I Recently Paid Off My Student Loans 3 Years Early – Here’s How I Did It

As I discussed in a previous post, the average college student graduates with somewhere between $30,000 to $40,000 in student loans, with no indication of tuition growth rates slowing any time soon. Typically, these loans are scheduled to be paid off in 10 years, or 120 monthly payments. If you’re anything like me, you understand that while some debt can be useful if managed properly (e.g. financing a car to help you get to and from work if you can’t afford to pay cash for it), you also strongly dislike owing money to people, and the longer you owe them money (plus interest!), the more this debt feels like a burden. Thus, without getting into tuition politics or going over ways to help avoid racking up student loan debt in the first place, for this post I decided to simply explain the methods I used to pay off my loans early and lift the proverbial weight off my shoulders.

Commitment & Sacrifice

In my opinion, these two ideas are the most important concepts to understand and apply to nearly any personal financial goal, yet they can be two of the most difficult ideas to implement consistently and over long periods of time. Unfortunately, while social media has been an effective tool for staying in touch with people, it can also make you feel as though your life isn’t as exciting and fun-filled as your friends’ lives, leading to a potentially dangerous case of “keeping up with the Joneses.” Remember, though, most people do not post the behind-the-scenes look at their lives—they show their highlight reel. They (typically) don’t show the times they stayed in and watched Netflix instead of going out and racking up a $75+ bar tab or going on a shopping spree. While you do not need to sit at home and do nothing day after day, you must commit to finding a balance between doing things you want to do and living within your means in order to achieve your goals.

For me, in my early twenties, it was going out with friends—restaurants, bars, sporting events…you name it, I was probably doing it. I had just moved to a new city with a new job and a salary for the first time in my life, and I was having the time of my life making new friends and going on new adventures with them as often as possible. It didn’t take long, however, to learn this new lifestyle was not sustainable financially. While I wasn’t drowning in credit card debt, I knew I could be putting at least a portion of that money to better use. I decided to start paying down my student loans more aggressively, which meant cutting back spending in other areas of my life. In order to figure out which spending I could cut back on, I took a closer look at my…

Budget

I think most people understand the importance of having a budget, but sticking to a budget can be difficult. It can seem tedious or daunting to track every penny you spend, and unexpected expenses happen. However, if you have committed yourself to a goal, abiding by a budget gives you the best chance to reach that goal. It is also important to distinguish between needs and wants when looking at your budget—you need to pay your rent/mortgage, but do you really need that fancy $6 cup of coffee three to five times a week?

In my case, I decided to cut back on my “entertainment” spending. I realized if I went out just once or twice less per month, that gave me another $100 or so every month I could put towards my goal of paying off my student loans. To be completely honest, I was initially concerned my social life would suffer as a result, but I didn’t lose any friends, and I found ways to see people without going somewhere and spending a bunch of money just to hang out with them.

Once I had created some room in my budget to allow for larger payments to my student loans, I then had to determine to which loans I would allocate the additional payments, since there were a total of 8 different loans—one for each semester I attended college. After looking over the terms of each loan, I decided to…

Pay Off the Most Expensive Debt First

This was a relatively easy decision to make. Each of the loans had the same number of monthly payments, 120, until they would be paid off. However, since the interest rate of each loan was determined at the time the loan was offered (similar to how you might get a better or worse interest rate on your mortgage depending on when you purchase your home), I had loans with interest rates that ranged from 3.4% to 6.8%. In addition, all the loans were for similar amounts, so the only aspect of the loans I could use to determine which loans would be most advantageous to pay down was the interest rates.

I decided to use the “avalanche” method of paying down these debts, which involved making minimum payments on all the loans, then using any additional payments to pay off the loan with the highest interest rate. Then, once that loan was paid off, I took the extra amount I was putting towards that loan (along with the minimum amount I was already putting towards it) and applied it to the loan with the next highest interest rate, and I continued this pattern until all of the loans were paid off.

Other Considerations

With a targeted plan in place, I felt confident in my ability to pay off the loans sooner than scheduled, and, as an added bonus, I picked up a couple of other useful habits along the way.

I avoided taking on too much additional debt, especially credit card debt. I did eventually purchase a new (used) car, but I felt it was time to replace the 10-year-old truck I had had since high school, and I got a great deal at a very low interest rate. Towards the end of paying off my student loans, I also purchased a home, again at a reasonable price and manageable interest rate. However, I made sure there was enough room in my budget to handle these payments without affecting my other goals, such as saving for retirement and building up an emergency fund.

I also made slight changes to the plan over time as my personal finances changed. When I got a raise at work, I increased my payments by a similar percentage (i.e. if I was making a $100 payment and got a 5% raise, I would increase the payment to $105 or even $110). Additionally, I used unexpected windfalls, such as my income tax returns or bonuses at work, to make one-off payments to reduce larger chunks of the remaining balances.

The Bottom Line

If I had a dollar for every time student loans have been talked about in the news in the last year or two, I could have paid mine off even sooner. While there are potential solutions being proposed to help curb the cost of college or even eliminate student loans entirely, you should not operate under the assumptions that the proposed solutions will: 1) completely remove the need to take on student loans in the future, or 2) help your specific situation. Even if a bill is passed to forgive student loans, there may be certain provisions built into the bill that might exclude you from qualifying. Thus, if you have student loans (or other debts), committing to and following through with a focused plan gives you the best chance of meeting the goal of paying them off.

If I were to do it over, the only change I would have made to my plan is to have started it sooner.

The information presented in this article is for educational purposes only and is not meant to provide individual advice to the reader. There is no guarantee the information provided above relates to your personal situation. All financial situations are unique and should be advised as such.

Adam Oerther

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Adam Oerther