3 Reasons to Pay Off Student Loan Debt Quickly
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Autumn grew up in Florida and after graduating from a state university with a full scholarship, moved to Chicago to work as a web designer for several years. After changing careers and going to graduate school, she now works as a physician assistant in cardiac surgery in New York City. Apart from gaining new skills in this field, she also accumulated $100,000 in student debt. Keep reading to learn how she tackled this amount in just 2 years.
Please tell me a bit more about your background.
Soon after moving to New York, I met my boyfriend, Joe, who is an accountant and managed to get his MBA without much debt; what little debt he did have after grad school was paid off with some of his stock earnings. He’s played a huge role in my debt-free journey, so much so that we’ve started a personal finance blog together, www.DIYtoWealth.com, under the pen names Lil and Big.
What was the breakdown of your debt?
I had $85,000 in federal student loans with interest rates ranging from 5.16-7.65% and another $15,000 in interest-free loans from my boyfriend at the time. In total, I accumulated over $100,000 over the 2 years I was in PA school because two of my federal loans were unsubsidized (meaning they accumulated interest daily).
Why did you decide to pay off six figures worth of debt in less than 2 years?
After dating a couple of months, Joe and I discussed my student loans. One night, he emailed 2 loan calculations to me, showing how much I’d pay in interest if I paid off my loans in 4 yrs vs 3 yrs. Super romantic, right? My principal was $91k in December 2015, and if I planned to pay off my loans in 3 years, I would have paid $10,900 in interest (vs the $14,500 in interest after 4 years).
Joe advised against investing while paying down my student debt, because 1) It was an election year, therefore the stock market would be volatile, and 2) ROI was not guaranteed if investing through stocks, but my debt was, and 3) Interest rates were at an all-time low.
Since I was started my second career at the age of 30, I felt behind compared to my peers. I wanted to not only catch up, but be ahead of the curve in terms of lifestyle and retirement planning, so I set a goal to pay off my loans in less than 2 years.
What specific steps did you did to make this happen?
STEP 1: I went with the “debt avalanche” approach on my student debt, per Joe’s recommendation. This involves paying off the highest interest rate loan first and paying the minimum on the lower interest loans.
STEP 2: I refinanced my Fed loans through CommonBond, refinancing helped bring my rates from 7.6% to 3.4% (variable rate). I chose the variable rate, because it was significantly less than the fixed rate. I knew I would be paying off the loan aggressively, so even if the rates increased it would not have a material impact. (Note – Variable interest rates are not for everyone. They come with some amount of risk as rates can rise based on the Fed interest rates).
Editor's note: Be sure that you are aware of the risks involved in refinancing your federal student loans -- you are essentially turning them into private loans and forgoing the benefits of federal loans. Once you understand the fine print, and believe refinancing is a good option for you, then click on this link to take a FREE 3-minute questionnaire to compare rates for up to 12 companies including CommonBond. It doesn't hurt your credit!
There is also a helpful guide that you can check out LendEdu’s guide which goes into more details about student loan refinance questions.
STEP 3: Joe and I wrote down our expenses; after doing this, I was able to see where I could cut back on. For example, I didn’t buy any new clothes during 2016, and all the thrift clothes I did buy cost less than $10 in total. I also switched cell phone carriers, saving me $450 for the year. We meal prep during the week and dine out at least once on the weekend (it’s NYC, after all)!
What was the hardest part about paying off your debt?
Staying focused on my long-term goal was the hardest part. I had to ask myself whether I needed or wanted items, whether or not if it was something we could DIY/thrift/buy refurbished. This thought process and lifestyle eventually became habit, and I’m grateful for this. Both Joe and I are well-compensated through our day jobs, but we have learned to live below our means and have been pretty creative with stretching our dollar and credit card points.
What was the biggest lesson you learned?
I learned that debt repayment is a marathon, not a sprint. Excel has become my friend over the past year, with Joe helping me forecast different financial milestones.
What book have you read that helped you on your journey?
Could you tell me a bit more about your tiny house aspirations, this sounds super interesting!
Living in NYC, Joe and I are used to smaller living spaces and have actually found that we’re more organized and therefore more efficient because we don’t have crazy amounts of stuff. We admired that about “digital nomads,” those with location-independent career paths, and this past January, Joe’s dad surprised us with a retired school bus purchased through an auction. We are in the process of converting the bus into an RV – we are almost finished installing the walls and will eventually have a bed, convertible dinette/futon, kitchen with cooler, and toilet. Hopefully we will have Hugo the Skoolie on the road for some camping trips later this fall.
As I am newly debt-free, he and I want to keep our tiny house budget to under $5k so I can invest the majority of my discretionary income.
We’re learning a lot with this project and can hopefully leverage our new skills on our future home(s).
Any advice for someone who is struggling to get started on their journey to take control of their finances?
Do your research. There are so many people out there who’ve been in your shoes and have been able to kick debt in the butt. Read about their story for ideas on how to tackle yours.
Refinance if possible. Another day of high interest is another day of throwing money away.
Write down all your expenses. Then write down income. Being able to trace your cash flow will help you budget and ultimately limit unnecessary spending.
Live below your means! After budgeting, cut out excess so you can really focus on the necessary expenses.
Excel is your friend. If you’re not spreadsheet savvy, use an online resource like Mint.com to visualize your budget goals. Seeing is knowing, and knowing is half the battle!
Share your goals. With friends, family and significant others to keep yourself on track, motivated and accountable (pun intended).
Thanks so much, Autumn! For more on Autumn and Joe's journey, be sure to check them out at www.DIYtoWealth.com and on Instagram @diytowealth. Also, be sure to leave a comment below if these tips helped you out! Thanks for reading!