Student loans have been the bane of my existence since I graduated college. We’ve all seen the headlines about the insane amount of debt millennials are in. It’s preventing us from buying houses, getting married and having kids.
And while I’m personally not too concerned about any of those milestones, there are plenty of other things I’d rather be shilling out hundreds of dollars a month for. Saving more so I can retire earlier, or a monthly international trip, are two that come to mind!
In this edition of “Weekend Finance,” my series peeling back the curtain on my personal finances to reveal how I afford to travel, I’m talking about my plan to get rid of those student loans ASAP.
I’m 30 years old now, and frankly, I’m over paying student loans. It’s been eight years and I feel like I’ve barely made a dent.
Where All This Debt Came From
When I first graduated college in 2011 I had around $30k in debt and my starting salary was $28k. Welcome to the life of a journalism major. This meant that I was paying the bare minimum until I started making more a few years later.
I’m also in school again, pursuing my MBA. (Since apparently, those who only get a BA in journalism aren’t on the path to riches). Some of my debt is “new” from grad school. But now, my employer reimburses the majority of costs. So unless I switch employers for some unexpected reason, I won’t be adding anything else to my balance.
The Action Plan: Pay Off My Loans in 8 (Easy-ish?) Steps
One Friday night (I have an exciting life, I swear), I sat down and opened up Excel. I was going to figure out how to eliminate these loans from my life as soon as possible – ideally, in two years.
I have the upper hand right now. All my undergrad loans are automatically deferred, as long as I maintain a course-load of at least half-time. This means they don’t accrue interest or require payments. Score!
So let’s talk about how I set up a plan to tackle my remaining $24k of student loan debt in two years – without having to make major sacrifices. I consider myself responsible financially. But I know there’s no way I’m going to be happy if I can’t splurge on trips and fun sometimes. Ok, a lot of the time. You only live once, right?
Step 1: Compile all my student loan balances, interest rates and monthly payments in one spreadsheet.
This is the easy part. I needed to assess exactly how much I owed and the minimum I had to pay each month across my loans. Since my loans were in deferment or “in school” status, my required payment was a big fat $0.
Step 2: Apply to refinance my federal Graduate PLUS loans with SoFi.
My grad school loans (around $12k) were relatively new and as mentioned, didn’t require repayment while in school. But unlike my undergrad loans, they were already collecting interest. Plus, they had the highest interest rates out of all.
The best way to tackle these was to refinance them through SoFi. I filled out the incredibly simple application in less than 10 minutes. And I was approved within two days.
My rate immediately dropped from 6.6% to 4.87%. But, I had to start making payments of at least $239/month immediately. This was fine since I usually pay more than that anyway.
Since my undergrad loans aren’t collecting interest, I’m letting them sit tight. I may consider refinancing them after I graduate, but right now, I’m not worried about it.
If you’re interested in refinancing your student loans through SoFi, use my referral link to sign up and you’ll get $100 toward your loan. I’ll get a bonus too for referring you! The Weekend Jetsetter has no formal relationship with SoFi, I just happen to highly recommend them if you’re considering refinancing.
Step 3: Determine how much I can actually afford to pay toward student loans each month.
Create a spreadsheet outlining your budget for the entire year. I calculated, based on my current income and expenses, how much I’d be bringing in each month and how much I’d plan to spend. This included everything: transportation, rent, utilities, food, gym membership, clothing, personal care, gifts, insurance, and of course, fun and travel. I made sure to factor in in big expenses anticipated throughout the year: weddings, the holidays, etc.
Because I use Mint.com to track my spending, I had plenty of data to base my forecasted 2019 and 2020 spending around.
Then, I looked at how much was left: around $550 per month. Hey, that’s $50 more than I currently pay toward my loans!
Pro tip: don’t forget to calculate savings! Typically, you shouldn’t be putting money in a low-interest savings account when you have debt to pay. But there are two exceptions. First is your retirement fund/401(k) (which hopefully, you have automated contributions through work). And second is an emergency fund. An emergency certainly isn’t going to wait until you’re debt-free to strike!
When I was laid off a few years ago, I had to move out of my apartment in New York and back in with my parents. I knew I had to to get better about my emergency cash stash. Since then, I’ve saved up enough to sustain myself for ~4 months. Experts recommend having 6 months of emergency savings though. So I’m continuing to contribute to that account while I pay down my debt.
Step 4: Now, figure out where you can cut back to boost that number even higher.
I know I said I didn’t want to cut back significantly in my day to day life. But I knew there had to be some areas ripe for a budgeting refresh. So I took a hard look at my Mint spending trends. And ta-da! There was one glaringly awful area: the amount I was spending on food.
While people are always asking me how I afford to travel so much, they probably don’t realize that I’m spending even more on food! And it’s not like I’m constantly heading out to nice dinners and socializing. This is pure laziness in that I order takeout all the time for dinner and buy lunch at work. I’m really busy with school and work. But there’s zero excuse for this since I literally live adjacent to a grocery store.
I committed to cutting back by almost $200 a month on food spending. It brought the total amount I could pay per month to $728. So far, I’ve been able to stick to this budget for two months.
If you need motivation to cut back to pay down your debt, I recommend taking a look at NerdWallet’s Student Loan Extra Payments Calculator. It’s a free tool to figure out how much faster you’ll pay off your loans by paying extra. Learning I could chop more than a year’s worth of payments off was really a game changer.
I know I’m fortunate that I can afford to pay almost $500 in addition to my required loan payments each month. Not everyone is in the same situation. But even if you can’t commit a large amount of money, do realize that any small change will have a big impact. For example, let’s say you’re paying $250 per month on $24,000 of debt at a 6% interest rate. If you add just $10 more dollars to your monthly payment, you’ll shave 7 months off your loan payoff timeline and save more than $500 in interest.
Almost anyone can scrounge up an extra $10 per month. And once you’ve started paying extra, you can increase that amount over time. For example, you could up your payments by $10 a month every time you get a raise to save even more.
Step 5: Tackle the highest interest debt first.
It makes sense to pay higher interest debt first, and pay the minimum on other loans. Lucky for me, my other loans don’t require a payment right now. So I’m putting the $728 monthly payment completely toward my SoFi loan.
It’s on track to be paid off within 12 months (March 2020). At that point I’ll move on to the next highest interest rate loan. (Again, this is a great time to use NerdWallet’s Student Loan Extra Payments Calculator to figure out how much faster you’ll pay off your loans by paying extra).
I anticipate my school enrollment to dip below half-time in May 2020. So I’ll either need to begin making the minimum payments on all my loans or refinance to consolidate them into one.
I can’t predict what type of rate I’ll get at that point. So for now, the plan is to tackle each loan one at a time. That means I’ll continue paying the minimum on all of them, then make an extra payment of whatever’s remaining of my $728 to the one with the highest rate.
Step 6: Take any large chunks of cash you receive – bonuses, tax refunds, etc. – and put them toward your loans.
For many people, tax refunds and bonuses equal treat yo’ self. But for me, these unexpected cash infusions are what have helped me build up savings and pay off some of my current loans without sacrificing much in my daily life. I’ve surprisingly never spent a bonus or tax refund on travel – I swear!
This year I’m getting around $3k back from the IRS in my tax refund – woohoo! I’ll be putting that directly toward my Grad PLUS loan.
I’m also expecting a $2,500 bonus this summer after an employee I referred has been at my company for 6 months. (As long as they stay on… fingers crossed!). After taxes I’m estimating I’ll take home around $1,500 going straight toward loans.
With these two “bonuses” factored in, I’m due to pay off all my student debt by July 2021 – slightly over two years from now.
And if all goes well in the world, I can hopefully expect some sort of pay increase before July 2021, which means I can start paying these suckers off even faster.
Step 7: Track your spending each month, and put extras toward your loans.
While big chunks of cash are easy to save, don’t forget to carefully track your spending and put any efficiencies you find toward your loans. As mentioned, I use Mint.com to track my earnings and expenses each month.
Since things tend to fluctuate, some months, I actually have more than $728 remaining. Even if it’s just $20 extra, I always go in and make an additional payment. Over time, these can really add up!
Step 8: Celebrate your wins (and go easy if you screw up).
Having a plan in place to tackle my debt already gives me peace of mind – even if it’s going to take 2+ years to do. And along the way, I’m planning a mini celebration for each loan that I pay off in full. It’s important to have something to look forward to!
At the same time, I’m not going to sweat it if something pops up and I can’t put the full $728 toward my loans one month. Sh*t happens and sometimes it’s beyond control or planning. As long as it’s not a regular thing that starts to creep up against your debt attack plan, don’t go too hard on yourself.
When I do pay off all these loans in July 2021, I’m not just going to squander that extra $728 per month on trips and takeout. Instead, I’ll be maxing out my 401(k) contribution so I can make it from Weekend Jetsetter to Always Jetsetting even faster. Okay, maybe I’ll take just ONE trip the first month that costs ~$728. And after that… responsible adulting resumes!
Do you have student loan debt that’s hanging over your head? Or were you more responsible than me and paid ’em off early? Leave a comment and share your story.