Money Talk

2 Loans in 2 Years

It’s not often I talk money with people in public or in my blogs, but I’ve always had people come to me for money/budgeting advice, so here’s my story on paying off 2 students loans in full in 2 years’ time, in case it helps.

Over the course of my four year college experience, I accumulated about $30,000 in student loan debt, which isn’t too bad compared to A LOT of other students I know. Nonetheless, that’s a hefty and intimidating dollar sign. With student loans, you have 6 months after you graduate before you are expected to start making payments. All of my student loans were government loans through Navient with the exception of one private loan through SallieMae thanks to FAFSA not covering required summer classes.

Just short of my 6 month mark, I relocated up to Connecticut. I was working a sales job at a car wash, but just starting out, so I didn’t have much income to show for it yet. Luckily, that worked in my favor, because I was able to request an income-driven repayment plan through Navient that, based on my lack of income proof, pushed off my payments for a whole extra year. Without the burden of having two monthly student loan payments, I focused on just repaying my private loan instead. My goal was to have that loan paid off ($2,000 + interest) before having to pay for my government loans.

Long story short, I was killing it in sales at the car wash, so I was able to pay more than just my minimum payment every month on my private loan and had it fully paid off just in time for Navient to roll back around.

With the private loan out of the way, it at least made it easier to see the “big picture” since all of my student loans were now in one place. My monthly payment was still income-based and was about $100 give or take at the time. I’m sure you’ve always heard it’s better to pay more than the minimum payment, if you have the means, to end up saving in the long run. This is most definitely true. Any amount more than the minimum payment will go towards your principle amount (typically once all unpaid interest is paid or the settings are set for just principle payments) which will result in an overall smaller total to be charged interest on.

I was in a great position at the car wash to be able to pay my bills for the month, pay extra (up to $500 sometimes) on my student loans, and still rebuild my savings from the relocation. Any extra that I was paying above my monthly payment, I was allocating across all of my loans based on the interest rate. Meaning if I paid an extra $400 for the month, the loans with higher interest rates would get a higher payment allocation than those with lower interest rates, but all loans were getting some amount of extra payment.

One of the few great things to come from the COVID pandemic, is the halt on interest and payments for student loans for the rest of 2020 (and hopefully longer LOL). This is GREAT for a few reasons.

  • The government stopped all mandatory payments on student loans, so anyone who was struggling financially or wanted/needed to use that money for other things didn’t have to worry about being penalized for it.
  • You didn’t have to worry about your debts increasing if you weren’t making payments, because your loans weren’t gaining interest while sitting there.
  • If you decided you were going to make payments on loans, you were paying nothing but principle (after all unpaid interest was paid).

Luckily, I was in a position when the pandemic first started that I still had work and even if I wasn’t working a full 40 hour week, I was still being paid for one. I didn’t have much of a financial stress on myself for this reason, thankfully, which allowed me to continue making payments that I will only benefit from.

I decided I was going to try and pay $500 every month towards my loans so that at least when the interest started hitting again, it wouldn’t be as bad because my loan amount (principle) would be lower. I was still allocating my payment across all of my loans but, instead of allocating based on interest rate since that was now not a factor, I was now allocating based on loan amount. This allowed me to lower all my loan amounts every month, but the biggest ones would get a bigger payment.

Then I got a new job, not in sales, where I was taking a huge pay cut (pretty much half of my income). Knowing I was taking a job with that much of a pay cut was very difficult on me especially after seeing the money I was making for the last two years, and because I also have an endless fear of living paycheck to paycheck or not having any money. Nonetheless, I would make that decision time and time again, because it was the right decision for me.

I decided I would do my best to continue making my large payments every month, because I knew it would be worth it once the interest came back again. I would just have to go back to budgeting myself again. That’s when I came across a blog post from a college friend of mine, Richard. He started Mindful Money Thoughts to share his financial experience and knowledge with those who were interested. One blog he wrote was how he paid off all his student loans in 13 months (!!! *insert jaw drop*).

You can read the blog above by clicking the link, but as a summary, he goes through Dave Ramsey’s Baby Steps Program. This is a hardcore program if you ask me, and something I will never find myself being able to follow to the tee, although, the method behind the madness makes sense.

The first step is having an emergency savings of $1,000. If you don’t have that saved already, you wouldn’t be paying extra on debts until you did. If you did have that saved already plus some, you would only keep $1,000 and put the entire remaining amount towards debt. That is something I will never have the courage or faith to do.

As stated above, I have an existential fear of living paycheck to paycheck (like I did in college working multiple jobs) or not having money at all. Every paycheck I received, I budgeted a portion into my savings. I altered this Step 1 plan to instead be a combination of Steps 1 (Save $1,000) and 3 (Save 3-6 months of expenses).

When my savings got to a comfortable point for my liking, I would then halt my savings payments and instead focus on debts only (Step 2). Same idea as the program, just with a fluffier safety net by combining Steps 1 and 3 together.

Before reading MMT’s blog on this topic, I had already subconsciously completed Steps 1 and 3 and was already working on 2. The difference in reading MMT’s blog was that he laid out what Step 2 actually entails. For Step 2, according to the Baby Steps plan, you rank all of your debt (excluding mortgage) from smallest to largest regardless of interest rates (debt snowball). I have debts other than student loans (ex. car loan), but my main focus is student debt.

I was already making extra payments on my loans, but I wasn’t allocating to one specific loan. I was allocating proportionately across all loans. To me, this was a good idea because I was actively lowering every loan by some amount every month. When I was focusing on interest rates, I was trying to lower the amount of interest I would pay over time on each loan. When I was focusing on loan amounts, I was trying to lower the amount of principle that interest would get charged on after the forbearance. Both are equally good ideas, but MMT brought up a good point: when you focus on paying towards a specific loan, you pay off that loan faster.

It’s significantly more satisfying to get the “you paid this off, congrats!” notification than it is to just keep paying month after month and feel like it’s not making a difference. This wasn’t something I really thought of until talking with Richard about it. Since speaking with him, I focused solely on paying my amounts towards the smallest loan. A couple months later, here I am!! Officially paid off another student loan within a years’ timespan!

Now I’m 2 loans down in 2 years time, and if you ask me, that’s pretty badass. Currently, my estimated pay off date for all student loans is April 2030, so if I can stay on track with at least one loan a year, I’d be done in 7! I’ll take it!!

I try to keep my blogs somewhat short, but it rarely happens, so to avoid it getting longer let me know if you have any questions or comments about this, money, or budgeting in general. I’m no professional, but I’m a friendly human who figured it out and would love to help any way I can.

Also feel free to check out Mindful Money Thoughts for personal finance help and posts!

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