University Debt Freedom

Hello Sunshine, Hello breath of fresh air, Hello Freedom!

Today was the day, I recently sent in the last payment on my last student loan and today I received the marvelous confirmation that proves it all.

When I started this student loan repayment journey it was 2011 and I was over $46,000.00 in the hole. The school loan companies(government included) in all their infinite wisdom gave me 10 years to pay it all off.  How thoughtful and generous of them??

Let me see I thought I am 23 soon to be 24+10=34. I would be 34 years old when I would finish paying off my loans! 34! really? No thank you. Plus what about all the interest? Lets see if I did my math right it would come out to about $18,000 that’s a total of $64,000 after everything is said and done. Nope. Nope. Nope.

I knew from the very beginning there was no way I was just going to give $18,000 away.  I mean that is what you do when you pay interest. No, instead I figured out what my payments needed be to pay it all off in 5 years. Heck, I even did the math to pay it off in 6 years in case I had some emergency or something but that was it, 6 years was my MAX and 5 years was my goal. That goal included dropping extra cash that came my way with things such as tax refunds.

5 year plan

With the 5 yr plan I would only give away ~$8500 in interest with a monthly payment of $880 and $2500 in tax refund money. This would save me about $10,000 and 5 yrs of worry and stress paying everything off by Jan 2016.

What really Happened

Its Early 2014 and I already reached my GOAL! Paying off my student loans in 3.25 years. I’ve included a table below to show how it all breaks down. Now the numbers on the table are ball park calculations using 7% interest rate but that’s not 100% since really my loans ranged from 4.5% to an ugly 10.63%. Even my payments for year 3 are the average. The way it really went down was starting off with the $880 payments to finish up in 5 years and then upping it all the way to $1480. With extra cash dropped in when it came along (tax refunds) . But I wanted you to get an idea and the difference in the interest rates is no joke even if you do think I’m off $100 its still several thousand dollars difference for every year you add on.

Isn’t math fun!

 My Advice

So here is my advice for any graduating students use the grace period to your advantage and start paying some dollars right away. If it means you are not pay interest great for you.

1. Do the Math

Unfortunately nobody is going to advise you about this, thinking of what’s best for you. Most people will try to get you to extend the life of the loan to minimize the payment per month. That’s like buying a pizza on credit and by the time you actually pay it off it cost you $100 buck. Would you pay $100 for a pizza? Not likely so forget about the monthly payment for a little and do the math to figure out what it really is going to cost you down the line. Some interest rates are so high that by the end of it you end up paying double what you owe. Does that sound like a smart thing to do?(refer to pizza example and hopefully be saying no). I mean you could have gotten a second degree or gone on vacation with the interest you’re paying.

2. Pay Attention

Don’t submit extra money and assume it’s going to the most logical place. I have a secret its not! Yup this is the most annoying thing of all but as you learn about finances you’ll realize that you want to pay off the loan with the highest interest rate first. But nope the loan companies wont do that, that just makes to much sense they will most likely apply it to the loan with (GASP) the smallest interest rate. Well of course they would this means they can keep extracting from you the biggest amount of money. So PAY ATTENTION, CALL as many times as you have to make sure your money is going in the right place. For people with big balances this could be thousands of dollars in extra interest.

I’m really jazzed about this life event, And I hope this makes you realize that doing a little math can save you thousands upon thousands of dollars. ..And even though I am glad I got my education I don’t want to pay anymore then what its worth.

Do you have Student DEBT ? When will you reach freedom? Will you do the math to get there sooner?

-The Roamer Out