Fifth Third is the first bank to apply them to student loan debt. On average, the user can pay off their debt around five years sooner.
That's a big deal.
Americans have amassed more than $1.4 trillion in student loan debt, and the average graduate today owes $37,000 toward their degree. Fifth Third doesn't make student loans – and currently doesn't refinance them either.
But the new app is one of the ways the bank is targeting millennials bogged down by debt - which keeps young borrowers from making other purchases like homes and cars.
"We are running into this more often," said Tom Keller, a certified financial planner at Kehoe Financial Advisors in Springdale
Tom Keller
Of course, it's not the only option. Here are five Fifth-Third-inspired ways to pay down that college debt faster:
1. Get on budget
Congratulations! You've graduated from college.
But before you run off to an exotic locale to celebrate, you should do one thing first, Keller said. Sit down and draft that dreaded budget.
Such a financial outline should 1) limit spending and 2) include a line item for your student loan debt, even if your first payment is still months away.
"This is a challenge for graduates – there's true excitement; you're finally done with school, and you just want to experience life," Keller said. "But with most student loans, the grace period is six months. That's six months of not realizing you have this payment due, and (when that happens) it ends up being a real surprise. You should implement a payment plan for the student loans, so you're ready for it."
2. Consider adding on
Apply a bonus, tax refund, etc., to the debt, since this is considered extra money. Apply a raise – even just half – to your monthly payment. Since you aren’t used to having this money, it's another way to tackle the debt.
Keller also suggests taking a second job. Even bartending a couple nights a week can mean thousands extra a year.
"Especially with all the breweries and restaurants around town…a second job can really help raise that capital for those extra payments," Keller said.
3. Do more than the minimum
Similar to option No. 2; this is where an app like Momentum comes into play. The idea? Even adding $30 bucks a month to the minimum payment can shave years off a student loan.
Fifth Third spent a year studying millennials – talking with hundreds and surveying thousands – to better understand their feelings toward student loan debt. The bank openly admits it doesn't have enough customers in the 18 to 34 age range.
The results were surprising, said Mike Crawford, a product manager at Fifth Third, who helped develop the app from start to finish. Many were ashamed to disclose their debt amount. It made them feel unworthy – of dating, marriage and more, he said.
Crawford knows first-hand the burden of student loan debt. He and his wife Lindsey, an OB-GYN, still have a decade-worth of payments, or more, remaining. Their minimum monthly is more than their mortgage, and they're also trying to juggle college savings for their 1-year-old twins.
"It feels never ending. It feels so depressing," he said. "We've really focused with the tool on helping eliminate or alleviate the burden of debt, which enables our customers to confidently refocus on what's important to them. There's education built throughout the whole app to try and combat the feelings.
"One of the other things we heard from the user, is that it's really important for this to fit into my life, not the other way around," he added. "This is tailored to the person that's more compulsive, who really needs something behind the scenes to make a difference. This is for those consumers that need help."
The app officially launched in early September – but so far downloads have "far exceeded expectations" and engagement has been strong, he said.
The average user, Crawford said, will contribute about $25 to $30 a month toward their student loans – Fifth Third applies the extra amount in $5 increments. While that may seem inconsequential, it means the average out-of-college millennial will pay off their debt three to five years faster.
Other popular apps include ChangEd and Student Loan Hero. There's others, although not all are free.
"I think it's a tremendous idea, anything that's out of sight, out of mind," Keller said. "Everybody always has great intentions of paying extra, but if it's automatic, you're going to have a much higher success rate."
4. Live below your means
Before you consider moving back in with the parents – albeit an excellent way to stash some extra cash – try out a cheaper apartment or starter home.
While Keller is seeing an increase in clients burdened by student loan debt, younger Kehoe clientele are also increasingly investing in real estate as a means of extra income
"If you buy a two-family or four-family (duplex), and live in one and rent out the remainder, not only can it pay part of the mortgage, but you can also earmark a piece of that income toward your student loan debt," he said.
5. Understand your interest rates
If possible, consolidate to a lower rate, especially if you have a strong credit score. Or, consider tackling the student loan with the highest interest rate first. That's how Crawford and his wife are tackling their debt.
But, if you have multiple loans, sometimes the opposite holds true. Paying off a smaller loan amount equates to a moral victory, Keller said. When he and his wife got married in 1999, she had $20,000 in student loan debt. They paid the balance over seven years.
"That's the hard part about finance; it's everyone's personal preference," he said. "I believe in paying down the highest interest (first), because that's the one that's going to hurt you most in the long run, but it gave us some motivation. It was a huge weight, and it felt good to pay something off. I'm still, honestly, surprised we personally did it in seven years, but we were committed and disciplined to make those extra payments."
So moral of the story? Have an end goal. And find what works for you.
"The challenge is, everybody's looking for that magical wand to erase it," Keller added. "Unfortunately, it just takes time."
