How I Paid Off My Student Debt in Six Months
- February 5, 2008 by Fox | Comments: 53
It’s been seven years since I retired my student debt. I’ll never forget the mixed feeling of graduating from school with my degree in one hand yet starting a new life with 17K of debt in the other. To put it bluntly, the feeling sucked. Ok, sucked isn’t strong enough a word -TOTAL SUCKAGE is more like it. Anyone with student loan debt will agree that leaving the academic world with seemingly nothing more than a piece of paper (and negative money in the bank) is not fun.
Apparently, the average amount of debt a student carries upon graduation is about 19K. So really, my 17K wasn’t soo bad. But still, looking back on those early days makes my stomach lurch and my head ache. Back then I knew that debt felt bad, and I wanted to get the debt monkey off my back as soon as possible. So I made the commitment to myself and to my financial future to get outta student debt fast.
Here’s how I paid off my student loan debt in six months:
1. Negotiate your first job offer:
You have your degree, now use it! The most important action I took in paying down my student debt was to not settle for my first job offer. So many new grads get excited with their offers and accept them quickly in fear it’s the best they will get. Not true I say! Companies exist by keeping their costs down, hence paying their new graduate employees as little as possible. When you get your first offer (congratulate yourself for starters), and then negotiate for a little bit more. When I got my first offer, I thanked the company wholeheartedly for their offer and stated my excitement towards the position and working with their team. I also mentioned how I felt the job was a good fit for my skills and my direction. I kept the happy feeling going by saying I was flexible with compensation, however, would the company consider $X amount more as my skills were solid in areas A, B, and C. Surprisingly, this has always worked for me. While my fellow graduating students accepted their first offer, I negotiated better compensation.
2. Keep living like a student:
You’ve been living the life of a student up till now, so keep doing it! When I graduated from school I kept my same inexpensive apartment, my same bus pass, and my same habits. By continuing to live as I did when I had no money, I didn’t increase my cost of living and consume all my newly earned salary. Instead of keeping up with the Jones, I kept up with my loan interest and paid down lots of loan principal up front. Paying down principal quickly prevented my loan from increasing in size with compounding interest. In fact, since my loan didn’t start accruing interest until I was out of school for six months, I knew I had some time to pay it off before interest became my enemy.
3. Use all available tax credits:
In Canada, students get tax credits for tuition payments and the education amount. Back in my student days, I would file my tax return and use all my credits from my “Tuition, Education and Textbook Amounts Certificate” (T2202A). Sooo many students get this form and “loose it”. Well, let me tell you, if the good people at the Government of Canada are going to give you a break, you’d be silly to squander it. So keep all education tax receipts and use them towards paying less tax. The tax savings usually got me a refund, which I then applied to future educational expenses, and hence borrowed less money and accumulated less debt. If you live in the USA or another country, do yourself a huge favor and familiarize yourself with student tax credits in your area.
4. Save for retirement:
New graduates always laugh at me about saving for retirement. They say “I’m only 20-years-old, why do I need to start saving now?” The answer is simple, more tax breaks. When you begin your new job and start pulling in a nice salary (cause you negotiated from #1), you will pay more tax! Welcome to being an adult. BUT, if you start contributing to a Registered Retirement Savings Plan (RRSP) through your company or on your own, you will pay less tax. Along with paying less tax, contributing to an RRSP has the added bonus of giving you the feeling of growing a nest egg. Let’s face it, working hard and having nothing to show for it but debt repayment isn’t exactly fun. So growing some savings can really make you feel good. When I contributed to my RRSP way back then, I took my tax refund and used it to pay down more student loan debt. Consider this tax break the new math: you contribute to retirement, you get tax breaks, you get tax refunds, you then feed the refund to your debt. You win the “get outta student debt game!”
5. Delay buying stuff:
I’ve seen sooo many new graduates land their first job and then go out and blow their pay check on crap, or stuff. They might buy a new car, new stereo equipment, or rent a bigger apartment. Heck, I’ve even seen new grads buy a new condo! My advice is to delay buying stuff. If you really want to get out of debt, your goal should be to pay it down. Buying stuff just fills an emotional need for the moment, and then the consumer high is gone. I really hate stuff, and I often call stuff crap. After I graduated I bought what I needed for work, which was clothing. That’s it! I saved myself from the “buying crap” mentality and directed my earnings into my debt. It worked!
How did you pay off your student loan?
fox
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Your Two Cents:
I’m just about to go back to school, and I am hoping to pay it off as I go. Thanks for your tips, it’s nice to know I don’t have to have a debt hanging over me for the rest of my life!
@Julia Good luck with your studies! You are most welcome.
Great posts, just found your blog through the new network
One comment on point #2 about interest not accruing until 6 months after your grad date. Maybe this is true for a BC student loan, but for a Federal (Canada) student loan, it starts accruing from graduation day. Its just that payments aren’t due until 6 months later.
We had the money to pay my wife’s student loan off right after we got married in June… but putzed around because, hey, we had until November to get it paid. Send the cheque in August, and then had to pay 80 odd dollars of interest. Not a big deal, but it annoyed me…. that could have been a huge dinner date or something…
I’ve noticed that lots of students have this perception, so I try to remind them that even though they don’t have to pay until 6 months later, interest starts on grad day.
Great blog, and I look forward to going back through the archives.
Interesting posts.
Agree with David that my Ontario student loans accumulated interest from day one, although first payment wasn’t due for 6 months.
I had $30,000 in student debt that I paid off in less than 1 year, due to a combination of decent job and living like a student. Best move I ever made!
Keep squawking!
@David Thank you for making the point about Canada Student Loans accruing interest from graduation day. Indeed, this is a point many new Canadian grads miss with this type of loan. When I graduated I had two loans, one Canada Student Loan (which I paid off in under a month after graduation), and another loan which did have interest forgiveness for six months after graduation. Whatever type of student debt a grad incurs, I think it best to know the payment and interest details before taking on the debt. Knowing the details on a student loan can only better prepare a student for paying off the debt and building a plan. Thanks again!
@Ben Paying off 30K of student debt in one year is very inspiring and shows it can be done. Wow! When I paid off my 17K I felt free and light…and yes, paying down that debt was also the “best move I ever made.”
LOL I love to squawk.
I have a question.
How do I pay off my student loan that is almost a $17,000. I just got a new job and I get paid like $9/hour for 9 hours a day.I live with my parents. Soon I have to get me a new car also. What do I do?
“blow their pay check on crap, … I’ve even seen new grads buy a new condo”
This is not necessarily true, if you are in a hot realestate market and all signs point to a 10-20% increase in housing prices, you are better paying the minimum on your student loan and investing in a new home/condo. Live there for a year or two then refinance/sell the home and pay off your loan.
The bonus of this approach is you purchase a new home and pay off your student loan at the same time. My girl friend and I did this and payed off $75000 of loans in three years and still had money left over for a down payment on our next home. The best part…I never lived like a student once I graduated.
Smart investments are the key…just make sure the investment will yield a higher return than the interest on your loan. “Crap” can be defined as depreciating items
Hey. Thanks on your tips. I agree 100% on everything you said. I just graduated and I see some of my friends that graduated a semester before me that bought condos, new cars, etc. and have not even started paying their debt off. So its true,.. people want to satisfy their current desires but don’t realize how long the debt will haunt them!
I took a year and a half hiatus from school and have to pay off the student loan from my first year and a half ($13K) before they can transfer my credits…
I had lost all hope in finishing school.. but I’ve definitely felt a LOT lighter since reading your tips.. and I’m back in school @ a community college, where I DON’T have to take out a loan to complete my associates degree. =)
Thanks for this blog!! =)
I will be finishing school with $36 000 in debt in three weeks, but I have $23 000 in an estate account under my parents’ name from an inheritance. So, luckily, that can make payments if I find myself unemployed at first. Additionally, once I get a full-time job, my fiance and I plan to live off his salary plus 1/3 of mine and just put the extra 2/3 that year toward the loan. That should take care of it. I will need a newer car for my potential new job (outside transit boundaries and my current car is unreliable and 15 years old) but hey, we can do it!
Great post. Wish I had read it way back in 2002, when I graduated with a B.A. and a $30 000 student debt
I cleared $60k in 2.5 years, and increased my net worth to $80k. So I totally agree that it can be done if you just cut out all the fun stuff because you just need to clear it NOW before it gets out of control.
Fabulously Broke in the City
Just a girl trying to find a balance between being a Shopaholic and a Saver…
I have no desire to pay of my student debt in a hurry. It is at 0% (I’m a half-time student), and when I’m not in school, at about 4%. I’d rather pay the $125/mo and invest in my retirement, save for an efund, and even save for travel than dump a lot at my student loans. I just don’t feel it is a burden, but rather a bill. Like insurance or something. I pay it, but it doesn’t weight me down.
But aside from my current debt, I had about $6000 of private loans at a higher variable rate that I paid off ASAP.
With a 180K student loan and a desire to do charity… what to do? I have great motivation to develop and plan strategies for the development of the “underserved industry/world”… I am not talking only about the poor, hungry and cold out there… but also the many professionals that cannot apply their potential because of student loan debt.
I certainly am not going to stop attending conferences, info dinners, extra classes and seminars to pay off my 180K 4% student loan – a 2 year stagnation could mean a 4 year trying to catch up. Maybe not so, as I put it…
I agree with SP and Chris.
Same as SP – I paid paid off my high interest private loans the day before graduation, but even though I have $130K in federal student loans, I am in no rush to pay that off. The interest rate is fixed at 3% – what a deal!
Sure, it is always a good idea to live below your means, but live like a student? I’ve been doing that for too long (9 years) and it’s time to grow up to my big new salary I negotiated from #1. (wink) So, investing in a new home is a good move as it can guarantee a huge ROI. I recommend reading RichDad-PoorDad for some basics… As Chris so eloquently stated, “crap can be defined as depreciating items” such as cars, vacations, and, Miss Fox, even clothes!
Love you girlfriend! Great Blog!
great post. i paid down about 40K in a year and half. i made it a policy to pay at least so much every month, which was $2000. then extra money i put in as i could. with that kind of discipline and determination, come the payoff of the loan i was still in low-cost living mode AND i was in the mode of stashing much away each month. i was able to then put the same momentum into buying and paying off a car, which was badly needed.
Girl, you are quite amazing!!! Those answers you gave to minimize debt is phenomenal!!! I just hope I am able to delete my debt as fast as you did. By following your advice, I think I will be able to reduce my debt substantially within a small time frame.
Thanks so much,
Ashley
How are you guys doing this? You must have great jobs. I have a townhome which granted takes a chunk of my montly check but otherwise I’m quite frugal and I’m freaking out about graduating with my Masters and 100K in federal loan debt. My job is good but it’s not that good. I’m going to try doing some organization training and put all that profit to paying it down.
@Tizzy Great Question! I put 2/3 of my income towards debt repayment.
Good tips on this one!
Here’s another great one:
1. Do not buy a car if you live in a city!
Ok, so everyone makes it sound so easy. I’m graduating with my BA in electronics in 4 months and will be totalling about 80k. I only make a little more than half that right now(But hoping for a raise when I show the current boss the papers) And I’m starting a family and trying to get out of renting and into a small starter home. Consolidate, don’t consolidate, I’m so panic’d. All I think about is money problems. What do I do?
I have $110k in student loan debt. I feel hopeless sometimes.
I have $28,000 in student loans. I feel helpless because the interest is literally making it NEXT TO IMPOSSIBLE for me to ever pay back this amount in my lifetime. When I see barely any money going towards my principal, and my INTEREST is EATING up my money, I seriously feel helpless, and depressed.
Is there ANY way to not have to pay SOOO much interest to where I feel like I am barely making a dent in paying back my student loans?
I stumbled across your blog/site looking for reviews on MoneyDance 2008 (thank you for a thorough and unbiased review). I was intrigued by what else you had on your site and started at the “new” link and found this article on paying off student loans. I am in the process of switching to a different school, but will be bringing $12,000+ in loans with me with about that much racked up with the new school. The company I worked for would pay for my schooling, but was recently laid off which makes your entire site something of great interest to me. Frugal living is something I have attempted to do, but rarely succeed at. I guess I did not comment much on this particular article, and will close by saying that your suggestions and observations are spot on. Thank you for sharing what you did to pay of your student loan debt!
I graduated 11 months ago with $36,500 in student loan debt. I currently have $2,500 left and will be debt free by the end of this month! How I did it was that I promised myself that I’d live like a student for the next 1.5 years and then splurge on myself once I cleared my debt. With that reassurance in mind, I sucked up my pride and immediately moved back in with my parents upon graduating from school. I’m lucky, I didn’t have to pay a cent for rent or food. Basically, 90% of all my paychecks went to paying off the loan and the last 10% for expenses (monthly bus pass, cell phone bill). I started paying whatever I could from day 1, even when I was in my grace period. The key is staying focused and having a positive mindset. Contributing whatever small amount you can now can make a huge difference in the long run. Good luck everyone!
I really want to know what kind of jobs you folks have that you can pay off so much. I have a “good” job right now that pays about $1800/mo, my “cheap” rent is $750/mo, I have no car but I do pay for private health insurance, etc. After my expenses, I have about $400/mo, and if I even use $300/mo of that for my debt, it’s still pretty much the minimum payment. What are you all, CEOs?
Thank you for some great tips. Once you are deep in debt it is quite difficult to get out of. Even though cutting back on things helps but if you don’t have sufficient enough income to make large enough payments, then you do have to find ways to add to your income. I created my website just for this purpose to concentrate on getting rid of my debt once and for all.
I went back to school when I was 36. When I graduated I had $8500 in student loans, a new wife, new baby, and toddler. I am now 65 years old and my student loans $17,000 are on forebearance, I have several other loans that I stuggle to pay as I am struggling to find work and live on unemployment that is coming in again and social security.
Going back to school gave me satisfaction of getting a degree, but it was not until a little while ago did the degree even count and finally what counted was the fact that was not able to drive a bus because health issues and not my degree, so my job ended.
My Associates degree, and my Bachelors degree have given me nothing of value other than some things that I use from time to time in a job here and there…I say stay away from getting in debt unless you can really pay it back…
He says as he eyes the Fingerhut catalogue one more time…
sorry, thought this article was stupid… maybe it’s for the totally clueless people. anyway did all of this above and is still in debt 4yrs later. but it’s probably b/c i had a job lose and never got another job in the field i grad’d in
stupid economy. that’s ok though.
Want another way to pay off your student loan? Work for the government – at least in BC – because they will make payments on your student loan for you.
I paid my ~$20,000 with credit checks and then file bankruptcy. It was the quickest loan payment ever.
Now I’m debt free, making great money and keeping it for myself.
Yea, except you can’t get student loans discharged through a bankruptcy!
I have to Agree with Kelsey (see above)…
I have about $27, 000 in school debt and I make about $2,000/month. I bought a house not too long after school..and its even cheaper than rent, except when you factor in the heat/hydro. Having said that… I dont have a lot of money left over to be paying off my school debt quickly even though I would like to.. and even living frugally.. So, seriously? how are all of you people paying these high debts off in 1 year??? what are u doing for a job? you must be making a lot of money
1) Know your monthly Operational Cost: list ALL your expenses including the 5$ latté you buy every morning. You could be quite surprised how much you spend each month (I was).
2) Strip down your list to keep only ESSENTIAL items (rent, heat, grocery). You’ve just established your new operational cost, the amount of net income you should live on. Keep this number in mind … alawys.
3) Since you now have some free cash available every month, debt payement is possible. Just do it!
I put aside 50% of my net income, enjoy a cheap rent, live with no debt and avoid the use of credit. Don’t spend money you don’t have.
@Stef: That’s all well and good if you make a good living, but what about those of us, like me and Stacy above, who don’t make much of a living? I make about $1200 a month. She says she makes $2k a month. I pay $750 a month in rent (low for DC), I have no car, no insurance, etc, and I haven’t bought anything other than food and work necessities since November 17th, and yet, it’s almost impossible for me to pay more than the minimum on my credit card. Being able to save 50% of your income is great, and very admirable, but recognize that you’re a bit privileged in having a job that is high-paying enough for you to do so.
@Kelsey: I understand your financial situation is a bit tight and having a lower income doesn’t make things easier. But you must deal with your debts now before it gets out of control. A credit card is a dangerous ‘toy’ if not handled properly. If you find yourself unable to cover the full amount on your card every month, get rid of it! Get used to pay cash, stop being ripped off by interest fees.
@Stef: You don’t seem to understand. I make about $1200 a month. My bills, plus the minimum on my credit card, come to about…$1200 a month. I haven’t bought anything on my credit card in two years, but I still have about $6k of debt. I have spent a total of $30 on non-essential costs (i.e. anything other than food, gas, or rent) since November – know how I know? Well, I had $30 in cash in November, and I ran out of cash last week, and when I did, I realized that my debit card had expired back in November (our household expenses come from a joint account card that is separate from my personal one). I honestly don’t spend any money other than that I spend on essentials, and I don’t use my credit card, but it’s difficult to pay off debt if you don’t have a well-paying job. My argument was that it seems that the poster, and most of the commenters, have great jobs that allow them to save a lot of money.
@Kelsey : Ok … first, I’m no CEO, I can’t even afford to buy a house in the city where I live. That’s how great my job is
Of course, you will need some extra income in order to pay off your debts. There’s just no way around it. If you can’t cut anymore in your budget to free some cash, then you’ll need to use your imagination: get a better paying job, do more hours at work (so you have a full week) or get a 2nd part-time job, talk to your friends about your situation but get something going.
@Stef: Believe me, if I could get a third job (I already have two), I would have done so a long time ago. Unfortunately, I’m in a creative field, and those aren’t exactly hiring right now. I also simply don’t have time for a second job. I’m in the process of trying to start my own freelancing business and I currently work 14-18 hours a day, between my current two “real” jobs and the work I do trying to get my freelancing off the ground.
i’m still with Kelsey on this….not trying to gang up or anything.. your ideas are very good.
Just in regards to your comment “do more hours at work (so you have a full week) or get a 2nd part-time job” ..well, who’s to say that we aren’t already working a full week? Thats what Kelsey is saying.. she gets paid $1200/month working MORE than a full week and I get paid $2000/month working a full week (40hrs). But even at that it is still hard… and Yes, we Could get a part-time job but sometimes our lives don’t allow us to do that. For example: I’m taking evening french courses to make myself more marketable, I regularily go to the gym after work and so my only down time is on the weekend which is often spent doing renovations to my (very old) house. If I were to take on a part-time job on the weekend, it woudlnt last long at all because I would be completely burnt out. Everyone needs down time.
So..not trying to make excuses or anything.. just, it is admirable that you guys can pay off debt so well because a lot of us don’t have the luxury. Unfortunately, for some of us, we have to use our credit cards ONCE IN A WHILE (aka, rarely) to buy things like groceries, ect. I live in the county..1 hr away from my job (believe me, that is NOT ideal but I can’t find anything local at the moment)… so I spend $300 a month in gas! I know if I could cut down on that, I would have a lot more money for savings/debt repayment however, I simply can’t get a job that pays even close to what I get now where I live (and no, i won’t relocate – I just bought a house).
Seriously.. if people really dont mind, I’m interested in people listing what they do for a living??? It is more a personal interest thing and to learn where the market is (job wise). and Hell – the provice. That may help everyone get an idea where we’re coming from (literally). I’ll start!
I’m an Administrative Assistant in Ontario
Question, did your loan servicer ever send you a confirmation letter that your loan has been paid off? It’s been almost a month for me, and I’ve even called in and requested a confirmation letter and still none. Not sure how long this takes…
Some great tips and advise, I’ll definately share this on my blog as well. I will say, that it takes a certain kind of person that has some dicipline. Many people I deal with have little patience to to pull it off.
I am a 45 year old stay-at-home mom with 5 children ages 7 -18. My husband died in 2008. My oldest son will be starting college this fall. He is an extremely above average student, amazingly mature for his age, and a great leader. He has been on mission trips around the globe (funded by gifts from family and friends). He wants to be a Dr. He has landed a full-ride scholarship at an in-state university. Its not listed as the best for Medical, but he would be in a newly developing Honors/Research program. They would pay for everything except his food. PLUS $5K a year to their Grad school! It is not his first choice, but barring a private school giving him as good a deal, he is thinking he needs to “Settle” for this one just to avoid the debt. What do you all think??
Also as far as the comments and questions about jobs .. my husband got his Assoc and then his B.S. degrees shortly after we were married. He worked 10 yr as a computer consultant in a huge accounting firm in Chicago. He was laid off and ended up literally after 7 yrs and $50K in debt, going back to work for his dad digging basements, and ditches, and septics!! I kinda agree on one point … WHAT A WASTE OF MONEY FOR THOSE DEGREES IF YOU CANNOT FIND GOOD JOBS! That is so sad to read how many gave so many years of your lives and now it is not helping you get the jobs in a market you thought you could prosper in! I pray things turn around quickly. My debt was erased with the Life Ins proceeds. Sad way to get out of debt. But what really helped us .. the best day of my life financially was standing in walmart and maxing our last credit card on toilet paper!!! That was it … it was CASH or NOTHING. We found cheaper insurance. Our house interest rate was low. Just dropped again. And prayed like crazy! If its okay to post something specific … Dave Ramsey’s program was what finally got us thinking right about our debt and cash and expenses. Yes, it takes enough income, but going through his program, he has ideas we never thought of that really worked and decreased our expenses. Just something to look at. What about car-pooling? Or public transit? My husband finally gave up commuting a hour each way for the train. The hours sucked, but the money saved in gas – the train tickets = a lot more money kept in our pockets. It was worth the time sacrificed. When it got too much, he arranged telecommuting some of his hours. There are ways … we just have to be very creative. And by the way, Dave does suggest to build FUN money in! Just make it one $5 latte a week instead of 7 … even that helps!
Great blog,
Congrats on paying off your loans. I still have at least $25k of student loan debt myself. And it’s great that you managed to find a job that helped you pay off that debt.
Sadly I graduated about 2 years ago and of course the bad economy made it impossible to find anything out there for a new college graduate. I was pretty much stuck with the interest accruing and accruing and being stuck on claiming unemployment on my student loans.
I finally joined up as a VISTA, which is part of the AmeriCorps program which put my loan on forbearance, as the VISTA program ends up putting my loans on forbearance, plus at the end of my year term the interest will be paid off. I also get paid a small stipend. It’s not a million dollar salary but it works. Plus I live with my folks, yea I’d like to move out sometime in my future but with what I am making it’s just not realistic.
I hope someday I’ll manage to pay off my student loans and be debt free.
A couple of student loan tips I’ve picked up from friends:
If you are willing to relocate to a remote/northern community in Canada and are a professional of some sort (e.g., teacher, doctor) you can sometimes get your student loans forgiven.
If your work is seasonal (e.g., teachers), when you are in your non-working period, apply for interest-free status on your student loans. Continue to make the payments – they go to pay down the principle saving you lots of compounding in the future.