Today I pulled out a file in my cabinet that's been gathering dust since 2007: STUDENT LOAN. In 2007, I paid that sucker off, and I haven't looked back since. Well, except to check my credit report. I wanted to make sure the nightmare was really over, after all.
It wasn't too much of a nightmare, really. With interest, I owed a little over $12,000. But when you're making $10 an hour and dreaming of moving out of your parents' house, it sure seems like a nightmare.
I graduated in December 2005 and received my “Hey, we're about to start charging you interest” letter five months later. I soon became hell-bent on getting out of debt. At the time, I carried a small credit card debt that originated from a pair of Doc Martens I bought in high school and never wore. It started off as $100 and then quickly spiraled into $900 partially because I only ever paid the minimum amount. I was young, dumb and hid this from my parents, who would've been pissed. They're probably pissed now.
Shortly after graduating, I got my first “real” job. I was salaried, I had health benefits, and I was making more money than I ever had. I got an apartment and was excited to pay off that $900. But the student loan would be kicking in soon. My dad was reading Dave Ramsey at the time, and he was insistent that I pay off my debt. Between this and the horror stories I'd hear of people's student loan drama, I was encouraged that mine wasn't an overwhelming amount - I could pay it off soon, I thought. Way sooner than the 20 years they'd determined on my repayment schedule.
Paying off student loan debt early isn't for everyone. But I had a private loan that I shouldn't have taken out in the first place. It carried a variable 8% interest rate, and at the time, I had no desire to try to out-earn my student loan interest by investing. Most importantly, I just wanted this debt out of my life. So here's what I did.
(Note: I've read that paying off your loan early can have a negative impact on your credit report. For me, this wasn't the case, but I thought it was worth mentioning.)
I avoided lifestyle inflation
Remember a while back when I wrote about a friend who did fancy things that I couldn't afford to do? Well, I suppose I could have afforded to go to St. Maarten with her if I wasn't focused on paying off my student loan early. When I started working, I gave myself a small cushion for entertainment, yeah - but most of my income was aimed at my debt.
While I technically could have taken a trip or lived in a better apartment or worn better clothes, not having any debt was more important than any kind of lifestyle improvement at that time. Despite my lender neatly calculating my monthly amount, I didn't see my debt as a monthly bill - I saw it as one large amount, and as long as that amount was there, my income would be dedicated to it.
Thus, I couldn't conceive of trying to go on a tropical vacation when I owed thousands of dollars. When I did conceive of it, my mom quickly squelched the idea. “You're 23,” she would tell me. “You have plenty of time to travel.” Had I been older and in debt, maybe I would have decided to travel - life is short, after all - but at that time, I was young enough to have more youth to look forward to. So I decided sacrificing a year to pay off my debts and live like a pauper wouldn't hurt.
It was worth it. A year after paying off my student loan, I took a two-week trip to Europe, where I didn't once think to myself, “Ugh, I'm eating pizza by the Coliseum but I'm in soooo much debt.” It was a completely guilt-free trip.
I didn't have “mad” money
If I came into a small amount of money for whatever reason - a bonus, credit card reward - I never thought of it as my “mad money.” I had a strict amount allocated for entertainment, and if I came into something extra, it didn't go toward more entertainment. It went toward my student loan.
OK, most of the time I did this. I admit, there were times that I'd get a little something extra and use it for a want instead of a need. But I always ended up feeling guilty about it, although maybe I shouldn't have, because you should leave room in life for fun, right?
But again, the idea was to work at my debt wholeheartedly so that I could be completely free in a short amount of time. I didn't want to sacrifice a little for 10 years or even five years. I wanted to sacrifice a lot for one year. (Although, at the time, I didn't even know one year was possible - I just wanted to pay it off ASAP.) I wanted to take advantage of the fact that my debt amount was modest, and paying it off this quickly was doable. This might sound contradictory to a couple of GRS tenets, specifically: “It's more important to be happy than it is to be rich,” and “Slow and steady wins the race.” So let me clarify. I wasn't obsessed with money; I was obsessed withfreedom. I wasn't in a race to get rich - I just wanted to be able to live closer to my means without looming debt. So for that year, anything extra would (usually) go toward my debt, and if it didn't, I'd be a little peeved at myself.
I paid attention to the details
Back then, I spent a lot of time on the phone with my lender. I'd pay a huge chunk of my loan, and instead of applying it to the principal, they'd apply it to future interest - and the interest amount was predetermined to be for a 20-year period. That's a hell of a lot, so periodically, I'd have to call and shorten my repayment term. I also had to let them know any extra money I was paying was to go to the principal. Each month, I calculated the amounts they would come up with to make sure they were right. If they weren't, I called. As the balance decreased, I became more and more encouraged.
I moved back in
And finally, the ultimate sacrifice. It was the beginning of 2007, and I think I had something like $6,000 left on my loan. I was determined to pay it off by the year's end. Around that time, I got a new job that paid double what I was making, so this was especially encouraging. “I could pay this off by July!” I thought. But then I realized that if I moved back in with my parents, I could turbo-boost my debt repayment and pay it off even sooner. Luckily, my parents didn't charge me rent. That was great. What wasn't so great, however, was how strict they were. I was 24 years old and I had to be home by midnight. If I wanted to go see my friend's band play in the hip part of town where I used to live, my mom didn't care. They'd better be onstage by 10.
We fought a lot, my mom and I. “Even when you're 30,” she would yell, “I'm going to be checking up on you!”
She was right. Last weekend, I went to a party that was a couple of hours away, and my mom made me call her when I got there. Back then, I felt like moving back home was my biggest sacrifice. Now, I live 3,000 miles away, and when I miss my parents, I think about the times that I stayed home on a Friday night so we could watch TV and laugh together.
At any rate, savingan extra $700 a month allowed me to pay off my loan just a few months later. By early 2007, a year after my student loan repayments began, I was officially out of debt.
Ultimately, I have my parents to thank for my financial freedom. My dad's insistence and my mom's frugality intimidated me into wanting to get out of debt. Later, those qualities encouraged me to save money to pursue my goals. It's funny, moving to another state to chase a dream was the last thing my parents wanted me to do, but their advice helped me do it.
That year, including moving back in with them, was rough. But the sacrifice was so worthwhile.
The original article can be found at GetRichSlowly.org:My student loan story: How I paid it off in a year