Hey guys, guess what! I paid down a HUGE chunk of my student loan debt this month!!
Last year I set 2 big goals, pay off my loans and apply to grad school in Norway. My loans required $41,000 while student visa qualifications for Norway (where grad school is free by the way!!) required I show proof of roughly $11,000 per year to support my cost of living during the two year program.
Spoiler alert: I didn’t get into the program. They actually didn’t even consider my application because they filled the program with EU students long before my application came up in the stack. But regardless, I figured if I applied in fall 2015 I would have about 9 months to aggressively save towards $22,000. And if I didn’t get in I could just throw that money at my student loan debt. I started with $6,000 in my savings in fall 2015 and by May, when I heard back from the school, I had $19,000.
I took the $13,000 I’d saved over 9 months and paid off 4 of my loans in full.
Want to see a little history of my debt?
This is what it looked like one year ago. I was super depressed that the balance had increased even though I was making all my monthly payments. Stupid interest. So I decided to make this table and color code my interest and monthly payments to get a better feel for which loans were my worst enemies.
Shortly after making the table I decided enemy #1 and 2 were my two oldest loans. Those loans were serviced by a different loan servicer than my other 9 loans and I hated remembering to pay two different servicers each month. Together, these two loans made one of my highest monthly payments and the interest was high. In July 2015 I paid those two loans off in full, said sayonara to that servicer and have been making one bundled monthly payment to one servicer ever since.
Then last month I found out I didn’t get into grad school. When I took the $13,000 I had saved in 9 months I was able to pay off 4 of my loans! I picked those 4 because of the high interest.
In exactly one year, my monthly payments are down from $524.87 to $265.43 and my overall debt is less than $20,000!!
So how did I save $13,000 in 9 months?
And how did I do that while traveling to Chicago, Hong Kong, Vietnam, Malaysia, Singapore, Mardi Gras, Atlanta, Mexico, and San Francisco during that time?
The best piece of advice I got was to only keep $500 in your checking account. The rest of your available money should go right into savings. This mentality really helped me get more mindful about my spending.
First, I looked at my expenses to get an idea of how much I could put in my savings after paying my bills. Then I analyzed my expenses to see where I could cut back. I wasn’t super strict, I just got more picky with how I spent my money. The purchase had to be worth it.
Things that weren’t worth it for me: eating lunch out every day, buying new clothes and going out for drink every weekend. I stopped making those purchases. But on the other hand, I bought a macbook pro. This was a huge expense for me, but it was much needed – my old one broke two years(!) ago – and it meant I could stop pulling my hair out while trying to work and edit photos on a tablet. For the most part though, I really cut back on expenses.
Here’s what I implemented to kickstart the savings.
1. Essentially, I pay myself first. I called up my company and asked to have 10% of my paycheck goes directly into my savings via a direct deposit. This amount is small enough that I forget its being deducted, but it ensures that something is going into my savings every month, twice a month. After paying myself, I pay my bills…
2. I set up automated payments and started overpaying on my student loans. I rounded my monthly payment up to $500 each month because I realized the only way I could chip away at more than just interest with those monthly payments was to overpay each month. Over time, less debt = more savings. I’ve decided to keep my automated payments at $500 even though my monthly payment has gone down drastically because quite frankly I want to conquer these loans ASAP and the amount is doable for me. Having these payments automated has been great for my peace of mind.
3. I pay my credit cards in full each month. I have 4 credit cards for travel hacking purposes. I check my credit card transactions each week to stay on top of them since majority of my financial action happens here. I never carry debt on these cards and have an automated payment scheduled for each card to withdraw my full statement balance each month on the 12th. This is important!! Don’t add more debt to your life!
4. I schedule all my bills to hit at the same time. They pull around the 15th of each month. This gives my paycheck on the 10th enough time to clear before the bills get pulled. It also gives me enough time to go in and check that everything looks right before the automated bills start hitting.
5. My savings gets the rest. After the 15th, I make sure all my bills have cleared and transfer everything but $500 out of my primary checking and into my savings account.
You can see how my savings steadily grew toward my $22k goal. When I was traveling a lot and forgot to transfer my extra money, direct deposits from my paycheck to my savings ensured there was still some growth, and then I transferred all the extra money that had accumulated in my checking account from December to February when things slowed down. But ideally I stick to my schedule every month.
This is what my financial calendar looks like on any given month:
May 25 – get paid (90% checking, 10% savings)
June 10 – get paid (90% checking, 10% savings)
June 12 – review my checking account and credit card statements
June 15 – credit card payments and $245 car payment hit checking
June 15 – $500 student loan payment hits checking
June 17 – review my accounts after all bills have been paid, transfer all but $500 of leftover money into savings
June 25 – get paid and the whole cycle repeats
I like this system because it makes my finances predictable and easy to track. My checking account is where I look at high level expenses (how much am I spending each month?) and my credit card statements are where I can find the detail (exactly how much I spent on dining out or airline tickets).
Now I look forward to paying my bills each month… because once they are paid I will know exactly how much I get to add to my savings account!
Thanks for celebrating this with me you guys! And if you’re in a similar situation, let me know or send me your questions!
I’ve talked about my student loan debt before here:
I Worry My Student Loans Will Keep Me From Traveling
How I Ended Up with $41K in Student Loan Debt
How Debt Affected My Post Grad Plans
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