How I Paid Off $30,000 in Student Loans Before Turning 30
Ever since I paid the first bill on my student loans I knew I wanted to have them completely paid off before I turned 30. I didn’t want the recurring monthly charge lingering on my account for any longer than it needed to be. Unfortunately, I don’t have an income that allowed me to simply pay it off in one lump sum.
Before I get into how I paid off my loans, I want to acknowledge that everyone’s situation is different. I was fortunate to have parents that helped finance the bulk of my college tuition, however, I still ended up having about $30k in loans that I was responsible for.
Finances aren’t the most fun topic and not my usual type of post, but nearly everyone has to deal with some amount of student loan debt so I thought it was important to share these.
Here are 8 tips for paying off your student loan debt.
xx, Heather
1. Understand How Your Payments are Applied
I didn’t initially know the process of how payments are applied but it’s extremely important to understand. When you make a payment on a loan your payment first applies to any outstanding fees, then to your accrued interest, and lastly to your principal, or the balance of your loan. Know the difference and where your payments stand. If you’re making late payments or paying less than the monthly amount, you’re going to end up paying more against fees and interest than the actual balance of the loan, and will have a difficult time making a dent in the principal.
2. Take a Hard Look at Your Finances
If you truly want to pay off your loans in a shorter amount of time, you’re likely going to have to make financial sacrifices elsewhere. I won’t tell you to make the same changes that I did, but decide what where you can cut back. For me this meant things like: not getting Starbucks everyday, not buying lunch out during the work week, not paying for expensive workout classes, being smart about clothing purchases, and canceling any recurring monthly payments that I wasn’t regularly using. Your changes don’t need to be the same as mine, but find the things that you’re willing to cut back on in order to reach your goal of being debt free.
3. Pay Off the Most Expensive Debts First
Interest rates on student loans can range from around 5% - 9% depending on whether they’re for public or private loans, and for undergraduate or graduate tuition. The interest rates on my loans were around 6.55%. You probably also have more than one line of credit (I had three separate ones). Make a list of all your loans, the outstanding balance, and the interest rate. Choose the debt with the most expensive interest rate to pay off first. You should continue to make the minimum monthly payment across all loans but put your extra cash towards the priciest one.
4. Set Up Automatic Payments
Set up automatic monthly payments for all of your loans. Not only will this help you avoid dreaded late fees, but some loans even offer a discount or incentive for setting up automatic payments. Check with your lender to find out. Either way, you should have monthly payments set up to give you peace of mind on not missing a payment.
5. Put “Bonus” Income Towards the Principal
Along with paying your required monthly amount put any “bonus” income directly towards the principal. By this I mean, anything that is not your standard monthly income. Bonus income could be: an actual bonus from your employer, a tax refund, a financial gift, etc. Nearly every tax return and extra holiday check from work or family I’ve gotten in the past few years has gone towards paying off my student loans. Obviously, I would have rather been buying plane tickets or gone shopping with that money, but to me it was worth it. In the long run these larger bulk payments are honestly what drove down my principal (or loan balance) so quickly.
On these types of payments, make sure you select the option to apply the funds to the principal only and not to the next month’s amount. Contact your lender directly if there’s not an option to do this online.
6. Decide What Your “Pay-Off” Amount Is
Of course you can ride out the monthly payments until the end, but maybe there’s a point where the balance is low enough that you’re ready to pay it off in full. Usually for me this was at a principal balance of $1,000 - $2,000. It goes without saying but you should not be using all of your savings or your emergency fund to do this. Know how much you can afford to pay off and keep that amount set aside.
7. Reassess Your Monthly Payments
If you move jobs, get a raise, or have some other financial change reassess how much you can afford to pay each month. Typically, each time I’ve gotten a raise in my career I added a little bit more to my monthly recurring payments. I know it doesn’t sound ideal, but as long as I wasn’t overly sacrificing in other aspects of my life I was willing to add a little more to my payments. The important part is finding a balance that works for you.
8. Take Advantage of Tax Deductions for Student Loan Payments
If you’re not already, you should 100% be taking any and all tax deductions possible for paying student loans. This is the case whether you’re employed at a company or working independently. Doing this usually gave me back a couple hundred dollars on my tax return each year. Once you get your return, utilize step 5 above to put a portion, if not all of that money, back towards paying off your loan!
Above all, my advice to is to avoid paying interest as much as possible, monitor your finances and your loan payments closely, and to find a place between wasteful spending and keeping a budget for FUN, where you feel comfortable financially. I hope you found these tips helpful, and if you have other ideas, share them in the comments!
