When I went to graduate school, I had my eyes wide open to the financial realities of my additional education. I knew exactly how much I was racking up in student loans and likely how much I would make when I graduated. I’d done the ROI before school and decided that it was the right decision to go.
Even though I was prepared, I still distinctly remember the final week of school when the loans got real. They gathered everyone in an auditorium, passed out individual folders with our loan details, and kindly walked us through how we were supposed to pay off our loans. No one was particularly thrilled to be there.
After we left I overheard some classmates talking about options: if you extended the loan repayment period to 30 years, rather than the standard 10, the monthly payments become much more manageable.
I thought about that for exactly 2 seconds and realized that if I was ever going to buy a house, feel free in my career, and not worry about my husband being resentful, I needed to get rid of these loans ASAP.
While it was a lot of money to pay off, it actually wasn’t that bad. Before I get into how I did it, I have a few disclaimers because I get the same questions over and over:
- I was married while paying off my loans (and still am), but I didn’t use my husband’s income to pay off my loan. Not that there’s anything wrong with paying them off jointly, I just chose not to. He also went to the same business school and used his own income to pay for it.
- I took a high paying job. I went to business school and I was lucky enough to graduate with a job that paid me well. While that certainly was a huge factor in paying off my loan, I do know a lot of people who were paid more, owed less, and still have debt.
- I didn’t save a ton during this time. I had a small rainy day fund and made small contributions to my retirement, but saving wasn’t my priority. Getting rid of my debt was. It’s all about choices.
Here are the main things that helped me pay off my debt so quickly.
I worked backward.
When I was relocating from North Carolina to Los Angeles after grad school, I knew that cost of living was going to be an issue. LA isn’t exactly a cheap place to live. Rather than try to figure out how to work my student loan payment into my monthly budget, I worked backward. I figured out how much I wanted to put toward my loan and then adjusted my lifestyle around that. I started by considering how much my monthly payments would be on the 10-year repayment plan and immediately deducted that from my paycheck. I then had the rest of the money to live on.
My loan payment ended up being 28% of my take home pay, so I didn’t have a ton to live on after that, but I made some choices early on that made me feel like I wasn’t scraping by each month. I ended up renting a dirty, old apartment that was cave-like. Sure, there were some bugs and no matter how much I scrubbed, it never looked clean. But it was cheap. So, so cheap.
I also made some smaller choices. I sold my gas guzzling car and bought a used, very fuel efficient car, which ended up being a huge saving in LA (and better for the planet). Since I’m not much of a TV person, I went without cable and spent $7 a month on Hulu instead. And I had a work iPhone but a personal flip phone. Yes, it was 2013 and I still had a flip phone. But hey, I didn’t have to pay a data plan.
Sure, I wasn’t living in luxury, but I prioritized spending on what was important to me (my loan payment and travel, primarily), and didn’t spend on things that weren’t important to me. I wasn’t sweating my loan payment each month and I felt comfortable. I could go out to eat, I was still able to shop for things when I needed them, and I still made monthly weekend trips to visit friends. Feeling restricted isn’t something I like, so working backward into my budget gave me the freedom that I needed while still being responsible with my debt.
I made a lot of small payments.
A few months into my loan repayment, I decided to kick things up again. After a relatively quiet weekend at home, I realized I hadn’t spent much. Without even realizing it, I had gravitated to cheap (or free) activities the entire weekend, like walking on the beach, frozen yogurt dates, and having a girlfriend over for wine and a movie. After a quick bit of mental math, I realized that I likely had saved $75 that weekend.
Instead of letting that $75 sit in my bank account, I decided to hop online and make a quick $75 loan payment. Compared to my $1,500+ a month loan payment, $75 wasn’t a lot. But I instantly felt good about that little extra payment because it went straight to my principal balance.
After that, I decided to make these extra payments a more regular thing. Didn’t take a yoga class that week? Transfer $20. Met up with friends for drinks rather than dinner? Transfer $40. Some months I was only able to make one extra payment. But other months I was making a couple a week. These payments, while small, could easily add up to a few hundred dollars a month. And with that going straight to the principal balance it made a big difference.
I got a raise and then refinanced.
After I was with my company for a year, I got a 10% raise. I was immediately thrilled and set out to make sure I didn’t fall prey to lifestyle inflation. I was doing fine with what I was spending each month and didn’t really feel like I was missing out on anything. So rather than giving myself that extra 10% to spend each month, I decided to put it all toward my loan. (Ok if I’m being completely honest, I did buy some very expensive boots that I had been eyeing.)
At the same time, I decided it was time to get rid of my ridiculously high-interest rate loans and look for a cheaper option. My loans at graduation were 6.8% and 7.9%. Way too high.
After shopping around for a bit I decided to go with SoFi. They offered a 5% interest rate. After a quick calc, I realized that with my raise and the amount I’d save in interest each month, I could refinance to a 5-year loan and still keep my same standard of living.
(Want to refinance with Sofi? This is an affiliate link, which means I receive a commission if you choose to refinance with them. This is by no means a sponsored post, I was just very happy with my refinancing. By using this link you’ll also you’ll receive a $100 welcome bonus.)
Using this FinAid calculator, I learned that if I cut my interest rate from 6.8% to 5% and my loan term from 10 years to 5 years, I’d spend $26k less in interest over the life of the loan.
Once I did that it put me on a 6-year timeline to pay off my loan, which felt amazing.
I negotiated twice.
Over the course of paying off my loan, I had 2 different jobs. The first was in LA and the second was in London. I was lucky in that both jobs came with signing bonuses, though neither came with an annual bonus. With both of these jobs, I did a fair amount of time researching an appropriate salary and negotiated the initial offers.
With each, I negotiated approximately more than a 10% increase, split between salary and signing bonus. This was a huge help in paying down my debt, and I earmarked that money to go straight to my loans. Negotiating the offers contributed to around 20% of my total loan payments. I’d likely still be making payments had I not negotiated for more money.
**note: while negotiating was a huge help in paying off my student loans, I didn’t negotiate because of my loan. I negotiated because the market value of my role was higher than what they were offering.
In the end, all of these changes helped me to make that final loan payment 3.5 years after graduating. And it feels so good to be done.
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Erica Gellerman, CPA
Erica Gellerman is a CPA, MBA, personal finance writer, and founder of The Worth Project: a weekly money newsletter you actually want to read. Her work has been featured on Forbes, Money, Business Insider, The Everygirl, The Everymom, and Lifehacker. When she's not writing about personal finance you can find Erica exploring Europe from her temporary home base in London.