How to pay off $30,000 of student debt in 3 years
Want to obliterate your debt? Take this crash course.
This post comes from Hal Bundrick at partner site U.S. News & World Report.
If you are tired of having student loans hanging over your head, welcome to the crash course for debt elimination. Our syllabus is simple, the course objective has been plainly stated and grading will be based on a pass/fail basis. Let’s begin.
What’s the rush?
You may be wondering why we have defined such a short period of time to pay off a substantial debt. After all, The Institute for College Access & Success says the average student loan balance was $29,400, which is based on the latest data available for the class of 2012. With a supersized debt of that magnitude, you need a lot of time, right? Yes, but a lack of urgency can encourage complacency, and with time the debt will grow even larger.
This may light a fire: Calculate the amount of interest you will pay by only making minimum payments on your student loans. If you can’t put your hands on the statements for your loans, check the National Student Loan Data System to retrieve your loan information.
It’s quite likely you’ll be surprised by the big number you discover. You might even find you’ll be paying as much interest on your loans as the original principal amount.
Putting a short fuse on the debt bomb will inspire a significant financial turnaround. Once you retire the student loans, imagine the boost to your cash flow. You might even feel affluent for a change. With those monthly payments gone, you can focus on buying a home, saving for retirement, paying for a wedding and all the other good things in life. No student loan debt means you can kiss Sallie Mae goodbye. You’ll feel like a different person, with less stress and real financial freedom.
Debt limits options
While the task may seem insurmountable, consider the Harvard University alum who paid off $90,000 in graduate school debt – in seven months. Joe Mihalic is a supply chain manager in Austin, Texas now, but three years ago he was deep in debt and desperate to get out.
“I simply felt an overwhelming feeling of being trapped,” Mihalic, author of “Destroy Student Debt: A Combat Guide to Freedom,” wrote in an email. “I felt that the debt was severely limiting my options, and I realized I would never be truly free unless I became debt-free.”
By committing to a frugal lifestyle and squeezing every bit out of his annual salary, which was less than the balance on the loans, Mihalic accomplished his goal of rapid debt reduction.
“I didn't start feeling weighed down by my debt until my self-esteem finally reached a level where I didn't need to constantly spend money to feel good about myself,” he writes. “At that point, the negative feelings associated with my debt were greater than the positive feelings associated with consumption. Only then did I seek out a life of frugality and living below my means.”
A cash budget is key
And consider Jackie Ritz, a Paleo diet aficionado from North Carolina who blogs at ThePaleoMama.com. She and her husband paid off $50,000 worth of debt in 10 months.
“We sat down one night and wrote down all of our debt, including our student loan debt, which was the most baggage,” she wrote in an email. “My husband had carried his student loan debt the past 15 years, and we wondered how long we were going to let that debt keep following along with us. So in order to have financial freedom we knew we were going to have to be more aggressive in paying the student loans down and turn our minimum payments into the maximum amount we could manage in our budget.”
Ritz adds that sticking to a cash budget was the key.
“During this time, we made a budget for all our expenses and used the ‘envelope system’,” she explains. “You place the week’s worth of money in your envelopes and when the cash is out, it's out! This was probably the hardest part of it all since we were so used to swiping our debit or credit card without even thinking about a budget.”
There is a prerequisite to this course. It is Paying Off Your Credit Card Debt 101. As much as you would like to rid yourself of the burden of college debt once and for all, if you have substantial credit card balances, they must be attended to first. The interest rate you pay on credit card debt is likely to be twice as much – if not substantially more – than what you pay on student loans.
When you do tackle the student loans, pay off those with the highest interest rates first. That will save you money and allow each payment to reduce more principal. And before sending in a substantial payment to a lender, call first. Ensure the payment will be applied to the loan's principal – not to interest.
Extreme debt reduction
In order to abolish $30,000 of student loans within three years, the payments will total $923.57, based on a 6.8 percent interest rate for 36 payments. You can nerd the numbers for your own debt situation. The strategy will be a combination of increasing your monthly income while reducing your monthly expenses to come up with the extra cash.
The most common tactics used by extreme debt reducers include:
- Reduce housing expenses by downsizing, moving back in with the parents or finding roommates. Housing is commonly the biggest monthly expense and the cutback that can provide the biggest boost to cash flow.
- Create a strict budget, and stick to it. Cut out any unnecessary expenses, and look for ways to save money anywhere you can. Quit the gym and work out at home, stop buying bottled water, eat out less, etc.
- Get a side job or two. Consider getting an off-the-books job for extra cash: deliver pizzas, bartend, waitress, etc.
- Milk the miles from your existing car instead of buying new. Or if you’re part of a two-car household, sell one and consider becoming one-car commuters.
- Reduce recurring expenses. The Ritz’s canceled their cellphone plans and signed up for prepaid phones, which lowered their $160 cellphone payment down to $60 per month.
- Sell stuff you don't need for cash. A few ideas include cars, furniture, dishes, toys and more. You can host a garage sale or sell your items online on Craigslist or eBay.
Debt reduction is more a matter of commitment than circumstance. The timeline you choose depends on the strength of your determination.
More from U.S. News & World Report
VIDEO ON MSN MONEY
They recommend getting an "off the books job".
So, in other words become a tax evader.
Nice MSN, nice.
this site just reguritates the same info and suggestions for paying off debt.
to cut expenses I:
-unplug anthing not in use
-sleep 7-8 hours a night to get a good nights sleep, this keeps me healthy, less likely to miss work or make a money mistake, I mostly drink water.
-I switched to less expensive shampoo, mainly $1 shampoo and conditioner, my hair is better than ever, the old stuff was $60 a bottle. I like VO5 Clarifying (green bottle) or the Strawberry one.
-my new favorite store is Dollar Tree, I search and find made in US products and ONLY buy what I really need.
-when the weather premits I line dry clothes, quilts, sheets etc. (not towels, they turn into sandpaper)
-I make my own cleaning supplies.
-I stay out of department stores and avoid shopping as much as possible.
-I keep my clothes classic ands simple, I avoid "trends", I no longer buy fashion magazines! I buy good quality tennie shoes (gym/walking) since that is what I wear the most.
-I will wear a pair of jeans for two weeks before washing them if they don't look dirty, when I get home from work I change out of my work clothes and hang them and switch into "house clothes" usually yoga pants and a tee, I wear slippers instead of socks around the house, that wears out socks faster.
-I am usually given a lot of chocolate around the holidays, I double bag it and freeze it. Good when you want it and good for cutting up to bake with.
-I shop at the local bread outlet, two days a week it's half off. I freeze bread or buns for later. They have multi-grain bread a pita too.
-get rid of cable, your local library has DVDs for movies and TV shows, almost all public libraries belong to a library network, they can order anything for you to check out, larger communities have an online system to put stuff on a wish list, when it comes in you will get notified it is held for you to check out. Buying books full price is stupid, check it out for free, or buy it at a huge mark down at library book sales, used book stores, thrift shops or garage sales.
-I pick up pennies and all other coins I find.
Ok... none of this is helpful. Moving in with your parents? What if your parents don't want you moving in? Selling your stuff for cash? Who says anyone else wants it. Garage sales for the seller are huge wastes of time. You will rot your weekends while people sift through your stuff, sniff at it and waltz off...usually making a snide comment in the passing.
Suze Orman shows she's out of touch. These are Marie Antoinette-Let them eat cake-esque obtuse "How To" points.
Want to pay your bills down? Forget out the hipster bars and fun on the weekend with your friends. Get over your shoe habit. Get a second job and use that money exclusively for paying down your debt. That's it. Living with your parents is not the answer but living in a cheaper apartment is. You don't need a brand new car and if you live in an area that has superb public transportation like Portland, Seattle or the Bay Area, then you don't even need a car and you don't need to be paying astronomical downtown parking fees
Get over yourself and your wardrobe and purchase classic pieces that can be worn year to year and wear them. Forget about today's trends. You don't need uber tight pants, slutty shoes and huge designer handbags. If you do, then start trolling Ebay and Craigslist and stop thinking you're too good for second hand. Get over your Starbucks habit.
Is any of this fun? No, in fact is kind of sucks. But you're the one in debt and you're the one who has to pay it off...not your twentysomething friends at the cool, hip nightspot.
Off and On the Books Jobs...
Gotta Love It...Who knew paying off a student loan
could be so easy. I recommend add another job to
the on and off the books job in between...just saying.
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