I graduated from college in May 2011 with high hopes for good job and easy living. It didn’t happen, at least not right away. For the first eight months after graduation, I couldn’t land a full-time job. And even when I did land one, it was for a position that didn’t require a college degree. So needless to say, I wasn’t “making bank.” Despite all this, I wanted to make my student loans a priority. I didn’t want to end up in deferment or having to register for a government repayment plan that could potentially cost me thousands more in interest. In the end, it worked out, and my wife and I are two months from being debt-free. Here’s how we did it.
Tough decisions
I made some important life decisions early on that allowed me to get ahead on my student loans while earning minimum wage (or close to it). I’m going to talk about some of these, and then we can get down to the nitty gritty of my repayment strategies.
I lived with my parents
This isn’t an option for everyone, I know. But luckily my parents were willing to help me get on my feet. I didn’t pay rent, but I did what I could to help around the house. My living expenses were about $50 per month.
I ditched the smartphone
To be honest, I’ve never had a smartphone. While most of my friends spend about $90 per month on their cell phone bill, mine is $25. I have a no-contract pay as you go plan with unlimited texts and more than enough talk time. This comes out to about $780 in savings over the course of a year. That’s $7,800 over the course of 10 years (the standard student loan repayment period), just sayin’.
I took sucky jobs
I did well in college and went to a good school. It would have been really easy for me to play the pretentious/privileged card and stick my nose up to part-time work. I didn’t. Instead, I took any job I could get, and when I wasn’t working I was looking for a better, full time job. Part-time jobs I took include:
- Managing a fireworks stand
For two and a half weeks in June and July, I stood in a hot metal shed selling explosives to people from all walks of life. Under $9 an hour.
- UPS
For a month (seasonal position), I woke up between 1:00 am and 3:00 am to go to a UPS warehouse. There, I loaded about 300 boxes per hour onto a big brown truck. Well, three big brown trucks. Under $8 an hour.
- Landscaping
Anyone else see a “manual labor” theme here? I worked for a landscaping company, raking, cutting grass, mulching, and doing anything else to make some extra cash. $10 an hour.
- In-home tutoring
This actually pays pretty well, and I recommend it to people all the time. I worked as a contractor with a tutor agency and went to students’ homes at night during the week. The pay was good, but I had to travel and only got to work about three to four hours a week. Again, it was something. $18 an hour.
As you can tell, my first few months after college were challenging. But I made it, and I was actually pretty comfortable. From there, I got a full-time job, got married, and got an apartment with my wife (who thankfully also had a full-time job).
But did we drastically change our spending habits? No, we remained frugal (no smartphones or cable!), I picked up a second job for about six months, and we continued to make payments toward our student loans.
How We Got Ahead
We didn’t just pay our minimum monthly payments. We wanted to get ahead, and here’s how we did it.
Other debt first
We had a car payment with higher interest than any of our student loans, so we prioritized it and paid off this account first. Not only was the interest higher, but the car payment didn’t have safety nets like our federal loans.
More than the minimum
Like I said, we paid more than the minimum payment so that we could get ahead. It’s amazing how much this saves over time. For instance, imagine you have $20,000 in student loan debt at 6.8% interest. Depending on your repayment strategy, here’s how much you will pay:
In a standard 10-year plan you pay $27,619, but you can reduce this to $21,447 in a two-year plan. Doing so will save $6,172!
These savings will be even bigger if you have debt with higher interest.
Highest Interest Accounts First
The other important rule that we followed is that we always put our extra payments toward the account with the highest interest rate. This is the most efficient way to pay off student loans, but many people don’t realize it. And, there isn’t a lot of information out there about it.
It’s actually quite confusing, especially if you have multiple lenders or servicers. I can’t tell you how many times our loans changed hands from one servicer to another. It’s important to keep track of who you owe, how much you owe, when payment is due, and the interest rate. Only with all of this information can you make the correct decision. We organized all of ours in a spreadsheet, like this debt payoff table.
I’ve also heard some confusion about how lenders disburse extra payments. We want them to put the extra toward the highest interest rate, but will they? For some lenders, I was able to find written explanations of the process. For others, the wording was too cryptic or I couldn’t find it. If there is any doubt, call the lender to make sure your payment is applied correctly.
You Can Do It Too
My life after college was much different than I expected, but I made the most of it. I know there are many recent graduates and young professionals out there who have had similar experiences. If you are struggling, just try to find income sources wherever possible and look for ways to save substantial amounts of money. I hope these tips will help you make student loan repayment a priority in your life. Good luck!
Thomas Bright is a Content Writer for ClearPoint Credit Counseling Solutions, a nonprofit agency that offers free student loan counseling. Thomas writes about a variety of financial topics, and recently launched a blog campaign about how to pay off student loans. Check him out on Google+ and Twitter @PT_Bright but don’t laugh at his puny following!
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