How To Pay Off Your Student Loans ASAP
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| The day I became debt-free! FYI, your loan company will not be nearly excited as you. |
Like most 18 year old who sign their lives away, I didn't know exactly what student loans entailed at the time. I heard countless horror stories of people being in debt for decades. I vividly remember my high school sophomore English teacher telling the class she and her husband just finished paying off their school loans.
She was in her late 40s.
In a previous post, I wrote in general on my views about debt and my financial lifestyle. This post explains in detail how I became debt free in exactly 5 years and 1 day after college graduation.
Spoiler alert: it's actually not that hard.
1. I made monthly interest payments while I was in school.
Thankfully my parents taught me to make interest payments every month from my very first month of my college education. The payments started out small (I remember writing a check for $34!) but increased with each loan I took out. This saved me money in the long run and formed the foundation of my payment habits.
2. I worked.
I held part-time jobs throughout my college years. I was a photography lab assistant, Target sales associate, day care center teacher's assistant, and even a shoe saleswoman (oh, Ecco. I have more fond memories of a part-time retail job than anyone ever should). The jobs weren't glamorous and most of them weren't related to my eventual career, but the income helped tackle my debt.
3. I paid off my high interest rate loans in full as soon as I could.
I had two Sallie Mae government loans. Pro: they didn't accrue interest while I was a college student, Con: the interest rates after graduation were a whopping 11%. I graduated in May 2009 and began working full time in July 2009, so I saved up enough money to pay them off in full before the interest rates kicked in. Thanks for your "generosity" Sallie Mae... but I beat you! HAH!
4. I made my minimum monthly payments AND and additional payments towards the principal. Every. Single. Month.
A monthly loan payment is first applied towards the accrued interest. The remainder of the payment is then is applied to the principal balance (the original amount of money you were loaned). This is why it takes decades to pay of loans if you're only making minimum monthly payments!
After I broke it off with Sallie Mae for good, I then chose to pay off the loans with the next highest interest rate. First secret to success: I always made my minimum monthly payments, and made them on time. Second:I always made extra payments towards the principal. I created a budget and figured out how much extra I could pay each month. The extra plus the minimum set by the loan companies equaled my "minimum."
In addition to the set amount of extra payments I paid each month, I also put any additional one time chunks of money (i.e. income from tax refunds, annual raises) towards the principle balances.
5. I treated my loans like Dementors.
My original goal was to pay off my loans before my 30th birthday. When my personal circumstances in 2013 changed and I found myself living with my family while trying to figure out my next career/location move, I used the opportunity to pay them off even sooner; and I became intensely serious about it. I viewed my loans as an unnecessary evil (which, in fact, they are) that needed to be annihilated ASAP.
Looking back, they were my Dementors and my Patronus charm took the form of a budget tool and Excel spreadsheet.
I came across Dave Ramsey's seven baby steps and debt snowmall method. The snowball method instructs you to pay off loans in the order of smallest to largest. Paying off a loan, even if it's a small one, causes you to "build momentum:" you have evidence that paying off debt is actually an attainable goal and thus become motivated to continue. To keep track of this I used Trees Of Money's debt snowball calculator. It's a free, easy to use pre-formatted Excel spreadsheet. You plug in your loan amounts, interest rates, minimum monthly payments, and ongoing extra payments and the spreadsheet calculates your project payoff dates.
The remainder of my loans had similar interest rates between 3.5 and 5% so I switched from my initial method of paying off the highest interest rate loan first to the debt snowball method. I stopped contributing to my Roth IRA and high interest savings account in the interim. Every extra dollar I had each month went towards my student loans... and on May 16, 2014, I was officially debt-free!!!
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Being shackled to your student loans, or any debt for that matter, is not a life sentence. Cast your Patronus charm and get rid of your Dementors. You can do it!
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