In most ways, March 23, 2012 was like any other day. It was a Friday morning. I woke up around 6:00 am to an alarm. But as I was getting ready for work, I logged into my computer to check my account balances. It was a ritual every other Friday on payday. But this week something different happened.
I looked at my bank account balance and saw it had grown to exceed my remaining student loan balance! Two years and six days after graduation, I was ready to make my final student loan payment. I didn’t get there making only minimum payments. Instead, I used a focused approach to strategically eliminate my $40,000 student loans. Follow along to learn how it all came together.
Start paying while still in school
The first step I took to paying off my student loans was to start paying during school. Unlike most of my classmates, I kept a full-time job while going to school full-time for my MBA. A combination of an understanding boss and a complete focus on schoolwork on evenings and weekends made it a possibility.
My loans were all government back Stafford Loans. One-third of my loans were subsidized and did not incur any interest during school. Two-thirds were unsubsidized and began accruing interest right away. I focused my efforts on those loans while in school.
I didn’t make big payments and there was no minimum payment, so I just made sure to pay at least the interest, if not a little more, every month. I kept this up until my last quarter (my university ran on the quarter system) when I made my last tuition payment and took on my final loans. At that point, I started making more aggressive payments.
Pay more than the minimum
When I graduated in March 2010, I went into full payoff mode. I lived in a low-cost house with a roommate for most of my MBA program to keep costs down, and eventually moved into a small one-bedroom apartment far from downtown to keep my rent low.
Keeping all of my expenses low and living on a college style budget while working a full-time job as a Financial Analyst allowed me to pay a lot more than the minimum payment each month. I also split my payment into a smaller payment every payday instead of monthly to keep my income in-line with my expenses.
I started paying half of my loan payment automatically every payday and slowly increased it. I eventually surpassed the full payment amount twice each month and did everything I could to increase that payment.
That meant I didn’t spend as much as friends on cars, housing, eating out at restaurants, and buying fancy gadgets. I didn’t buy a smartphone until most of my friends already had one to save money.
In addition to making payments a little easier, paying every other week instead of monthly gives you a full extra monthly payment each year in many cases. If you get 26 paychecks per year and pay automatically on payday, you’ll get this added 13th month payment!