Paying $50K In Student Loans In 1.5 Years (Leave Me A-Loan, Part 2)

Background

In part 1, I told you my story: When I was 18, I didn’t know what I was signing up for. When I agreed to take out student loans to attend the college of my choice, I clicked “Yes” and signed my name on dotted lines faster than someone agreeing to a Terms of Service they definitely didn’t read just so they could use an app. Then I graduated, and the loans came due. I couldn’t pay them back, so I ignored them. I didn’t even know how much I owed.

$48,000 was the amount. (Plus a lot more, when you consider how much of my payments went toward the absolute scam that is interest. More on this later. Let’s go with the number ~$50K.) At least that’s the number it grew to by the time I started paying attention to it. I made scattershot payments here and there but never on a consistent basis. I landed in default and stayed there for years.

It took multiple tries at a loan rehabilitation program (where you have to prove to someone you’ve never met that you can make 9 loan payments in a row) that I finally got out of default. Then, I paid off my first loan ever, in February of 2019: a “small” $575 loan out of my $50,000 balance.

“I’ve had enough of this nonsense,” I said to myself. It was at 28 that I vowed to be debt free by 30.

And on September 15, 2020, that finally happened.

The Tips

So how did I do it? Well, the big thing to mention up front, and I’m not sure why more student loan sites don’t vocalize this part more often, is: if you want to pay off debt you have to make more money. There were times where I’d have a full-time job in addition to one or even two side-jobs on top of the 9-to-5, just to have some surplus in my income to achieve my goals. I couldn’t even begin to think about how I’d start to pay back my loans until I made enough to cover the essentials, have money to live my life and then have some leftover. No financial goal is achievable until there’s some leftover.

Making more isn’t the only solution. You can make more and not see any of it go towards your goals. On the flip-side, you can make what you make now and reassign where that money goes. In both scenarios, the fundamentals can prove helpful. I’ll get to student loan tips after, but before that here’s what you should know.

First, The Fundamentals

• Spend less than you earn
  Simple in theory, hard in practice. If you earned $10 this month, you can’t spend $11. Even if credit cards say you can spend $11,000. Even if you think you can afford the $10 monthly payments when the total cost of the thing is like $15,000. Focus on the total cost.

• Keep a budget
  Budgets get a bad wrap but think of money as time. If I told you that this month you have 720 hours to spend, you’d probably think “that’s a lot! Surely I can spend 10 hours today playing video games.” The problem is, that “720 hours” offers absolutely no context. It doesn’t say anything about needing to spend 40 hours working each week or 8 hours sleeping each night.

  Same goes for the number in your checking account. That “$1,500” says nothing about rent due on the 1st, Netflix due on the 15th or the birthday party you’re headed to this weekend (remember when we used to do those?).

  
  A budget is a calendar for your money. A single number tells you nothing. And no, you can’t keep it all straight in your head.

• Play offense, but also play defense
  
  Person A makes 200K a year but spends 200K a year. Person B, on the other hand, earns 50K and manages to save 10K each year. Who’s more wealthy?
  
  Growing up, everyone talked about the importance of getting a good job to make a lot of money (playing offense) with less emphasis on keeping the money you make (playing defense). The more money you keep, the more you’ll have leftover to spend on yourself instead of spending on stupid student loan interest. The more you’ll have to invest in yourself instead of paying for things that don’t bring you joy. The more you have to save as a safety cushion for when things go wrong (because they will go wrong).

“How about the loan-specific stuff?” you ask. “Give me something actionable I can do with my loans right now.”

Alright, damn.

The Student Loan-Specific Tips

• If you do nothing else, just pay the minimums
  

  I was given this advice at a younger age but didn’t take it seriously. If you can’t do anything just pay the minimum amount each month. This method take’s the longest to pay back your loans but it’s better than nothing. The alternative is going into default, ruining your credit and other nasty things like having your tax refund taken from you each year and your wages garnished. No one wants that.

• Snowball vs Avalanche
  
  Probably the most popular student loan payback advice. I wrote about that here. The short recap: paying in order of the largest-to-smallest interest rate (avalanche) will take shorter and cost you less money. Paying in order of smallest-to-largest overall loan balance (snowball) is more motivating and you’ll probably stick with it instead of giving up.

  Spoiler alert: I’m all about the snavalanche. But whichever you choose, make sure you’re focusing on one loan at a time. It’s easier to make progress that way over paying a little bit to each loan.

• Lower your minimum payments so less money goes toward interest and more toward principal
  
  Forewarning: I only recommend this if you’re really about this student loan payback life.
  
  Every loan has a minimum amount you must pay each month. (Go long enough without paying and you’ll end up where I was, in default.) The minimum payment is BS because a lot of it goes toward interest, not your principal balance. Chopping down your principal balance is what gets you closer to paying down loans. If it were up to student loan companies, they’d have you paying interest, not principal, forever. Don’t let them trick you into doing this!
  
  What I did: call your loan servicer(s) and get your minimum payment to be as low as possible. That way, you’ll have more money to put toward principal instead of seeing it go toward interest.
  
  Why the forewarning? Because it’s easy for that extra money to end up in your checking account and suddenly get spent on other stuff. You’ll want to make a plan on how you’ll reallocate the extra funds toward chopping down that principal balance.

• Use a password manager

  (You know I had to get a tech tip in here.)
  
  I’ve never seen this tip anywhere, but this was huge for me. When I added a password manager to my life, it helped me with my finances immensely. Loan sites insist on having crappy websites and different passwords that you need to remember and dammit I entered the wrong one 5 times so I have to come up with a new password and it can’t be one I’ve already used and dag nabbit it won’t let me in. I give up. (<- I’d encounter this scenario so often.)
  
  Student loans in general are meant to be cumbersome, that way you don’t bother actually dealing with it. It’s on you to remove as much friction from the process as possible. The password manager makes logging into all these old sites with complicated password requirements easy. This is definitely the weirdest piece of advice in this post but I promise it’s a game changer for loans and life in general, really.

• We’re in a pandemic, prioritize saving over paying loans
  
  So, coronavirus. We’re living in a time where we don’t know what’s about to happen next. And even when we do, 2020 throws us curveball after curveball. Worse than that, winter is coming and things may get worse.
  
  If you have federal loans, interest accrual is currently on pause. Meaning payments you make right now go straight to principal. It also means that your balance isn’t increasing every day like it usually does until December hits, and that it makes no difference paying now or waiting until December to pay.
  
  What I did: make regular loan payments to myself and kept the payments in a savings account labeled “Loans.” After that account reached a certain amount, then I sent it off to Sallie Mae. The benefit of this method is that it granted me options. I could spend it on loans or, if something came up, I could use it as emergency funds. I personally paid early because I wanted this weight finally lifted off my shoulders (and also this whole loan free by 30 vow). But, in these times, just hold onto the money.

The Wrap-Up

Loans fucking suck. We shouldn’t have to do this. I was in default for years and while I was, I felt extremely guilty about buying things that would make me happy — small or large. Sometimes I just wouldn’t, feeling down about whatever I skipped out on and loans.

For most of my 20s, I couldn’t afford to even start to pay back my loans. I couldn’t afford to buy my freedom. Once I could, I sprinted toward it and I succeeded! But not everyone has that option. No one should have to do this just to get a bachelor’s degree — which is the bare minimum for a lot of jobs nowadays. I’m excited for this country to maybe forgive some of this debt for folks. Hopefully it will wake up and realize that it can’t shackle 20% of adults in the U.S. with a collective $1.47 trillion in student debt. Until then, a weight has been lifted and I’m excited to never have to think about this nonsense again.