The Nitty Gritty of How I Paid Off my Student Loans

I paid off my loans last Friday.  From my first minimum payment to the final payment, it took 459 days. Crazy.

I’ve had a few people ask me how I did it. The lifestyle side of paying off debt is tricky and personal. I’ll get into that later. I felt it would be a better use of my words to go through the technical details of what I did.

Here are the 7 key steps for how I paid off $45,330 in federal student loans.

1. Select a Repayment Plan that lowers your monthly payment.

Loans are automatically enrolled in standard 10-year repayment. Switching to a different repayment plan can significantly lower your monthly payment. I switched from Standard Repayment (10 years, same payment every month) to Graduated Repayment (10 years, payment starts low and goes up every 2 years). This dropped my minimum payment from $525 to $311. Switching to Income Based Repayment (“IBR”) or the Extended plans (Standard or Graduated) are also options.

A lower payment gave me greater flexibility each month. On the safe side, I had more money available to divert to an emergency should something happen. On the aggressive side, I had more money available to target individual loans. Thankfully, I didn’t have any emergencies and things got aggressive.

2. Sign up for Direct Debit

Sign up to have the minimum payment automatically withdrawn from your bank account. By doing this, you will never miss a payment. Never missing a payment is very important. Also, some loan servicers will reduce your interest rate for signing up. With FedLoan Servicing, this cut my interest rate by 0.25%. On Standard Repayment, I saved nearly $700 in interest.

3. Create a bank account solely for your loans + a buffer

I set up a savings account solely for my loan payments. Capital One 360 (referral link) is great for this because they let you have 25 savings accounts. When I got paid, I would transfer money to the account. This transfer included my expected minimum payment for that month and any extra I could spare. Hubs would also transfer money to me for this account. By having a separate bank account, I never had to worry about other debits. This was for student loans only.

I kept a buffer in the account to cover 1 month’s minimum payment. This came in handy as my minimum payment changed. It went down after I paid off each loan (I originally had 5), but it also went up twice for no identifiable reason. FedLoan Servicing couldn’t give me an explanation for the increases. Neither of the increases were drastic (~$10-15), but if had been riding the line with my account, it could have been an issue. Better to be safe!

My buffer gave me peace of mind should anything happen to my income. Over the course of repayment, my paychecks changed from twice per month paid current to every other week on a 1 week delay. The transition really screwed with my first bi-weekly paycheck. Having the buffer made transition less impactful.

This also gives me a final “slam dunk” as I paid off my loans. After my March payment came out on the 23rd, I didn’t need a buffer anymore. I used whatever was left in the account to give my last payment a little extra oomph.

4. Pick a payment strategy and Target one loan at a time. 

There are 2 main debt strategies out there. The Debt Snowball and the Debt Avalanche.

I used the Debt Snowball. All my loans had the same interest rate, so it was an easy choice. Because of this, I put any extra money on my smallest loan.  When I paid off a loan, my minimum payment dropped. Then I’d use all that new available extra money and apply it toward my next smallest loan.

**Remember, I created more extra money by lowering my minimum payment!**

The Debt Avalanche works when you have different interest rates. Start with the highest interest loan and work down through the interest rates. Targeting the loan with the highest interest rate will save money. Here is a thread on Reddit goes through the numbers of why it works even if you can’t pay more.

There is a third strategy that is a combination of the two. I call it the Quick Win Avalanche. If you have any low balances (i.e. less than $2000), target those first before attacking any higher interest rates. The quick win will give you more momentum to stay the course. All other debt is treated the same as the Debt Avalanche.

The key is to target one loan at a time. Don’t split your payments between obligations. You won’t get where you want to go as quickly.

5. Make multiple payments

Whenever I had any extra cash, I made an extra payment. Any time I had more than $100, it went to my loans. By making more frequent payments, my loans barely had time to accumulate interest. With less time to accumulate interest, more of my payments went my principal.

Caution: Be careful about how many payments you try to make. US Federal law limits how many withdrawals you can make from a savings account each month. FedLoan Servicing limited me to 8 transfers per month. During high random money months (like Tax Refund Season or December) I had to consciously consolidate payments. Note: Your minimum payment counts as a payment.

6. Track your Interest and Payments 

I made the horrible mistake of not closely tracking my payments in the beginning. This was a big motivational no-no. Luckily, I was riding high from my initial progress. Starting in May of last year, I tracked every payment and how much went toward interest. For interest, I tracked how much I was paying per month and per day.

Look at it drop!!*

Look at it drop!!*

Knowing how much I was paying in interest per day was incredibly motivating. In May, I paid 185.88 in interest or ~$6/day.  That’s a lunch! In March, I paid $15.01 or $0.55 per day. The only thing 55 cents can buy me is one step closer to freedom.

* Your eyes aren’t deceiving you. My interest payments did go up slightly in September. I didn’t make my normal large payment at the end of August because I was in England. This let extra interest accrue to be paid in September.

7. Throw ANY extra money at your loans.

Whenever I got my hands on any extra money over the last 15 months, it went to my loans. My tax refunds? Went to debt. Birthday money? Went to debt. Work Bonus? Debt. Raise? Debt. Hustle money? Debt. Savings from eliminating or lowering bills? Debt. Money sitting in a savings account doing nothing? Debt. Random money I found on the ground? Debt.

It all went to debt.

I didn’t give myself the option to spend the money on anything else. No matter where the extra money came from, it went to debt. Because it was extra, I didn’t want to absorb it into my budget. I also didn’t want to inflate my lifestyle. My expenses didn’t expect the money before I got it, so I pretended like it never happened. Similar to increasing a 401k contributions when you get a raise, you can’t become attached to money you never have. By directing every windfall to my student loans, I was able to pay them off faster and get out from under them.

Boy, am I glad I did.

And that’s how I paid off my student loans. 

Any questions?

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26 comments

  1. How exciting, awesome job! These are great tips, I need to check out Capital 360. I’m in the very beginning stages of paying off my student loans and am busy paying off other debt (medical mostly) among other things.

    1. The separate savings accounts with CapitalOne 360 are really helpful. It’s a great way to keep money separate, especially as you balance life with debt payoff. Good luck with your payoff!

  2. Thanks for sharing…I’ll soon be on the “other side” of student loan debt, too!

    I’ve loved using every spare dollar to put towards the loan. Extra paycheck money, sure, but any budget excess, cash from the grandparents or finding some cash, too. I’ve made up to 10 payments a month, but it just feels so good to get the debt amount down, even a little bit!

    1. Holy crap! 10 payments in a month!? That’s so many payments- more than my account would let me make. But yes, it feels great to knock down the debt, especially when you know it’s earning interest to eat away at the potential of your payment. Why wait when it has the biggest impact today?

  3. Strong work! Wow, I’m super impressed that you paid off that amount in only 15 months! I really like the way you kept track of how much interest you were paying per month and per day. I think I’m going to make a spreadsheet like that for extra motivation with my student loans! I’ve still got a ways to go, but you’ve definitely inspired me 🙂

    1. Thank you! Tracking interest is so key! It’s an easy way to see where you are making progress and is also a pain in the but reminder that you could spend that $6 or send it to debt. Sending it to debt feels way better!

  4. That;s about how much loan debt I’ll have in about 7 months when repayment begins. I’m horrified to start repayment, which is maybe why I dragged my feet with school a little. I’m curious how much your income is to be able to do this. I’m just breaking 31k now with my primary job, add about 4K on top of that a year through side income. It seems impossible to me that I could pay off my debt in any non-insane amount of time.

    1. Don’t be scared. You can totally do this. But with 35k in income, you won’t be able to pay it off in any insane amount of time. But you can still pay it off, maybe pay it off early and certainly not be a victim of student loans.

      1. Yeah, I completely have a realistic view of my debts. However, I may be eligable for some debt forgiveness since I work for non-profits… Well see. It’s always good to seenthat it POSSIBLE though. Maybe I’ll just need to suck it up and find a better job, right? 😛

      2. Hey Lauren, If you are eligible for Student Loan Forgiveness and can see yourself working in an eligible job for 10 years, there is no shame in waiting it out. Remember, Personal finance is personal. I don’t see myself ever working in an eligible position so that was never a factor for me.

  5. My strategy has been some what similar. Mainly aggressively paying down the high interest rate loans first (avalanche method). Now I’m only down to two student loans with 3% interest rates which I have pulled back a little on aggressively paying down as I want to fund my Roth IRA first. And congrats on your victory!

  6. I’m using all the same strategies to crush my debt as well. Since I’m not paying rent for the next several months, I’m using it to pay off individual loans and lower my monthly payments (using the snowball strategy since my interest rates are mostly the same). Congrats on your success!

  7. Congrats I’m sure it’s such a great feeling! I think # 4, 5, and 7 are the keys. Pay off debt, repeat, earn more money and pay off debt repeat……..Magic. I’m getting close to this unicorn like statement of being student loan debt free, can’t wait to join you.

    1. Yes. Those are good ones. Pick a loan and pay on it often with everything you’ve got! Can’t wait for you to join me in the student loan debt-free world! It will be excellent.

  8. I can’t say I am paying mine off that fast… However, I graduated in December 2009 with almost the same debt.. I currently owe ~$1,300. They would be paid off, however, with a few life changing events my payment strategy changed. I started off by paying off my high interest loans with money I earned during my college years. I then held two jobs after graduation. One I got paid weekly and the other bi weekly. The bi weekly checks went straight to my loans. I then relocated 1000 miles from home. Every extra $100 I had leftover from my new job went towards the loans. Tax refunds went to the loans. Bonuses went to the loans. I then had a child. I then relocated again 1000 miles the other direction. I bought a house. MY STUDENT LOANS WILL BE PAID OFF THIS YEAR!! Once those are done, its time to conquer the home loan..Congrats to you for getting them out of the way and on your future success to financial independence!

    1. What a journey! 2 moves, a house and a baby? Goodness! Sounds like you’ve got the right attitude and strategy. $1300 between you and being free of your student loans! You can do this!!

  9. Congrats! I wish I had your resolve right from the beginning but well, I have it now, so better late than never. 🙂 We’re paying more and on a weekly basis that rounds up to 2.5x more than the monthly minimum. According to this schedule, we should be done by summer 2016 but we’re going hard on the student loan this year and hopefully kill it before next year. I’m used to parting away with the large sum of money, and the plan is that when the loan is gone it would all go toward investments.

    I’m impressed by your motivation and drive. You’re an inspiration!

    1. I watched a lot of people struggle with debt while I was in school. That gave me the kick in the pants to go go go as soon as I could. Congrats on your payoff. Summer 2016 will be here before you know it! I’m making the shift now to saving with all my extra cash. Fingers crossed it’s the same!

      Thank you, that means a lot!

  10. Thanks for all the great advice. I have a lot more debt and have been reading and trying to figure out ways to pay it off faster. I have the same loan provider (fed loan servicing) as you and have a question. I am using the Debt Avalanche method and trying to pay off one loan that has an interest rate of 7.9% (direct student plus loan). I talked with fed loan servicing this morning (it took several phone calls) and they said I first have to pay my normal monthly balance (which gets applied to all the loans) and then any extra money I have can be applied to one specific loan. Just wondering if this is how you did it? I thought I could apply the entire monthly balance to one specific loan. Fed loan servicing said I can only do that if I have paid off the monthly balance from all the loans first?

    1. Hey Caitlin, FedLoan is correct. You’ll need to cover the minimum payment by your monthly due date and then you can throw any extra at the 7.9% beast. My tip for you would be to set up direct debit for the minimum payment on all your loans and then make extra payments on the Beast. This should drop your interest rate by .25% for your loans and it will cover your butt should anything happen and you don’t make an extra payment toward the Beast.

      Does that answer your question?

  11. Hi! This is actually the first time I stumbled upon your blog… (found you through Blondeonabudget!) and I love your writing style! I was wondering, if you mind sharing.. what is your income to be able to do all this repayment? I am struggling to pay off 20,000 of debt atm (combo of student loans, personal debt, CCs) and also have a car to pay off as well. I find I have more fixed expenses than what I am earning which really sucks! I think I might pull back a bit and try to find another job to accomodate that extra amount I want to pay off. Congrats on paying everything off though! It takes ALOT of work and determination not to spend money! I never realized how hard it was not to spend money until I started making my own!

    Thanks,

    1. Hey Rene, If your expenses are higher than you think they should be, I suggest you take a month or two and challenge everything. If you really want to get out from underneath your debt, you are will need to lighten the load of your expenses. More income will obviously help, but if you don’t have a good grasp on your expenses, you may just spend it and not use it to pay off debt. Good Luck!

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