So you think you want to pay off your student loans?
There are SEVERAL factors to consider before taking on such a daunting task, such as:
- How much do you owe in loans?
- What is your debt-to-income ratio?
- Does your current salary make paying your loans off a feasible idea? (haha. of course not!)
- Do you have dependents?
- What other bills take precedent?
- Are you able to give up avocado toast for a while?
Here’s what I did to pay off my student loans - right or wrong, you decide. I’m merely writing this in hopes that you will do better than me & still accomplish your goals. I’ve included other tips, articles, and tidbits that may be valuable to you depending where you are on your journey. This only highlights MY experiences & MY journey through undergrad & graduate school. Sorry in advance.
High School:
I’m sure your college application list goes something like:
- *~*~*~*~*~*DREAM COLLEGE*~*~*~*~*~*
- All
- the
- other
- stupid
- colleges
- I
- dont
- care
- about
That’s how mine went, anyway.
Be open. Be flexible. I had my whole entire heart set on attending the University of Southern Mississippi after high school. I was even offered a partial scholarship. Alcorn State University offered me a full scholarship......and my parents begged me to take it.
....attending Alcorn was [easily] one of the BEST DAMN DECISIONS I EVER MADE IN MY WHOLE ENTIRE LIFE.
Take home: Be open. Be flexible. Apply for as many scholarships and grants as possible. Try the Scholly app (also available here: https://myscholly.com/#scholly) or https://www.scholarships.com/
The best way to reduce debt is to avoid it as much as possible in the first place.
Undergraduate/Graduate school:
You're currently in school and you feel the Debt Monster looming over you like a storm cloud over Eeyore. Oh, bother!
Listen... FOCUS ON SCHOOL. That is the best advice I can give in this situation. Put simply, it's difficult to tackle loan debt when you do not have a steady source of income. NETWORK. Networking is essential to acquiring the job you want/need.
Sorry so short!
The definition differs per person. For me, it meant being completely debt free. Since I made it my number one priority, it was easier for the rest to fall in line.
2. Evaluate your debt.
When I started paying back my loans, I looked at my "debt-to-income" ratio to gauge where I was. I used a very non-scientific approach: If my debt-to-income ratio was above 1, I would aim to pay off my loans in 5-10 years. If my debt-to-income ratio was less than 1, I would aim for less than 5 years. Because mine were over 1, I ended up in the 5-10 year mark. Narrowed my personal goal into 6 years (why??? ...no clue). I calculated my monthly loan payment based on this goal.
2a. Learn how to calculate your interest rate (or use an interest rate calculator) to orient yourself to what your monthly payment should be.
3. Start paying early, if possible.
I started paying on my loans prior to the first scheduled payment. If you play your cards right - esp. if you anticipate making more than $80,000 a year, you can deduct up to $2500 of payments on your student loan interest on your taxes during the remainder of that year that you finish school. If you make more than 80K/year, you will not be eligible for this deduction (check anyway, though!).
3a. Learn how to do your own taxes. It helps. Even if using a company, you should know how taxes work at a minimum in order to maximize deductions and minimize chance of an audit.
Although I did not qualify, I encourage all students to apply for the PSLF program once starting the first job after graduation - especially if employed by the government or a non-profit. The PSLF will forgive the remaining balance of your loans after 120 payments (10 years). The form can be found here. Be warned that there is a bit of risk with this program given the government can shut it down at any moment, but hey! Who needs sex when our government is constantly screwing us anyway???
5. Don't be afraid to venture outside of your comfort zone.
My first job out of pharmacy school was in a rural area. Many health-related professions will pay more for working in a rural area versus a more metropolitan one. I used this to my advantage. Not only do the jobs pay more, but the rent/living expenses are typically substantially cheaper than living in a city. Minimizing my living expenses and maximizing my pay allowed me to optimize my outcome.
Let me be the first to say - IT'S WHACK. My social life was on life support for a while. May have even slipped into asystole at one point, but you determine the sacrifices you're willing to make. For those unwilling to make such a sacrifice - which is completely understandable - at least get a roommate or stay with family, if possible.... Whatever it takes to reduce living expenses.
6. MAKE A BUDGET
Sucks, but it works. Meal prepping helps, too. The less you eat out, the better. I think cutting my shopping habit was the hardest thing 😩
7. Use any disposable income towards your loans.
Pretty straight forward. A majority of any tax refund or bonus from work I received went towards my loan payments.
8. If NOT eligible for PSLF, consider consolidating or refinancing!
There are pros and cons to consolidating/refinancing your loans. Consolidating your loans if you have multiple will usually give you a lower interest rate. I did NOT consolidate mine, though, because I liked "seeing" my progress. It was easier to tell when I paid off a loan, which kept me more motivated.
Refinancing is a great option. You may be able to lower your interest rate by half or more if refinancing to a private lender. FIND OUT OF THERE IS A DEATH DISCHARGE BEFORE REFINANCING. Federal loans have a death discharge - meaning your family is not responsible for paying back the loan in the event of an untimely death. Make sure you and your family are aware of the loan company's policy before refinancing. This is why it's a great idea to have a LIFE INSURANCE POLICY that covers the cost of your debt plus some for your family if you choose to go this route. This article goes into more depth on what happens to your loans when you die.
9. Dave Ramsey is THE MAN.
Once I finished paying my car, I used that as an additional student loan payment. It's called the debt snowball method. (Random: I named my car Snowball because 1. it's white, and 2. I knew this was what I was going to do once I paid it off). There are other methods where you can target the largest debt first or the debt with the highest interest rate. No matter what method you choose, make it work for YOU.
Listen... FOCUS ON SCHOOL. That is the best advice I can give in this situation. Put simply, it's difficult to tackle loan debt when you do not have a steady source of income. NETWORK. Networking is essential to acquiring the job you want/need.
Make sure you are setting yourself up for a job/career path that yields an income that will cover your current AND future debt.
Sorry so short!
Currently Working:
You've finished school. You've landed the job. Your current life situation allows you the option to pay off your loans. Now what?!PRIORITIZING, PERSEVERANCE, AND PATIENCE
PRIORITIZING
1. Define "financial freedom" for yourself.The definition differs per person. For me, it meant being completely debt free. Since I made it my number one priority, it was easier for the rest to fall in line.
2. Evaluate your debt.
When I started paying back my loans, I looked at my "debt-to-income" ratio to gauge where I was. I used a very non-scientific approach: If my debt-to-income ratio was above 1, I would aim to pay off my loans in 5-10 years. If my debt-to-income ratio was less than 1, I would aim for less than 5 years. Because mine were over 1, I ended up in the 5-10 year mark. Narrowed my personal goal into 6 years (why??? ...no clue). I calculated my monthly loan payment based on this goal.
2a. Learn how to calculate your interest rate (or use an interest rate calculator) to orient yourself to what your monthly payment should be.
3. Start paying early, if possible.
I started paying on my loans prior to the first scheduled payment. If you play your cards right - esp. if you anticipate making more than $80,000 a year, you can deduct up to $2500 of payments on your student loan interest on your taxes during the remainder of that year that you finish school. If you make more than 80K/year, you will not be eligible for this deduction (check anyway, though!).
3a. Learn how to do your own taxes. It helps. Even if using a company, you should know how taxes work at a minimum in order to maximize deductions and minimize chance of an audit.
PERSEVERANCE
4. Check your eligibility for the Public Service Loan Forgiveness (PSLF) program.Although I did not qualify, I encourage all students to apply for the PSLF program once starting the first job after graduation - especially if employed by the government or a non-profit. The PSLF will forgive the remaining balance of your loans after 120 payments (10 years). The form can be found here. Be warned that there is a bit of risk with this program given the government can shut it down at any moment
5. Don't be afraid to venture outside of your comfort zone.
My first job out of pharmacy school was in a rural area. Many health-related professions will pay more for working in a rural area versus a more metropolitan one. I used this to my advantage. Not only do the jobs pay more, but the rent/living expenses are typically substantially cheaper than living in a city. Minimizing my living expenses and maximizing my pay allowed me to optimize my outcome.
Let me be the first to say - IT'S WHACK. My social life was on life support for a while. May have even slipped into asystole at one point, but you determine the sacrifices you're willing to make. For those unwilling to make such a sacrifice - which is completely understandable - at least get a roommate or stay with family, if possible.... Whatever it takes to reduce living expenses.
6. MAKE A BUDGET
Sucks, but it works. Meal prepping helps, too. The less you eat out, the better. I think cutting my shopping habit was the hardest thing 😩
7. Use any disposable income towards your loans.
Pretty straight forward. A majority of any tax refund or bonus from work I received went towards my loan payments.
8. If NOT eligible for PSLF, consider consolidating or refinancing!
There are pros and cons to consolidating/refinancing your loans. Consolidating your loans if you have multiple will usually give you a lower interest rate. I did NOT consolidate mine, though, because I liked "seeing" my progress. It was easier to tell when I paid off a loan, which kept me more motivated.
Refinancing is a great option. You may be able to lower your interest rate by half or more if refinancing to a private lender. FIND OUT OF THERE IS A DEATH DISCHARGE BEFORE REFINANCING. Federal loans have a death discharge - meaning your family is not responsible for paying back the loan in the event of an untimely death. Make sure you and your family are aware of the loan company's policy before refinancing. This is why it's a great idea to have a LIFE INSURANCE POLICY that covers the cost of your debt plus some for your family if you choose to go this route. This article goes into more depth on what happens to your loans when you die.
9. Dave Ramsey is THE MAN.
Once I finished paying my car, I used that as an additional student loan payment. It's called the debt snowball method. (Random: I named my car Snowball because 1. it's white, and 2. I knew this was what I was going to do once I paid it off). There are other methods where you can target the largest debt first or the debt with the highest interest rate. No matter what method you choose, make it work for YOU.
PATIENCE!
10. Give it time!!!
This was the hardest for me. I hate waiting. We're young. We like fast. The faster and furious-er, the better (except everything after Fast 7. I am TIRED of these movies now. RIP Paul Walker).
My debt seemed like it was going nowhere quickly. In reality, however, it was!!! Be ye steadfast. Debt, too, shall pass. There are a couple of things you can do in the mean time to brighten your outlook:
I am so lame sometimes.
My debt seemed like it was going nowhere quickly. In reality, however, it was!!! Be ye steadfast. Debt, too, shall pass. There are a couple of things you can do in the mean time to brighten your outlook:
- LEARN HOW TO INVEST! Whether it's real estate or stocks or whatever else you decide. Even if you aren't able to invest how you would like right now - learn the ropes so you aren't lost once you're in a position to invest more (like I am currently).
- Let me say I don't know SH*T about investing but I'm learning! So before anyone asks, I don't have the answers you need. LoL. Sorry. But:
- SAVE! I should have mentioned this under the budget. You NEED an emergency fund. You can decide how much that should be, but I think at least $1000 is necessary to have on hand before taking on your debt. The more, the better though. Don't stop saving just because you feel your emergency fund is where it should be. I mean honestly....is there a such thing as too much???
The future is going to come regardless, whether you're prepared or not.
I know it sounds sordid, but you'll be rewarded...
Be prepared.
This was interesting. Financial freedom for me meant getting out of consumer debt. I still have hella student loan debt. I paid off about $65K in credit card and auto debt. I met with a financial advisor and took some of his advice. I thought his plan was way too restrictive. It took me about 3 years because I wasn’t willing to cut my leisure budget. But I found a plan i knew i could stick to. Been credit card debt free for about 18 months. Feels great. I used my good credit to buy my dream car. But on good loan terms this time.
ReplyDelete