You may have heard the statistics, currently, Americans owe over $1.56 trillion in student loan debt, spread out among about 45 million borrowers. And, among the Class of 2018, 69% of college students took out student loans, and they graduated with an average debt of $29,800 (including private and federal debt). (1)
I know from personal experience how overwhelming student loan debt is and the feeling of hopelessness that sinks in when you make a monthly payment that primarily consists of interest. However, despite how it may seem now, there is a path to financial freedom and wellness if you develop a plan. I found that path and managed to pay off $175,000 in student loans in 5 years. Below is how I did it!
Make Extra Payments on Student Loan Debt Every Month
Paying off your loans early is going to require you to make extra payments on your loans every single month. To the extent possible, you should actually be making double the monthly payment each month. However, if you cannot pay double your monthly minimum, you will want to try for as much as possible. An extra $100 or $200 will make a huge difference over time.
Now, you should target that extra monthly payment at a specific loan. So, if you have multiple loans, whether with one lender or several, you want to focus all of the extra monthly payment on one specific loan. When choosing which loan to target you can either put your extra money towards the largest or smallest loan OR the loan with the highest or lowest interest rate.
In my case, I had 1 loan with one lender (totaling approximately $4,000 with an interest rate around 3%) and the remaining 9 were with another lender (totaling approximately $170,000 each with a different interest rate, ranging from as low as 4.5% to as high as 8%). I started by paying off the $4,000 loan by making an extra payment of $500 a month. With one loan paid in full under my belt, I chose to put my extra payment towards the smallest loans even though they did not necessarily have the lowest interest rates. I did this because the results were more noticeable when paying down the smaller loans. And, that helped encourage me as part of the process.
How Do You Make Extra Payments on Student Loan Debt?
Now, you might be wondering, where are you going to get the extra money to make these monthly payments. Well, this is when you have to make the tough decisions…
1. Reduce housing costs
Reducing your living expenses is essential to save up extra money that can then be applied to your student loans. And, one of the best ways to reduce your living expenses is to reduce your housing costs. In my case, for the first three years after graduating graduate school, I lived with my parents. It was not fun and a lot of co-workers actually made fun of me. However, I did not care about their jabs. My goal was financial freedom and I was not going to be deterred. If you do not have the ability to live with your parents, then consider rooming with a friend or family member who will offer you discounted rent. Or, get a roommate. Whatever you have to do, you need to lower your housing costs.
2. Eliminate extraneous expenses
Once you reduce your housing, you next need to take a look at your finances and remove extraneous expenses. Perhaps you are subscribed to 3 different streaming music services and multiple streaming tv services. Well, these are places where you are truly wasting money. You need to sit down and take a look at your monthly expenses. Subtract out your rent/housing/electricity/food and then focus on everything else. Where are you spending your money? Do you eat out every day at lunch — that could be $10 a day, which amounts to $50 a week or $150 a month EXTRA you could be putting on your loans.
Next, use the information you’ve gained from looking at your monthly expenses to create a budget. Your budget will help you eliminate these extra monthly splurges. This is not about completely eliminating all fun from your life, this is about reducing the amount of money you spend unnecessarily. And, if there is something that you truly enjoy, that truly improves your quality of life, keep it in your life, but just explore if there is a way you can save money on it. For example, if you are a movie buff, pick one streaming movie service in lieu of two or three.
In my case, I love being able to watch home décor channels and old episodes of sci-fi shows, as such, I purchased a cable package. I did not have HBO, Showtime or anything else, I just had the medium cable package. I did not have Hulu, Netflix or anything else, though. I made my lunch every single day since it is cheaper to buy groceries than eat out, however, I did leave room in my budget to eat out three times a month with my friends. And, I was always on the lookout for free or near free entertainment activities that I could recommend to friends to save money.
3. Create a savings plan
In addition to looking for ways to reduce or eliminate extraneous expenses, I also focused on saving money. Every month, I had a savings goal and, at the end of every year, I would take part of what I had saved and apply it to my student loans. The reason I made these end of year lump sum payments was simply because I wanted to ensure I was not jeopardizing my emergency savings. At the same time I was paying off my student loans, I was determined to amass a decent savings in order to ensure I had enough money to pay for emergency expenses. I set a savings minimum, such that I would never have less than a certain amount of money at any given time.
However, I operated slightly differently when it came to my annual bonus. Each year, I would portion 40% of my annual bonus for my savings account and the remaining 60% would be used to make a student loan payment. So, the moment the bonus was deposited in my bank account, I would instantly move part to savings and make a student loan payment with the rest.
When it came to determining my savings goal, I simply based it upon how much money I would need to live without a job for 12 months. Many people will tell you that you simply need 3 months living expenses saved. Frankly, I would recommend opting for no less than 6 months with the goal of eventually getting to the point that you have 12 months saved.
Now, this is not to say that I did not continue to spend money during this time on the things I wanted, however, I budgeted and saved for every single extravagance. I set a goal whereby I could not spend more than a certain amount of money until I had saved 110% of that amount. So, to put numbers to it, my standard was that I could not spend more than $200 per month on any extravagance (including travel, designer items, and/or electronics) until I had added an additional $2,200. That may seem like a high goal, but, it forces you to prioritize saving! While that standard may not be right for you, I would recommend you start with something similar. A savings plan is essential to making progress on paying off your student loans early.
4. Additional sources of income
One of the remaining ways I found extra money to pay off my loans was by creating an additional source of income – most commonly referred to as a “side hustle.” For my side hustle, I started a freelance photography business. I specialized in headshots and events. I did a lot of work for a local church so that I could still have the benefit of being in church on Sunday morning. If possible, find a way for your side hustle to overlap parts of your life so that you can make money while engaging in an activity you would otherwise being doing. Just find a side hustle – I guarantee you have a skill that others would be willing to pay for!
5. Receive equal pay for my daytime job
I wanted to put this here because, as a woman, this can be a huge barrier to paying off loans sooner rather than later. Ensuring you are receiving equal pay for your work and that your pay reflects the value you bring to your company is essential. If you are not receiving equal pay for your work, go ask for a raise or go find another job! And, before you negotiate a raise for your current job or salary for your next job, go talk to some friends (men and women) about what they make! Do not accept being paid less – the cumulative effects of being paid less of the course of a lifetime are staggering.
In fact, according to the Institute for Women’s Policy Research, in 2017, for full-time/year-round workers, the gender wage gap was 19.5%. And, Asian, Caucasian, African-American, and Latina/Hispanic women are paid on average 85, 77, 61, and 53 percent less than their male counterparts! To put one other way, take a man and woman with the same level of experience that start off making $85,000 at the age of 30. By the age of 67, the woman will have $320,000 less when she retires. Simply put, make sure you are receiving equal pay for your work as it will allow you to pay off your loans sooner!
One Last Piece of Advice…
So, there you have it – how I paid off $175,000 in student loans in 5 years. One final piece of advice, if you have credit card debt, I would actually recommend you focus on eliminating your credit card debt, before you pay off your student loan debt. In other words, do all of steps detailed above, but, instead of putting the extra money towards your student loan debt, put it towards your credit card debt. I have never maintained a balance on my credit card – in fact, I got a charge card to eliminate the temptation. I strongly recommend that you follow suit. Credit cards have a much higher interest rate than your student loans.
Good luck on your journey. I hope that you can see that it is possible to pay off any amount of debt as long as you have a clear plan for success! You can do it!
(1) https://studentloanhero.com/student-loan-debt-statistics/