When I completed graduate school and started my first job as a Licensed Master Social Worker, I owed a whopping $12,500 dollars to my student loan providers.
$8,500 of that debt was a Subsidized Stafford loan with a 6.8% interest rate and the remaining $4,000 was a Perkins Loan with a 5% interest rate.
I know many of my peers thought $12,500 was a relative bargain for two years of private graduate school since many of them owed over $100,000 when we graduated.
But for me, being in consumer debt produces an uncomfortable feeling in the pit of my stomach.
An uncomfortable feeling that I believe can largely be avoided, or greatly lessened, with solid financial planning.
When I completed graduate school and received my first student loan statement, I immediately knew that I needed to develop a plan to pay off my student loan debt as fast as possible.
Thanks to an inherent hatred of consumer debt and an ingrained love of frugality, one year after I finished graduate school, I paid off both student loans in full, saving myself approximately $5,000 in interest payments!
Here’s a quick overview of how I did it:
I Made and Followed a Budget.
I made a budget and stuck to it. Sounds easy enough, right? I calculated my monthly take-home pay after taxes and budgeted every dollar I made each month.
On the first of each month, I wrote down all of my fixed and variable expenses including rent, food, utilities, public transportation, gifts, dining out, etc.
I divided each expense into a category and allotted a percentage of my take-home pay to each category.
If I did not budget money for something, I did not buy it. If I wanted to go out to dinner with friends but did not budget money for dining out, I made myself take money out of another category to stay under budget.
I know some people who use a cash envelope system to keep track of their spending.
They literally put cash in separate envelopes marked with the names of each spending category every month. When the money in the envelope is gone, they don’t spend anymore.
I used a similar system but didn’t feel like the physical envelopes were necessary for me.
I made a spreadsheet in excel, and kept track of everything I bought, and what category the money came from.
Any money that was leftover at the end of the month went directly to the student loan company to pay off my student loan debt.
I Paid Myself (Actually my loans) First.
When I made my budget, I budgeted $1,000 a month for my student loan debt just like I budgeted money for my rent and groceries.
My first paycheck of the month would pay my rent and my second paycheck of the month would pay my student loan debt.
I had the $1000.00 electronically drafted from my bank to my student loan company.
Because the money was automatically transferred on the dates that I specified in advance, I didn’t even have to worry about writing a check, or setting up an electronic transfer each month.
My student loan company also had an option to make one-time internet and telephone payments. When I had extra money at the end of the month or received an unexpected gift, I used the one-time payment feature to transfer money from my bank account to my student loan provider.
I Stopped Spending Money on Entertainment.
Because I was living on such a tight budget, I immediately reassessed my needs and wants, and learned how to say “No.” to friends and family.
I cut back on social engagements, dining out, and going to the movies. Instead, I invited friends over for potluck dinners, rented DVDs and became very good at researching free local activities in my community.
If I did need to buy something or wanted to go out for dinner, I found coupons for my favorite restaurants, bought Groupons for half price gift certificates and used my credit card points to buy gifts.
I stopped going to the local bookstore and started going to the library, stopped “window shopping”, and volunteered more of my time to local charities.
I learned New Ways to Save Money.
I have always been very frugal by nature, but paying off $1000.00 a month on a social worker’s salary leads you to explore a whole new level of frugality!
I read blogs and articles about saving money and got involved in free online forums that offer advice and support for individuals who are paying off debt.
Thanks to the tips of many online authors, I learned new many new skills, including how to make my own eco-friendly cleaning supplies, how to cook cheap and tasty meals in a slow cooker, and how to save money on veterinarian bills using home remedies.
I also learned the art of “extreme couponing”, and taught myself how to buy a week’s worth of groceries, pet food and personal items for my boyfriend and me, for $37.50 a week (often less).
I stockpiled groceries when I could get them at rock bottom prices, and only bought fresh local produce when it was in season and on sale.
These are just a few of the many ways that I saved enough money to pay off $12,500 of student loan debt in one year.
Getting out of student loan debt in one year was certainly an ambitious goal, but it is a goal that I am very glad I set for myself.
An added and unforeseen bonus of paying off my graduate student loan debt in one year has been the added financial peace that I feel in an uncertain economy.
While my peers worry about how they will pay off their loans if they lose their jobs, I have peace of knowing that I don’t owe anything to anyone and that feeling is priceless!