Hey y’all! We’re gonna get a little lifestyle on Charleston Crafted here today, talking about something that effects me and a lot of my peers – student loans.
I was lucky enough to go to an awesome college and have an amazing 4 years, as well as to graduate with a good degree and a secured job. However, I also graduated with a lot of debt. Well, it felt like a lot to me. Talking to friends in law or medical school makes me feel a lot better about my balance!
I graduated in May of 2011 and started paying back my loans around October of that year. I have a lot of small loans, some subsidized, some co-signed, some none of the above. They were all federal loans, none from the bank or anything like that.
The biggest mistake I made in school was taking out so much debt! I needed some of it to cover costs towards the end of my college career, but I took the full amount they offered me! Stupidly, I bought clothes and a laptop and went out to eat and got so many sorority t-shirts! I so wish I could go back and not take so much extra money out.
But, regardless, I’ve been loyally paying them back for about 2 1/2 years now. And, last weekend, for my 25th birthday, I paid off the last of one of my major loans. It was thru Nelnet and solely in my name and started at about 1/3 of my total loan balance. So, I still have a ways to go, but I am so excited to have it done! I paid it off early by paying extra money as much as I could, while paying close to the minimum on my other loans.
I could have paid this loan off faster, but I made it a goal that I wasn’t going to let loans take over my life! To me, it is letting the feds win to live this horrible deprived life where I never go out to eat or shop or travel, just to pay off my loans. Maybe, if I could pay them all off in a year that way, I would do it. But, my balance is high enough that it will take a while – and I could never not shop or travel for five years! YOLO people! 🙂
But, regardless, I wanted to share some tips that have been helpful to me and are what I credit for paying off a ten year loan in 2 1/2 years.
Tips for paying off student loans
- Break it into pieces. Loans, especially in huge amounts, are extremely overwhelming. It’s very easy to think – I could never pay off $50,000. I’ll just make the minimum payments and keep living my life. However, most loans (at least in my experience!) are actually made up of smaller loans.
They have different rates and amounts. Break them up that way. For example, I have loans with 2 lenders, one co-signed by my mom and one just in my name. I decided to focus on the loans in my name only first, to clear up my credit in case we want to buy a house.
Within the loans in my name, there were 4 smaller loans. I focused on the ones with the highest interest rate first. Paying more on these saved me interest expense in the long run. Your small extra payments make a bigger difference on $10,000 worth of debt than they do on the $50,000 total. Plus, it feels great to celebrate each chunk going away forever!
- Consider “found money” free money – and put it straight on your loans. Things like tax refunds, cash made from consigning clothing, or money I make from blog advertising goes straight on the loan. Since it’s not “normal” income, it shouldn’t really be factored into your budget. This makes it super easy to part with.
- Don’t forgo emergency savings for debt payments. Experts recommend having 6 months’ worth of savings. The thing to remember about loans is – it feels amazing to have them paid off. It’s a burden that you want off your shoulders. However, if you get laid off, or get sudden medical bills, or need a major home or car repair – you can’t use “loan equity” to pay for things.
Most loans apply early payments to the end of your loans and require you to keep making payments now. So if you put every penny of your savings into your loans, and then get laid off the next day, you are in trouble. You will have to keep making payments AND have no nest egg. And don’t think you are invincible – you never know what will happen out of the blue.
I keep about 1 months’ worth of expenses (that’s total – all bills and a regular month’s credit card bill) in an account that I never ever touch (except for a monthly deposit into the account of I think $50) but once my loans are paid off, I fully plan on working more aggressively to get to 6 months’ worth of savings.
- Automate you payments. I’m lucky enough to get paid on roughly the same days each month, so I have a whole slew of automatic transfers scheduled monthly. The money goes out almost as soon as it comes in – which makes it much less tempting to use it on something else.
- Automate savings, too. Sean makes super fun of me because I have ten savings accounts. Yes, ten. I know, I get basically no interest compared to if I consolidated my savings into a money market or a CD. But this is what works for me. For example, I know that I pay about $500 every 6 months for car insurance.
So, I have $100 automatically transfer from my checking account to my “car insurance escrow” savings account each month. It goes the day after a paycheck and I don’t miss it. Then, when the bill is due, I don’t have to scramble or hit my emergency savings or skip a loan payment to cover the slack. It might seem excessive, but I’ve been saving this way for about 3 years and have had great success with it.
I have categories for everything that seems to cost a lot and sneak up on me – condo projects, blog expenses, vacation costs, Christmas gift fund, and more!
- Small payments make a big difference! At the end of each pay cycle (the day before I get a paycheck) I take all of the money left in my checking account and divide it up and transfer it to various savings accounts or loans.
Put some in my emergency fund, make early payments on my credit card, and of course dump it on my loans! I have found that even payments of $20 add up quickly. They save you loads in interest and, when made in addition to your regular payments, can really help accelerate your loans.
- When in doubt, read Confessions of a Shopaholic and follow her (hilariously attempted) plan – Earn More or Spend Less. As far as Earn More goes, I got a roommate (ahem Sean) who pays me rent. I pay my mortgage like usual (it’s well within my budget with paychecks at the only income source) and that rent check goes 100% to my loans each month. That rent check is the #1 reason why I’ve been able to pay down my loans more quickly.
Look at your biggest expenses (in my case, mortgage or rent) and figure out how you can cut or supplement them.
As far as Spend Less goes, I’m not exactly the best teacher of that, though I have tried to cut about 75% of my shopping down by using the 24 hour rule – if it’s not on my shopping list, I wait 24 hours before buying it. You’d be surprised what you can forget about overnight. And what you do go back to get is all the sweeter. (I’ve been known to call the thrift store multiple times in a work day asking – do you still have the pink chair? Is anyone looking at it? Don’t let them touch it!)
- Remember – YOU CAN DO IT! And it doesn’t have to suck. You don’t have to give up having a life to pay off your loans. If you can, more power to you. But for me, it was important to not let them over take me. Vacations, going out to eat, and buying décor and clothing are important to me. It’s all about budgeting and setting a personal limit for each month and not beating yourself up if you go a little over.