Five years ago today in 2013 I made my very first student loan payment of $492.21. My 6 month grace period after graduating was over and while this was a huge chunk of change I was working and still living at home so it wasn’t earth shattering.
How To NOT Pay Off Your Student Loans.
After that, I made three more loan payments that year and then I found out that I qualified to put my loans in forbearance and so although I didn’t really need to do that I did so I could buy more shoes. 😶 I was stupid (like most of us at 21) so I mostly forgot about them keeping them in forbearance off and on for the next 2 years. I sent random payments here and there totaling $531.62 over this time period- I never did the math before right now but that’s just over $22 per month lmao. What a disaster!
What You SHOULD Do.
Commit to making payments.
It wasn’t until that fourth year when I FINALLY settled into a job I knew I could make into a career that I became committed to making payments. I always knew I didn’t want to be paying off loans for 10 years and I was still comfortable living at home for the time being so I decided to make more aggressive payments so when I was ready to move out I could do so debt free. I didn’t really have a deadline in mind, but the sooner the better.
Figure out what you’re working with.
I had federal direct loans that were broken up into two categories: subsidized and unsubsidized. I separated each of my loans (13 in my case) into these two categories, put in an excel sheet, then sorted each group by interest rate then by balance. Here’s an example of my spreadsheet!
Create a strategy for repayment.
Open a separate account for your student loans (and other debt).
I like to keep separate savings accounts for my savings goals. Keeping everything separate makes setting and prioritizing goals much clearer imo. I had an extra savings account that wasn’t allocated to anything so I set that as my debt savings account. Any money transferred to that account would be strictly for paying off any debt I had.
Create a budget and stick with it.
This was probably the most difficult for me. Sure, I had a budget, but since I had practically no living expenses I never stuck with it because there were no real consequences if I didn’t. So I went to my to my budget, figured out how much I wanted to save after living expenses every pay period, and set up automatic transfers so that I wouldn’t even have the opportunity to see the money in my checking account on my pay day before it was snatched out. But again, my budget was very loose and I found myself cancelling some of my weekly transfers to go on a trip or buy a pair of sneakers I had been eyeing. Don’t be like me.
Cheat a little.
The federal government pays interest for subsidized loans while you are in college or while the loan is in deferment. Interest begins accruing on unsubsidized loans as soon as the loan is taken out. Knowing this, I targeted my unsubsidized loans first and put my subsidized loans in deferment. I qualified because I was still freelancing at the time, but it’s not like they called my job to confirm that or anything… so you can be a freelancer too lol. Again, I didn’t need the deferment but if the government was willing to pay my interest then SHIT! I started at the top of the before mentioned chart and went down the list. Every month I paid my minimum loan payment plus an extra payment towards the loan highest on the list. By the time I maxed out my deferments, I had closed out all six of my unsubsidized loans without having accrued any interest on my seven subsidized loans.
Using this method I closed out 8 of my loans (worth over $15k) in that first year alone! Linking a blank template of my spreadsheet here.
A few months into year five (July 2017-present) I decided I was ready to move. The desire hit me really hard at once and I started to get obsessive (and extremely anxious/depressed) about finishing my payments so I could move sooner. I knew I would have to get more organized/strategic with how I saved and paid my final five subsidized loans. I had maxed out my deferments at this point, so I was now accruing interest on these so I continued to work down my excel sheet targeting the ones with the highest interest rates. I was now making more money than I was when I first created my budget so I needed to figure out the max I could save out of each check and also set a target closing date. So I went back to my chart this time adding a savings/payment schedule. I added all of my pay days (Fridays) and all of my loan due dates (the 21st). Suppose I started with $700 and could afford to save $100 per week towards a balance of $2500. Based on the below I would be able to clear my balance on November 21st. I’m sure there’s probably an easier way to do the math and figure this out, but this was very helpful for setting up auto transfers, auto payments and figuring out how much I needed to save weekly to meet a certain deadline.
So in reality, I haven’t completely paid off my loans. I decided to keep my last 2 loans open (currently a balance of around $2,500) because although I technically have the cash to close these out I’m working on something that requires me to have several active credit accounts and I only have 2 credit cards. So I’m just paying my minimum $75 until that is finalized and then I will send that final loan payment and be all clear! This can also be a good idea if you have no credit at all as making consistent payments will establish and build credit over time.
Shoes: Public Desire