My Student Loan Story Was Lame: How I’d Pay It Off Now

How to Pay Off Student Loans

Confession: My student loan story is boring. It took me seven years to pay off 17k in student loan debt. Seven whole years. That’s a little over $200 paid per month. Meanwhile I get whiplash by so many awe-inspiring debt payoff stories like this or this. See? My story is unsexy in comparison.

The $200 didn’t even include any interest I had to pay. Because it’s not like I bothered to calculate what that would be and how much extra I’d be paying by taking so long. My strategy was simple: pay the minimum when I’m broke, and then pay more than the minimum when I had extra money. It was low stress…but wildly inefficient. My last payment went out like the last line of that T.S. Eliot poem: not with a bang, but with a whimper.

The truth is, I haven’t thought about student loans for quite some time now.

But then a reader emailed me recently, anxious about how to attack her upcoming student loans. She was staring down a lot more debt than I was and wasn’t sure what her first step should be. Would she be able to live life still? Should she be working to build wealth? And most importantly, how do you handle these competing priorities? Too many things.

My first thought was, these are all very solid questions. My second thought: how many other readers are in the same boat???

So today I’m temporarily unblocking student loans from my mind, because it’s kinda hard to elevate your life when you don’t even have a plan for paying off debt, am I right?

The Overall Plan

If someone built a time machine, and I got to keep the knowledge I have now (ha!), how would I handle my student loan payments? If I got a little do-over?

First, let’s do a recap of past Luxe. Coming out of school, I knew nothing about money. Scratch that: I knew how to earn it and spend it just as fast. I mean, that’s what money was for, right? But I had never heard of “personal finance.” If I didn’t know it existed, then I didn’t know what information I was missing. I was clueless about saving strategically, investing, and most importantly, why I should care about either of those things. The fact that you are reading this now means you’re leaps and bounds ahead of me.

And if I had to do it all over again, what would Current Me do? I’d have so many plans it’s not even funny.

  1. I’d come up with a goal for when I wanted to be done paying down my debt. To execute on that, I’d make a budget. Without a plan, I’d probably be back to taking 7 years to pay off a relatively small amount.
  2. I’d also kickstart habits for building wealth. I’d want to be investing, even if it was the tiniest amounts. It’s about setting up the habit.
  3. I wouldn’t forget about setting some savings aside in an emergency fund. The last thing I’d want is having no cash for an unexpected expense because I allocated all my money for debt. Not having an emergency fund could spiral into even MORE debt.

Just like how I don’t think savings and spending are mutually exclusive, I’d treat paying down debt the same way. Paying down debt doesn’t mean you have to live like a monk the entire time. I’d prefer a more balanced approach.

NOTE: there is no right way or wrong way to pay back student loans. Everybody is motivated by different things. But in case you have no idea where to start, here are some ideas.

A Step-by-Step Guide for How I’d Pay Off My Student Loans

1. Gather Your Info

Start by getting a lay of the land.

How Much You Owe

Make a list of each loan and its corresponding interest rate. If you’re not sure which loans you have, log into the NSLDS site to find out.

How Much Money You Make

Write down your take-home pay. This can be found on your paystub, where it says “net”. To calculate your monthly take-home pay, use this formula: If you get paid twice a week, multiply that by 2; if you get get paid weekly, multiply it by 4. If you haven’t started a job yet, you can play with some projections at Paycheck City.

How Much Interest You’ll Pay

Don’t forget to factor in the interest you’ll pay on top of the base loan amount. I like this calculator because it shows you how much interest you’d save by making extra payments, and how much more quickly you’ll be done paying off the loan. Decide when you want to be done paying off your loans, and keep revising the monthly payment until you get your desired date. Write these numbers down, too.

2. Get Motivated

My #1 problem I had when paying my debt? I didn’t take it seriously at all. Paying down your debt means freedom to use your money however you want. And how quickly you pay it off will hinge on how bad you want it. There are multiple triggers that motivate people, depending on who you are:

Are you ruled by math? I’m angry that I have to pay a ridiculous amount of interest. I will do whatever it takes to reduce the interest I I owe.

Are you ruled by emotions? I can’t sleep at night because I have so much anxiety over this debt. It’s all I can think about.

Are you ruled by the future? There are so many other things I want to do, like buy a house or pay for a wedding. I can’t do that until this debt is out of the way.

Find out exactly what makes you tick about your debt, and use that to guide your strategy.

Since paying off loans can take several years, it also helps to have a running thread of motivation. Sometimes accountability is the key. So connect with others in the same boat. Instagram, for example, has a huge debt-free community.
See? You’re not alone.

3. Think Strategically About Extra Money

Negotiate Your Job Offers

This strategy is vastly underrated. Everybody, with student loans or not, should be trying to negotiate their salaries. It’s an amazingly efficient way to earn more money, especially during the job offer phase. A couple thousand dollars in a span of 15 minutes? Hell yes. Imagine what an extra $2,000 a year would do to help wipe out that debt. Let’s say after tax you end up with $1500 more annually. If you were currently paying off $500 per month, this extra cash would shave off three payments a year. Three extra payments for every four years means you’ve just shaved off an ENTIRE YEAR of paying debt.

Maximize Any Windfalls

Maybe you inherited a little bit of money. Maybe you got a tax refund. Maybe you got a bonus from work. When you come across a windfall it can be really tempting to blow it on something fun, like a plane ticket to Berlin and Paris (hi, that was me). If being debt-free is your main motivator, use your windfalls to make extra payments. Or split the difference: use two-thirds to throw at your debt, and use a third for yourself.

4. Optimize Your Current Spending

Cut the Low-Hanging Fruit

I find that getting an easy win early on gives you a boost in motivation. Think about cutting an expense that you won’t miss. Take a look at your current credit or debit card statements. Do you see anything you’re paying for that isn’t important to you? For example, subscriptions are a good, easy first step. Do you really need Amazon Prime, Hulu and Netflix? In this day and age I’d also argue that television is unnecessary (although my husband is still stubborn about it–something about football). Another easy win is reducing your cell phone plan. Imagine going from $80 per month to spending $30 per month. That’s an extra $50 that could go to your debt.

Reduce Housing Costs

This is another efficient move. Fixed costs, like housing, make up a huge part of most people’s budgets. That’s why making the one-time decision to cut a few hundred dollars off housing per month can yield returns again and again. Ideally, your housing will be less than 25% of your take-home pay. Ask yourself: can you find a share with roommates? If you live in a city, do you really have to live in the center, where it will be most expensive? If you’re already settled in an apartment, this is easier said than done, but if you’re still in college doing this, combined with the negotiating, will free up a lot of money to throw at your debt.

5.A. Make a Spending Plan (OK, It’s Really a Budget)

Now you’re ready to sketch out a plan for where your money is going to go every month.

Find those numbers from Step 1 and plug them into a budget.

Sample Debt Budget

Prioritize your top 2-3 spending categories. Any more than that and they aren’t priorities anymore. For example, do you love to travel? Do you have a pet that’s like family? Are you a big foodie? Those should be reflected in your budget.

My budget would include INVESTING*.

If you have a 401k with work matching, make sure to invest up to the match. So if your employer matches 100% up to 6% of your salary, then you contribute 6%, too. Take that free money! If you don’t have a 401k at work, then open up either a Roth IRA or IRA. Typically, you’ll need at least $1,000 to actually start investing. Once that initial setup is done, set up monthly deposits, even if it’s just $50 per month. Make sure you’re setting up the deposits to actually invest the money. Otherwise it will just sit there like cash, and you’ll later wonder why your investments haven’t grown.

To learn more about whether a Roth IRA or IRA is best for you, I found this guide easy to follow.

After taking into consideration all of the above, your budget should equal 0. If it’s negative, you still have some work to do. If it’s positive, you can add even more money to your pay down your debt.

*This should depend on how high your interest is. Mine was in the 3% range, so assuming at least a 5% return in the stock market, I’d be up 2%. 

BONUS CONTENT: Don’t want to make your own budget? Grab my free budget spreadsheet, pre-loaded with categories and auto-calculations. Sign up below to download.

5.B. If the Numbers Still Don’t Work

If you’ve done all of the above and the numbers in the budget aren’t working, consider this:

Make Trade-Offs

Look at your expenses again in this order:
Discretionary
Variable Expenses
Fixed Expenses

Ask yourself if the numbers can be realistically tweaked in service of your debt payoff goals. For example:

If I spend only $50 on shopping per month, I’ll be able to clear an extra $50 to my debt.
If I don’t go on any vacations, I’ll be able to clear another $200 to my debt.
If I pack all my lunches for work, I’ll be able to clear another $150 to my debt.

Find a Side Hustle

Everybody has some kind of skill that people pay for. Are you good with kids? Try babysitting. Killed it in school? Parents will pay big bucks to tutor their kids. Are you good at food service? Try catering or being a waiter/waitress in a restaurant.

Consider Refinancing

Depending on your specific situation, you could save money if you refinance. Take a look here for more info.

6. Automate

Once you have a plan for how much you’ll be putting away into your emergency fund and investments, it’s time to execute. Automating your savings is the easiest way to save money without even trying.

Set Up a Separate Savings Account

This way it will be harder to “borrow” money from your savings to pay for day-to-day spending. This is reserved for emergencies only, so I’d recommend online banks to help create that distance. You can compare them all here.

Set Up Automatic Deposits into Your Emergency Fund

How much you have in your emergency fund will depend on what you feel comfortable with. I would aim for $1,000, and then continue padding it every month.

Set Up Automatic Deposits into Your Roth Ira Or IRA

If you set this up in Step 5.A., then continue adding a small amount every month to get in the habit of investing.

7. Don’t Forget to Live

Paying off debt can feel like a never-ending tunnel. It’s easy to lose steam and get tired of living a spartan life. For that reason, I’d still live my life, but with modifications:

Shop Secondhand

If you love clothes, then shop at thrift stores or consignment shops. If you love designer clothes, institute a one-in/one-out policy. So if you want to buy a new item, you have to sell some clothes to make enough money to buy the new item.

Use a Cashback/Rewards Credit Card

If you are responsible with your credit card (ie. pay it off in full every month), I’d hate to see you miss out on rewards by using a debit card. Use the filters on Nerd Wallet to see which card fits your lifestyle best. Set the habits now so you’ll be ready to use your rewards when you’re debt free!

Celebrate Your Wins

Once you hit a debt milestone, buy something fun (but small) for yourself! Having checkpoints with rewards can help you stay motivated.

Summary

  • Be proactive and make an overall plan.
  • Have a positive attitude. If you feel down, find a community to help you stay accountable.
  • Focus on big wins like earning more or reducing housing costs.
  • Make sacrifices, if necessary.
  • Make saving effortless with automation.
  • Don’t forget to live your life.

Further Reading to Get Inspired

A few of my blogger friends either are currently crushing debt, or have inspiring stories about how they were able to do it.

Veronika from Debts to Riches is investing while battling six-figure debt. She has a lot of interesting, psychology tricks she uses, so I HIGHLY recommend this one.

Nicole from Gen Twenty found a way to double her student loan payments.

Julie from Millennial Boss increased her income to pay off $89,000 of debt in 18 months.

Bobby from Millennial Money Man paid off $40,000 of debt on a teacher’s salary.

Final Thoughts

Hopefully, I’ve given you some tools to empower yourself, specifically a framework for creating a plan. But a plan will only take you so far. The rest is up to you. Find out what bothers you the most about your debt, and use that to drive your strategy. Once you’ve done that, give it everything you’ve got.

What’s your student loan story? What advice do you have for people struggling with it?

Don’t Forget! Want to kickstart your debt payoff plan? Grab my free budget spreadsheet, and the work is halfway done. Sign up below to download.

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  • Main thing I always tell people – live like a student! When you’re a student, you can live on so little, it’s amazing. Imagine how much debt you can pay off when you just keep living like that for just a little longer.

    • That’s a good one! Thanks, K. Not inflating my lifestyle post-college made a huge difference for me. If only I understood the interest, investing, etc. Sigh.

  • It took me 6 years to pay off 40K in student loans and felt I could have wiped it off way sooner if I had a plan and motivation to do it. I was just like you where I just paid the minimum every month because I wanted to spend money on traveling and just put my student loans on the back burner.
    For students that are going to attack their loans, I would create a goal to pay it off as soon as they can and not take it for granted. Make it your financial focal point.

    • Ha, yup. I was laser focused about traveling after school. Student loans? Not so much. I think you bring up a good point about prioritization. The ones with the sexy payoff stories all had an unwavering focus on annihilating their student debt. I definitely prefer a more balanced approach, but 7 years was a bit long…

  • Very thorough post Luxe! At 3% it’s a no rush I say. My student loans were 4.5+% thanks to entertaining college during the 08-09 downturn. I killed it because I freaked out at it. I never had debt and it naturally made me want to vomit.

    You covered the basis on pretty much everything. I think if all else fails, it’s simply finding a way to increase income, like the babysitting you brought up.

    I love that Elliot quote!

    • Ha, thanks for another entertaining comment (the debt making you want to vomit). Yeah, in my research I was shocked how high some of these interest rates were. I was lucky.

  • Done by Forty

    This is a much better plan than I used, which was similar to yours: pay what I could, when I could. I started paying in 2003 and was done by 2009, so a similar timeframe, too.

    That said, I wonder if there’s really a lot of urgency to paying off student loan debt. Post coming on this in a week or two…

    • Your story sounds eerily similar to mine. I was paying the minimum at first because I didn’t have any steady income, but where I get sad is that I had a full-time steady job for 4 years, and STILL took so long to pay it off. Logging into the loan portal to check the dates was a little disheartening.

      That sounds like a great post. I think it depends on how anxious you get about debt, interest rates, etc. Some people hate it with a passion. Me, I was like, whatever, just another bill to pay, time to go backpack in Europe now.

  • Hey Kara,

    I haven’t looked at how much interest I paid over the 7 years, because I can’t change the facts, you know? 🙁 Basically, I’m in a really good spot now, money-wise, because I’ve been over-saving to make up for lost time. So, I choose to focus on the present, and I’m living proof that you can get it together, even if you didn’t start when you were 18 years old.

    Congrats on killing that CC debt! It’s like you got a raise now and you can throw even more money to the school debt.

    And you’re right: compound interest IS a double-edged sword. That’s why I pay my CC bills in full, because the interest just makes me mad. I’m impressed you know what compound interest is 🙂 Many people don’t!

  • My mindset with my student loans is to try and pay twice a month. Once on the minimum, then whatever extra I have at the end of the month. I keep visualizing all the fun things I will do when I’m free. In the meantime I use the snowball method for my loans. I’ve never heard of Nerd wallet, but I am looking at different credit cards so this is right on time! Thanks Luxe.

    https://kerielaine.com

    Keri Elaine

    • That’s great you pay twice a month. It means you have a system going on, as opposed to my “whenever I get around to it” attitude I was rocking 🙂 And visualizing the things you’ll be able to do after paying everything off is a good strategy to stay motivated. Yes, NerdWallet is great! It’s fun playing with the little levers so you can calculate the potential rewards you’d earn.

  • My situation was similar. It was my wife’s chiro school loans that forced us to buckle down like mo-fo’s. One of the more interesting concepts I’m reading about is using a HELOC to accelerate pay off of student loans.

    • Haha, yeah, sometimes a more serious situation, like your wife’s loans, forces you to get your act together. I think because my loans were relatively little, I felt like it wasn’t a “big deal.” HELOC sounds interesting to lower interest for sure, but possibly losing the house is definitely a risk.