How I Paid Off $38,000 in Student Loans: My Step-by-Step Plan
$40,000.
That was the total amount of student loans I accumulated while earning my undergraduate and graduate degrees. Today, $38,000 remains unpaid, largely because I haven’t consistently focused on repayment and interest has continued to accrue. I did stop borrowing for the final semesters and paid out of pocket, which kept the total from growing even higher.
It’s a substantial amount of student loan debt, but I don’t feel entirely regretful because I earned two undergraduate degrees and an MBA in Finance for that cost. Without scholarships and some out-of-pocket payments, the total could have been two to four times larger.
Since February 2012 I’ve been actively following a plan to eliminate these loans as quickly as possible. Lately it’s become almost an obsession: I constantly review cash flow and budgets to find ways to accelerate repayment. My efforts to generate extra income have been a primary focus.
Fortunately, I graduated and secured a good job in 2010, which allowed me to begin chipping away at the debt. Many people warned that finding a job would be difficult, but I did find work and that made a difference.
Now that I’ve completed graduate school, I’m committed to aggressively paying down the remaining balance. I’ve made some payments here and there, but not enough to make a visible dent yet.
My goal with my student loan repayment plan.
My objective is to have the loans fully paid off by April 2013, possibly even March 2013. I know going faster is unlikely because the plan is already strict. Learning how to pay student loans faster takes more than reading about it—you need a concrete action plan.
To hit my target, I need to pay about $7,000 per month for roughly six months, which would reach the April 2013 payoff. That might sound extreme, but I believe it’s achievable without drastically reducing my quality of life—I’ll maintain most of my regular habits.
The main reason this is feasible is that our household income has increased significantly in recent months. W now earns more than three times his previous salary, and my income has risen as well. That extra cash makes the goal realistic.
As long as our income stays at this level, the plan should work. If income grows further, I might be able to finish in March instead of April, but a one-month difference isn’t critical.
Below I summarize the steps I’ve taken and recommend to anyone who wants to learn how to pay student loans faster. These tips also help if you want to avoid debt while paying for college.
Related content: How Do Student Loans Work?
1. Add up your total student loan debt for your student loan repayment plan.
The first step is to calculate your exact total student loan debt. If needed, use a student loan calculator to determine totals and monthly payments.
It’s surprising how many people haven’t actually totaled their loans down to the exact cent. Some loans date back several years and can be easy to forget. When I finally tallied mine precisely, I discovered I had underestimated by about $2,000. Facing the exact figure was an important wake-up call.
Once you know the precise amount you owe, you can build a realistic repayment action plan. Using a calculator helps you understand monthly payments and how extra payments affect payoff timing.
2. Decide which student loans you’ll pay off first.
Choosing an order to pay loans depends on your priorities. I focus on the loans with the highest interest rates—many of mine carry a 6.8% rate—because paying those reduces the total interest I’ll pay over time.
Other approaches work too: some people tackle the smallest balances first to gain motivation as loans are eliminated one by one (the “debt snowball”), while others prioritize high-interest loans to save the most money (the “debt avalanche”). Pick the method that keeps you motivated and saves money.
3. Find extra money to apply toward your student loans.
I’ve focused heavily on earning extra income to accelerate repayment. Some recent months produced significant side earnings: in September I earned $3,275 and in October $3,700 (figures before taxes). In January I earned over $6,000 from side work. Those amounts didn’t happen overnight; they came from consistent effort and diversified income streams.
My main extra-income sources are blogging and freelancing. I also do virtual assistant work and freelance writing. These activities allowed me to redirect most of my side earnings toward loan repayment while still covering some personal spending.
If you want to increase income, consider freelancing, online side jobs, or starting a blog. Throwing your extra earnings at loans can dramatically shorten payoff time.
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4. If you can or want to, then ELIMINATE expenses!
Review your spending to find areas you can reduce or eliminate. Call service providers to negotiate lower rates for gym memberships, phone plans, internet, and other recurring expenses. Small reductions add up.
Other effective actions include lowering transportation costs, reducing utility usage, and eating at home more often. Preparing meals from scratch instead of dining out frequently can free up significant funds.
We’ve cut back on dining out because it was an easy place to trim. Reducing avoidable expenses makes aggressive student loan repayment more manageable and less stressful.
What are you doing to pay off your student loans quicker?
Answer these questions:
1. How much do you owe?
2. How much have you paid off?
3. How long do you think it will take you to pay your student loans off completely?
4. What are you doing to pay them off more quickly?
UPDATE: My student loans are gone (click here to read all about it)! 🙂
