I have been dreaming about the day I can write this post for so long yet I still don’t know the words to describe my excitement. My very last student loan payment was paid on January 16th and I am beyond ecstatic. For the first time in my adult working life I am free from student loans and no longer have debt to pay (with the exception of the mortgage).
I want to give some background on my student loan journey. It is not remarkable. I didn’t owe hundreds of thousands of dollars, I didn’t pay off an obscene amount of money in an obscene amount of time. But because it is not remarkable is the exact reason I believe it can be helpful to the average student loan borrower.
So often I see stories on blogs and posted on Pinterest to the tune of “How I paid off $200k in loans in 18 months!”
Hint: “I make triple the average person!!”
That is not me, but that is also not many people. You get attracted to the click baity title and once you read it you get let down thinking, “Well isn’t that nice you make $100k at 23, I make $40k like your average college graduate. Therefore, I’m still stuck and didn’t learn anything but how much money you make.”
I have made mistakes along the way. I could have paid this off sooner if I was super frugal, but I’m satisfied with my accomplishment regardless.
I lived my 20s ticking away at student loans but also being happy and reaching other goals along the way. Personally, I did not want to severely limit myself to pay it off faster since my interest rates weren’t crazy. I’m not a huge spender to begin with and I don’t go on fancy vacations so in my mind I was living a responsible enough life. I will break down all the math and how much extra interest I paid further down.
For now, here are the basics to get a background that I had normal bills to pay and no huge money windfalls.
- I am currently 28
- I graduated a state school in 2012 with a Bachelors in liberal arts (my first mistake not doing a technical degree, but that’s for another day)
- My payments began December 2012
- My first job out of college was an assistant at a law firm making $15/hour, I was there for year
- 3 months after I graduated I moved out of my mom’s house to an apartment with a roommate so I have always had rent to pay
- I have never had a car payment, I drive my 2007 Altima to this day
- In July of 2016, my now husband and I bought our first home
- In July of 2017, we got married (July is becoming a busy month here)
Here is a graph of all my payments made each month. I paid only the minimum for 25 out of 61 months. All of the other months I made extra payments with what I could, whether that was with a work bonus of just $50, it all added up. With making extra payments, I was able to save $3,213.41. I labeled some key points on the graph below we can explore.
- By then, I had started my second job about 6 months earlier with a decent increase in pay. I was very pleasantly surprised at the bonus the company gave, I believe it was around 14% of my salary at the time. I used this bonus as well as my tax refund to add another larger payment on top of the student loans.
- Wahoo, another tax refund and bonus! Dump it into loans. I know some of you are thinking, “NO you shouldn’t be getting back that much money it’s a free loan to the government!” I will discuss this more below.
- Seeing a pattern in March? Tax refund and bonus. Whenever I came into a couple extra thousand it went straight to debt and a portion to savings. NOT treating myself to shopping.
- This is when I had two student loans left at 4.25 and 3.15% interest rates. We were engaged in November and set the date for July 2017. We were adamant about not incurring debt for a wedding (more on that here). We aren’t big spenders anyway, but we were really super mindful of spending during the 7ish month engagement to make sure everything could be paid in cash. During this time, I only paid my minimum payment since the interest rates weren’t bad.
- House, check. Wedding, check. It felt like I was practically swimming in extra money (not really) since we can loosen the frugal belt and get back to normal. After living mindfully for the engagement though, I became quite used to it so wasn’t a stretch for me. Instead of expanding my lifestyle again, all the extra money I had I dumped into the loans.
At this point, I was on the home stretch. I could practically taste being debt-free so every extra penny went towards my student loans, as you can see with the steep climb starting around September 2017.
Key Steps I Took to Paying Off Student Loans
Review what loans you have and the interest rate
This sounds obvious to some but I was shocked in informal discussions with friends that most had no idea what their interest rates were. Most of us don’t have just one loan (unless you consolidated) so all the rates will vary. Become familiar with them so know which have the highest interest rates and amounts, which leads me to my next.
Pay the minimum on all loans and put any extra on your highest interest rate
There are some conflicting opinion in the personal finance world on this, but I chose this tactic. I paid my minimum each month and then when I had extra money to throw down I started with my highest interest rate until that was paid off. Then, my next highest, and so on and so forth. This is why I only had the 3.15% and 4.25% left while we were planning the wedding.
The other tactic preached by Dave Ramsey is the snowball method. Going from largest to smallest interest rate will definitely save you more money in the long run, but some people prefer the mental wins to keep going. Say your highest interest rate loan also has the highest amount. This could take you a while to pay off and you may lose steam in the debt fight.
The snowball method says to start extra payments with your smallest debt, regardless of interest rate, until that gets paid off then move to the next. This is all about the behavioral rewards. You’ll feel like you’re accomplishing more as you get each debt paid off faster and you feel more gratification.
Which one you choose isn’t important, just make yourself a path and stick to it.
Set up auto pay
When my loans first kicked in I was given the option to set up auto pay from my checking account every month. Not only did this force me to budget and prevent any late payments, it also rewarded me with .25% interest rate reduction on each loan. This saved me a few hundred dollars, which may not sound like a lot but it prevented any missed payments from hurting my credit score at the same time.
Use any extra income to pay off debt
Whenever I received a bonus at work or any cash gifts they went straight to debt.
I also chose to claim less allowances on my taxes so I would get back more in my refund. The common argument is that you’re giving the government a free loan but, similar to the snowball method, sometimes it’s a mental win you need.
I typically got back around $1,500 in my refund. Not a huge sum, but large enough to make a nice dent and get me excited seeing the balance go down on the loans. If that was in a savings account for a year, I would MAYBE have a couple dollars.
So for such a small cost, I preferred to intentionally have more come back in my refund so I had a big payment that month on debt. In this way, it was essentially a savings account I could not tap into for a year that forced me to save that money for student loans.
Avoid having a car payment just for show
I drove my 1995 Ford Taurus (aka the tank, that thing was bomb proof), through high school and college. When I graduated I got my 2007 Nissan Altima. It now has about 130k miles on it and I could’ve fallen into the status symbol race, but I hate the idea of a car payment. What car I drive holds no status value to me so I refuse to have a car payment just for the sake of having a new car.
Plus, I’m a little overly attached to that Altima. That car is a champ, never had an issue. I am 2 for 2 on having fantastic, reliable cars. For being 2007 with that mileage, it is worth WAY more to me than it would ever be to sell.
While it is not always feasible to avoid a car payment, if you are buying when you don’t absolutely need to, DON’T.
What I Did NOT Do
I’m not a big fan of the term frugal. I prefer mindful. I could have absolutely paid my debts off faster but I did not want to entirely sacrifice my happiness. In my opinion, it’s crucial for people to remember this. Sure, if you live super frugally you can meet that $1 million goal a few years earlier, but is it worth it? Always be mindful of what is being too aggressive to save money that may be hurting your happiness.
When you look back on your life, will you be prouder of that extra $10,000 you saved or the years you enjoyed with your family?
On that point, also remember the word excessive. I did not shop excessively and I did not go on extravagant vacations. I still wanted to make memories in my 20s that I would always hold dear, but they were budget friendly that would not cause more debt. Find some balance in your life between spending and saving. There are some things I would not do just to save more money.
Live at home to save money
My first apartment was a very humble little place I shared with my best friend, then on my own, and then with my now husband. Those years in that home are ones I would not give back. I loved that little apartment and it still holds a place in my heart. It was my first place with her out of college, my first time living on my own (when she moved in with a boyfriend), and my first place shared with my now husband. It was a very reasonable rent that I could afford without trouble.
Yes, I could have saved money living home but I wanted to experience my independence. Plus, home was an hour away from my job and my apartment was 10 minutes. Sometimes sacrificing my time and happiness for money isn’t worth it.
Wait to buy our house
Home ownership was something we have always worked for. My husband was previously working in NYC and loved it, but we always knew we eventually wanted to settle down in the suburbs. We just aren’t very exciting people I suppose 🙂
We knew we wanted to settle in one area for a long time so we took our time looking and found our perfect home. With mortgage rates lower than my student loans, we locked in.
Wait to get married
Sure, we could have waited. But you know what? We simply did not want to. After 6 years together, we were excited for the next step in our lives. For the 7 or so months I only paid the minimum on my loans to pay the wedding in cash. I paid a small sum extra in interest than I would have if I was making my extra payments. Less than $100. Not something I’m concerned about.
Let my husband pay off my debt
By the time we were married, I was down to about $6,000 remaining on the student loans. He offered many, many times to help me pay them off. I guess it’s partially a pride thing, but I did not think it was his responsibility to pay off my debts. The interest rates weren’t excessive and I knew with the plan I had that they would be paid off within the year so it wouldn’t hurt us financially. I disagree that spouses marry into their partner’s debt. My debt is my responsibility, not something he needs to be handcuffed to.
When my husband was living in NYC, I often drove down for the weekend since I’m in CT. A bunch of our other friends from college also moved down there as well. Those weekends were incredible and memories we will always cherish.
Since I didn’t eat out during the week and was mindful of my spending, I did not stay in on the weekends cooking to save a few dollars. We wanted to experience everything NYC had to offer for the time he was there and we ate at some amazing places, yet nothing over the top.
We went to museums, comedy shows, art galleries, food festivals, anything we could experience. We didn’t go anywhere expensive and were still budget friendly but wanted to enjoy our time. I am absolutely positive if I stayed in or didn’t visit to save money, I would have regretted it.
If you are currently in the midst of student loans, trust me, you’ll reach the finish line. While it is crucial to stay aware of them and make a path to debt freedom, be careful about going overboard to save a few dollars. I could have probably saved an extra couple thousand had I really hustled to pay them off.
But that $2,000 could never have bought all the happiness I have experienced in the past 5 years.
What balance have you found in the journey to paying off your student loans?