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With education costs at an all-time high, it’s no surprise that Americans are more burdened with student loan debt today than ever before.
In 2016, the average graduate finished school with $37,172 in student loan debt – an increase of 6% from the year before.
How can recent college graduates be expected to get ahead when they’re already so far behind?
My situation is no different. At the time of this post, my student loans total $41,210.95.
Ouch. Seeing that number on paper never gets easier.
I studied finance (more specifically, financial planning) as an undergraduate, and I knew long before I graduated that I wanted to get rid of my loans as fast as humanly possible. So as soon as I graduated and landed my first post-school job, I sat down and made a plan to be completely debt free in 5 years.
Here’s exactly how I did it.
Why Pay Off Your Student Loans
Everyone’s why is different, and before you make a plan to pay off your loans, it’s important to pin down yours. Your why is what will keep you motivated when the going gets tough, which it’s bound to do at some point.
My why was obvious to me: I hate the overwhelmingly soul-crushing feeling of owing someone else money. I think about it probably 100K times a day. Every time it crosses my mind I feel my shoulders tense, heartbeat quicken, and a lump swell in my throat.
Clearly, my student loans are not contributing to my mental wellbeing.
If I didn’t have loans, I could spend less time working and more time enjoying things that I love, like traveling, hiking, and hanging out with my beau and our awesome dogs.
How I get any work done at home with those cute faces around, I have no idea. But somehow I manage.
What would you do if your student loans weren’t holding you back? Would you save for a down payment on a house? Take an extended vacation to a new, far-off place? Learn a new skill? Take a career risk and start your own business?
The debt-free life is a whole different ball game. The possibilities are endless!
How to Pay off Student Loans
Paying off debt early is something that’s accessible to anyone. You don’t have to have a high-paying job, a handsome inheritance, or a ton of money saved to do it; you just have to have a why and some determination. When I first started my payoff plan, I was making less than $34K and paying more than $1,000 a month towards my loans (and I wasn’t living with my parents).
There are multiple ways to approach paying off debt, but this is the method that I currently use. It’s sort of like a modified debt snowball with a twist. You’ll see.
Step 1: Get organized.
Before you can create a plan to pay off your student loan debt, you have to know exactly how much you owe.
This is scary stuff. I wasn’t tracking my student loans very closely while I was still in college, and I remember thinking my loans were around $35K. Then I added it all up one day and realized I was about $7K off in the wrong direction.Hopefully, you don’t get a similar surprise.
Before you do anything else, you need to get organized and get everything in one place.
I use Student Loan Hero to track my student loan payoff plan. Out of all the debt tracking tools out there, I’ve found it to be the most comprehensive and most informative when it comes to student loans. I also love that it syncs with your student loan accounts, like Sallie Mae and Great Lakes, so you don’t have to spend time inputting the information for each small loan. The first thing you’ll want to do is sign up for a free account.
Once you’ve created your account, choose the option to “Add a Loan“.
Then choose either “Sync Federal Loans” or “Sync with Loan Servicers“, whichever applies to your loans.
I personally love having the ability to import my loan information, but if that’s not for you, just scroll down and choose “Add a Loan Manually“.
On the “My Loans” tab, you’ll see a total of all your loans and minimum payments at the top and a breakdown of the individual loans beneath. As you can see, my total loan balance is approximately $41,211 with a minimum monthly payment of $625.
Note: I’m not sure why it’s reading my accrued interest as $31K, but I haven’t actually accrued 300% interest on a $10K loan. Talk about a bad interest rate.
Note: You can also download an amortization table if you would prefer to consolidate your loans into an Excel file rather than an online platform. Just Google “free amortization spreadsheet Excel.”
Step 2: Decide when you want to be debt free.
Once your loans are in order, you then need to set a goal for paying off your debt. My goal was 5 years for $50K. Your goal can be more aggressive, or you can space it out over a decade if you’d prefer. There’s no wrong answer here.
The reason I recommend doing it this way rather than looking at your budget and saying, “Well it looks like I have $300 left at the end of the month to put towards my loans,” is because having a set date for when you want to be debt free is super motivating.
The ideal goal is one you have to stretch to reach but isn’t so far out of grasp that it causes you stress and is therefore demotivating. So don’t say “I’m going to pay off my loans in one year!” if that’s not really feasible for you in your current situation.
Once you’ve set your goal, you need to figure out the monthly payment it’ll take to achieve it. To do this, we’re going to use Student Loan Hero.
Note: You’ll want to grab a pen and paper for this next part.
On the top menu, choose the “Calculators” tab. Choose the “Prepayment Calculator” (it should be the first one on the left).
On the next screen, you should see something like this:
Enter the information (loan amount, interest rate, current payment) for your biggest loan here, with a “Remaining Term” equal to the goal you made earlier (mine was 5 years).
In the picture above, you can see that in order for me to pay this loan off in five years, I’ll need to make payments of $374/month.
Write this down.[Take a little note/to remind you in case you didn’t know/tell yourself I love you and I don’t want you to go – Any George Strait fans out there?]
Now try it with your other loans. Here’s where the “modified debt snowball” part comes in: if you have smaller loans, then change the remaining term for your smaller loans to pay them off more quickly.
For example, my smallest loan is $884. In order to pay it off in 6 months, I’ll have to make payments of $125/month:
Note: You cannot enter a “Remaining Term” of less than 1 year. If your goal is to pay off any loan in less than a year, you will have to change the “Desired Monthly Payment“. (above)
Another Note: All of this can be done with an amortization calculator.
Once you’ve set a goal for each loan and played with the numbers, you should have a list of the payments you’ll need to make for each loan in order to pay it off within the chosen timeframe. Add them up for your total monthly payment.
Step 3: Work your payment into your budget.
The total you just came up with might seem overwhelming or even impossible at first, but it’s not. (Unless your goals are a little steep, in which case you may need to reevaluate.)
The next step is to create a budget (if you don’t already have one) and adjust for your new loan payment.
If your payment goal is more than you can currently afford, there are two ways to change that: decrease your expenses and/or increase your income.
Decrease Your Expenses
There are a ton of ways you can decrease your expenses, many of which you may have never even thought of. Below are some of the quickest and easiest ways to drastically reduce your expenses.
Save on Food: I eat an all-organic diet, and my grocery expenses are less than many people I know who don’t eat organic. My secret? I shop online! Vitacost and Tropical Traditions are my go-to websites for finding great deals on groceries and all other things health and wellness. Save up to 50% at Vitacost or Tropical Traditions.
Ibotta gives you cash back on many of the things you already purchase, like groceries and other household products. All you do is save your grocery receipts, submit them through the app, and voila! Cash saved.
Make Dining Out a Special Occasion: Another great option that I recently implemented into my money-saving regimen is $5 Meal Plan. They surveyed 2,134 families and found that, on average, families were spending 2 hours a week planning meals. Their solution? Deliver awesome, cost-effective meal plans for only $5 per month. Since their average meal costs about $2 per person, you’re saving time and money.
Ditch Cable: According to Leichten Research Group, 82% of households were subscribed to a pay-TV service in 2016, with the average monthly plan costing approximately $104.
How much television would you have to watch per day to justify that cost? A 2016 study by Nielsen concluded that the Average American watches about 4.3 hours of television per day.
What are we doing people?
That’s far too much money and time spent sitting lifeless in front of a screen. Cut your cable costs by subscribing to Netflix, Hulu, or Amazon Prime. Or give up television altogether (at least for a while). It’ll improve your finances, and it just may improve your life as well.
Downgrade Your Vehicle: If you live in a highly populated area, you may want to entertain the idea of getting rid of your vehicle and opting for public transportation.
Think of all the money you could save considering the cost of maintenance, monthly payments, taxes, registration, fuel, repairs, and insurance.
You may not be able to get rid of your whip altogether, but trading in the new for the old could save you hundreds of dollars a month. Most financial experts recommend spending no more than 10-15% of your net pay on vehicle expenses.
Lose the Gym Membership: Contrary to what we’re often told, you don’t need a gym membership (or an at-home gym) to be in great shape. There are many alternatives to paying for a gym. There are tons of free yoga videos online (a few of my personal favorites are Ekhart Yoga, Yoga With Tim, a.k.a. The Guy With The Most Soothing Voice Ever, and Fightmaster Yoga).
Suspension training is another way to beat the gym craze. I use (and love) the TRX Training System. It’s super portable and lightweight, so you can use it pretty much anywhere – traveling, outside, hotels, etc.
A Little Less Pampering: Everyone likes to be pampered now and again, but backing off the salon could potentially save you a lot over the course of a year. The average cost of a manicure in the U.S. is approximately $20, and manicures run around $33. Women who get manis and pedis do so about every 2 weeks. If that’s you, there’s about $1,378 per year that you could use to put towards your debt.
Increase Your Income
Most of the time, decreasing your expenses will only get you so far. In order to pay down your debt as quickly as possible, it’s important to look at the other side of the equation as well.
Freelance Writing: Holly over at EarnMoreWriting.com is a wildly successful freelance writer who’s created a course to teach others how they can replicate her success. In her course, she teaches students:
- How to find and land jobs
- How to set your rates as a freelance writer
- What clients want and how to become a writer they will love
- Which types of jobs earn the most pay, and where to find them
- Which online platforms work best for finding paid work, and how to use them
- How to structure your work day to earn six figures or more
Freelance Anything: Freelancing has been a lifesaver for me. Right now, I make several hundred dollars a month writing articles, editing websites, and providing virtual assistant services for buyers on People Per Hour. No matter what your skillset, there’s likely someone willing to pay for whatever it is you’re offering.
Teach English Online: I’ve been teaching English online with VIPKID for several months now and I love it. The kids I work with are fantastic and I’ve really enjoyed the supportive community. If you love working with kids and think this might be a good fit for you, read more about how I make over $2,000 per month working for VIPKID part time.
Note: Visit my Resources page for more free money-saving and money-making tools.
Step 4: Automate.
Once you’ve worked your new monthly payments into your budget, put your loan payments on autopilot. Automating your payments takes the control out of your hands, which means you’re much less likely to “just pay less this one month.”
Write your auto draft dates down in your planner or create a reminder in your phone to make sure the funds are available before the payment is made. That way you’ll be sure to avoid any overdraft fees.
Step 5: Pay extra when you can.
Side hustling gigs can be very lucrative. Once you find your groove, you may end up making more than enough to cover your new minimum loan payment. If that’s the case, don’t spend it – use it to pay down your debt even faster. Every dollar extra that you pay can help you reach your goal that much faster. That includes work bonuses, gifts, lottery winnings, that $20 bill you found in those jeans you haven’t worn for 6 months.
You’ve made a plan to be debt free in X years, but imagine if you could be that goal and eliminate your debt even sooner. How would that feel?
Step 6: Watch your debt disappear.
Watching that number drop is one of the most liberating feelings there is.
Remember, it’s not forever.
Paying off debt isn’t an easy feat. It takes time, patience, and a lot of hard work, but it can be done. The most important thing to remember is that it won’t be this way forever. Once your debt is gone, you’ll have the freedom to do with your money as you please. You can start saving for your dream home, purchase your next vehicle in cash, or whatever it is you’ve been dreaming of.
What steps have you taken to pay down your debt? What are your favorite money-saving/money-making tools?
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I’m a financial coach and author + owner of Goodbye to Broke. I love all things personal finance, money management, and healthy living. And I talk to my dog way too much, if we’re being honest.