As of last week, my wife and I have paid off $96,000 in student loans. We paid most of it off over the past year. It has been an awesome experience and a pain at the same time. It’s a wonderful feeling to start from zero though.
We’ve struggled with what to do with student loans for years. They have gone in and out of deferment and income based repayment a few times before we finally decided that it was time to get rid of them once and for all. I totally believe that this is one of the best decisions we’ve made. So I put together a list of a few of the best ways to pay them off as fast as possible.
Pay them first: Once a month, the day of my paycheck, I would immediately pay a large chunk of the loans off. This made it feel like we never had the paycheck in the bank account. Think back to when you’ve been tight on money in the past. It’s super easy to just not buy things. We can stay in and eat ramen in college because there is no money available to do anything else. If you create that sense of brokeness by dumping all of your cash into the loans asap, you’ll feel like you can’t spend on other things. Once it’s gone, it’s gone. Nothing you can do about it.
Pay as much as possible: We mulled this one over a lot. There is definitely a thought to pay less while spending your money on other things. We all want nice things and to enjoy life, but the loans were a priority. By putting the maximum amount possible into the loans, we felt like we were broke every day. Mainly because we were… You’d be amazed at how scrappy you can get when you have no money to spend. Treat any new money as if it is burning a hole in your pocket and has to go asap. Make sure to only put it into the loans though.
Pay things one at a time: We’ve wanted to buy a house and travel more, but put that off while paying these loans back fast. I wanted to buy those other things so badly, but am glad that I didn’t. To me, the idea of paying loans plus a mortgage plus a car payment plus travel, etc. just sounded hard. I don’t like the idea of spreading yourself really thin with lots of payments. We made the conscious decision to put off buying a house and other big life “milestone” type of things while paying the loans.
Keep investing: While we put off buying things like houses and cars, we did keep investing in our 401K and IRA accounts. The tax benefits of retirement accounts are just too good to pass up. These should be first priority over student loans. At the very minimum, you need to contribute up to the match on your 401K account.
Ignore everybody else: You’ll see all of your peers “pass you by” on social media. Your friends and family will buy houses, cars, go on trips, have kids, get pets and all kinds of other exciting things. You have to ignore this. Either those people are super rich or they are using debt to achieve most of those things. I would bet on the latter if they are under the age of 30. Stop caring about what they think and enjoy your frugality.
Enjoy your frugality: It can be really fun to find cheap ways to have fun and live your life. You can enjoy being a minimalist in your tiny apartment. You can go hiking a lot. You can go to free events in the park nearby. You can learn to cook your own food. You can shop at local farmers markets. You can shop at thrift stores. There are so many fun things to do that cost almost nothing.
Downsize your living situation: If you are renting, you should be living in the cheapest place that you can find in a safe area. Ideally live in a studio or one bedroom. Or with roommates. Keep living the young 20s lifestyle until the debt is paid off. You might not like your tiny apartment. Use that annoyance to motivate yourself to pay those loans faster. One of the biggest things people complain about is that they have no money to pay their loans, but they live in a nice place in a cool part of town. This makes no sense. Nice places are for rich people. If you’re in debt, you’re not one of them.
Avoid car payments: This is huge. There are so many transportation options that don’t require a nice car. You can take public transit. You can bike. You can buy an old car. There are a lot of nice cars for sale for under $5,000. Take advantage of this. There’s no reason to have a car payment ever.
Live on half of your income: All of these things lead you to this big one. Live on half of your income. No matter what. You should be doing this even after your loans are paid off. Life is tough and you can lose your job at any time. If you live on half, you have plenty to spare in rough times. Think of it this way. If you are going to be working for 30-40 years, then be retired for 30-40 years, you will need to make 2x your expenses for life. 1x to get you through the first 30-40 and 1x to get you through the second. Starting your working life by paying half of your income into your student loans will set you up to keep living on half until you can retire.