It’s been seven years since I retired my student loans. I’ll never forget the mixed feeling of graduating from school with my degree in one hand yet starting a new life with $17,000 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 $19,000. So really, my $17,000 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 loans fast, 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?