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I just had to share this with you, because I’m so excited! I just sent in my last payment for one of my student loans. Here’s how I paid off my student loan while travelling full-time, and not suffering at all!
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First of all, let me tell you how satisfying and motivating it is to pay off just one piece of debt. You feel like you’ve done something tremendous–and you have! It just makes me want to get rid of my other two student loans even more! Then we will be completely debt-free and have hundreds of dollars more in our bank account every month.
How much I originally owed on my student loan
In May 2016 (right before we started travelling full-time), the balance on this student loan was $8574.34. It carried a 6.55% interest rate. The original balance from 6 years before was $8625. Yes, you read that right. The balance was less than $100 lower than the original loan after 6 years!
Part of that was because of me. I won’t say it’s my fault, because I became extremely ill after finishing school. I was so sick I couldn’t work, needed surgery, and a lot of our money went to medical care. The rest went to paying regular bills like our mortgage and food. But it was my responsibility, because I procured that debt and made an agreement to pay it back, and could not pay as agreed for some time.
Because of this, the loan was in deferment for a while. If you are not familiar with this term, it is when you tell your student loan company you have a financial hardship. They evaluate your ability to pay and either lower your payment or allow a deferment, which is a temporary pause on your payments. Interest still accrues on the balance, but they don’t come after you for money (this is called forbearance).
However, I have been paying on it for many years, on time, and often more than the minimum balance. I guess I finally caught up to the interest accrued and as of last May, finally reduced the principal.
Steady payment increases were not enough
When we left the Bay Area and started traveling we immediately saw an increase in our disposable income. The Bay Area is so expensive that everywhere else we went was cheaper to live. This allowed me to put even more money toward student loans, and during the first 6 months I saved over $6,000. About half of that went toward loan payments and the other half went to savings.
I was happy with this, but I knew we could do better. I talked to Ryan about ways we could reduce our spending and have even more money to put toward debt.
We’re not really heavy spenders but there are two areas where we spend a lot: entertainment and food. Depending on where we stayed, some months we would spend next to nothing on eating out and other fun stuff. But other months, we spent a lot, and I felt our grocery bills were consistently high. We talked about our goals and how to get there, and decided we could be thriftier with our “fun” money.
Making a commitment
In January 2017 I started focusing completely on paying off this loan. I made sure I had 4 months of living expenses in savings, and then stopped putting any money into savings.
Unfortunately, just like with our $2,200 brake job, during this period we also had a big expense. In late January 2017 we spent $1250 for various upgrades and repairs. Otherwise, I would have told you last month that the loan was paid off instead of this month.
But these things happen. If you give up every time an obstacle gets thrown into your path, you will never accomplish anything. You just have to keep your eye on the prize, as they say.
How I paid off my student loan
Here are the steps I took to pay off this student loan:
- Make a budget. I already have a budget, but I wanted to track my debt repayment through a spreadsheet. So I transferred all my regular expenses onto the spreadsheet. Don’t forget to include the monthly required payments on each debt in your total expense.
- Find out how much money you have to pay toward debt. This is your after-tax income minus your monthly expenses.
- List all debts, from smallest to largest, regardless of interest rate.
- Find out how long it will take you to pay off each debt by dividing each total debt amount by your “leftover” income. For example, you make $2000 per month. After expenses you have $200 left over. You have a debt of $1000. $1000/$200 = 5, so it will take you 5 months to pay off that debt.
- Once you pay a debt, remove its minimum payment from your expenses. From our previous example, you would now have $200 per month plus whatever your minimum payment is on that loan (let’s say $20) to pay toward the next loan. So you have $220 for that loan payment.
- Keep going until all your debt is paid off!
Tips and tricks for debt, especially paying off student loans
- Student loans, just like all other loans, will accrue interest. So even though in May 2016 my balance was about $8500, it cost more than that to pay it off. Interest was still accruing every month on the remaining balance. As of the beginning of this month I already paid $11,006.25 according to my most recent statement. That is just disgusting to me. The good news is that the lower the balance, the less interest accrues.
- If you have people you share expenses with (such as a partner or spouse), it’s a good idea to get them on board with your plan. If you’re trying to save every penny but your other half is draining your bank account to buy other things, you will get nowhere!
- Stop making excuses! This is likely the biggest problem for a lot of people. “I don’t have any extra money” or I’m too busy to figure this out” are just not good enough. If this is a priority for you, make it a priority. If it isn’t, that’s fine. But if you truly want the debt gone, be real with yourself and be willing to make some sacrifices. If you want more help, visit my Debt Repayment System post. For ways to save money, read 22 Things To Stop Buying To Save Money.
- It is not a good idea to avoid paying on your other debts while you focus on one. You should still pay the minimum payment every month. Yes, they will still accrue interest and it will be frustrating to watch the balance go up while you’re working so hard to make other balances go down. But trust me, the system works. You can do this.
- The system I used is debt snowballing. It is not my system, but I did put my own spin on it…
Live and breathe the goal
I wanted to be completely focused on getting this student loan paid off. Therefore, I went out of my comfort zone with my finances. I did something I would usually never do: get our checking account as close to zero as possible.
I’m always nervous about unexpected expenses, so this was scary to me. But I knew that if I wanted to get rid of this debt as quickly as possible I would need to put every available dollar toward paying off my student loan.
I get paid biweekly but I felt more motivated if I focused on paying off the debt every week. So every Friday, I would make a payment to the student loans.
You may have heard about this technique for paying down a mortgage faster, but usually you just pay twice a month. I decided weekly was better.
On the Fridays I didn’t have a paycheck coming in, I made a payment for 50% of the “leftover” amount I projected. For example, if your leftover amount is $1000, then every other Friday you would make a payment for $500.
On the Fridays I did have a paycheck, I would take the balance in the account (before the check deposited), add some more money to it, and make another payment.
This meant I made a student loan payment every week. It also meant I was exceeding my estimated “leftover” amount every month. Keep in mind I did this all while also paying a $1250 credit card bill for our RV repairs, before it was due. No interest accrued on that amount.
The fact that I paid more than I thought I had left over each month shows that even if you carefully calculate your expenses, you can still find ways to put aside even more money. I think focusing totally on this goal helped me. Every time I thought of making a purchase (even food), I asked myself “How will this affect my goal of paying off my student loan?” If it would seriously hinder my goal then it wasn’t going to happen.
However, we also did not live like monks. We bought healthy groceries, ate out a few times and did some activities away from home that cost money. We also had a wedding to attend and other social functions around it.
By the way, I wore a dress and shoes to the wedding that I already owned and wore many times before. Ryan gave away all his nice clothing (except for shoes) because they were too big. But we bought him a pair of slacks and a dress shirt at Goodwill for $6. He already had a tie, too. Both items were in like-new condition and nobody knew he was wearing thrift store clothing (until now)! Our overall cost for dressing for this semi-formal event was the $6 we spent on Ryan. You can look nice for something as formal as a wedding without spending a bunch of money, or needing a new outfit for every event.
At the beginning of January, my student loan statement said I still owed $4617.88. By focusing all my energy and money, only 2.5 months later I paid off that balance.
I did this without working any extra hours. I am salaried, so I don’t make overtime. We did make some extra money, but not enough to make a big difference.
We still bought healthy foods to eat, had a comfortable place to live and enjoyed our life.
I paid this balance while traveling 3000 miles from one coast to the other in a motorhome that only gets 9 miles per gallon (on a good day).
If you’ve been following this blog for a while, you already know all these things about my life. I’m just repeating them as a reminder that there are no excuses for paying off debt. Even if you only have $5 extra per month, don’t tell yourself it isn’t going to make a difference. It will make a difference, and your commitment to it will open up even more doors to paying off your debt faster. Just keep the mindset that this is your most important goal and you will get it done.
I still have 2 student loans left, totaling $20,878.39 for both. They both are at 4.5% interest. The first one I will work on has an outstanding balance of $9276.60. The second is $11,601.79.
If I continue setting aside money and paying down the balances like I’ve been doing, I should have no problem paying both of these off by the end of this year (probably sooner).
Eliminating this debt will free up nearly $400 per month in minimum payments from our expenses. That is practically a whole months’ worth of groceries, camping fees or gas for traveling.
But we won’t be using that money to splurge. That will be going directly into savings, along with all the other money we figured out how to save. Because our next goal is to buy a different RV.
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