Student loans are scary. I should know, because I graduated with $80,000 of scary.
After the usual trial and error, I created a repayment strategy that has allowed me to pay back more than $10,000 within 6 months, all while living in France!
And if I can do it, so can you (even if you’re not living in France).
Go on. Take a deep breath, and get started on this repayment plan, so you, too, can pay off student loans faster!
How to Create a Repayment Plan to Pay Off Student Loans Faster
1. Get to Know Your Debt
Ouch. This one’s gonna hurt.
The hardest part about paying back loans is acknowledging that they exist–or at least, that’s how it went for me.
After graduation, I was beyond excited to be moving to the country of my dreams.
I was just as happy to ignore the debt that was piling on during my 6-month grace period.
But, as with any huge issue in life, the first step is admitting you have a problem.
Say it with me now:
I have student loans, and I am going to deal with them.
First, figure out what types of loans you have.
Personally, I have both federal and private loans, which I broke down into 3 categories:
- Subsidized and unsubsidized federal loans
- Federal Perkins loans
- Sallie Mae private loans
Note: “Subsidized loans” means that the government pays off the interest while you’re in school, while “unsubsidized loans” means that the government allows interest to accrue.
Then, call each of your service providers to find out important information about your loans.
(If you’re not sure who your service providers are, contact your university’s financial aid office.)
I was able to find the amount of my loans and their interest rates online, but it’s much easier to get all the information from a real person over the phone.
You will want to ask about:
- how much you owe (brace yourself – it’ll probably be more than you remember calculating as a wee freshman)
- how much the minimum monthly payment will be after the grace period
- each loan’s interest rate
- the best repayment plan for your situation
2. Try to Reduce (or Pause) Your Payments
Depending on your situation, you may qualify for an income-driven plan on your federal loans.
This means that your monthly payment is proportional to how much you earn.
Since my earnings in France were set to be rather slim (800 euros a month), they told me that my minimum payment would be $0 for at least a year.
Interest is still accruing on these loans, but with low interest rates, they’re the least of my worries.
This means that in France, I only had to worry about my private loans, whose minimum monthly payment started out at $700. *shudder*
NOTE: The income-driven plan is different from deferment, which is when you’re not expected to make payments because of something like going to grad school. Like the income-driven plan, interest continues to accrue on unsubsidized loans while in deferment.
SECOND NOTE: My income-driven repayment plan qualifies as a loan forgiveness program, because after 20 years, my remaining balance goes *poof* (although I certainly don’t plan on having my loans for that long).
If you’re interested in finding out more about loan forgiveness, head over to 7 Student Loan Forgiveness Programs Funded by the Government.
To further reduce your monthly payment, you should look into refinancing.
This means applying for a new loan at a lower interest rate to replace your existing loans.
For example, my interest rate with Sallie Mae averaged about 11%, which is disgustingly high. I decided to take out a new loan with my personal bank, whose interest rate is around 5%.
This means that my bank paid off the remaining balance with Sallie Mae, and now I owe that much money to my bank.
With such a low interest rate, it means a lot more of my payment is going toward the principal rather than the interest, and that I am paying off my loans faster.
When refinancing, you will want to consider loans offered by your bank as well as credit cards with low interest rates.
To qualify, you (and/or a cosigner) will need to have a pretty good credit score, among other factors.
You should also try to reduce your interest rates as much as possible.
Depending on your service provider, you may be able to reduce your interest by:
- Setting up automatic payments
- Consolidating the loans under that provider (which means lumping all the loans into one big one)
The reduction may be a tiny, tiny percentage (don’t expect your provider to be too generous), but any little bit helps.
3. Plan for Your Payments
Okay, so now you know how much you will be paying and when your grace period ends. It’s time to start planning.
I used Student Loan Hero for recording all the loans I owe in one place, regardless of the service provider.
You can also use their Student Loan Payment Calculator to determine how much more money you would need to pay each month if you want to get rid of your loans faster.
(I play with this more often than I should.)
I also created a personal Excel sheet so I would be able to mark my progress with each repayment.
Note: If you think you’ll be tempted to dip into your repayment money, put it in a completely different bank account. Out of sight, out of mind.
(For a more extensive outline of how to keep track of your finances, head over to Budgeting for Beginners: A 7-Step Guide.)
4. Use the Grace Period How You See Fit
Financially speaking, it’s better to make any type of payment on your loans during the 6-month grace period to avoid even more interest from accruing.
But I had a rather particular situation.
Since I was leaving the country in just four short months, I was concerned I wouldn’t be making enough in France to cover the minimum payment for my private loans.
So, I calculated the total amount I would be paying back during my time in France.
And instead of making payments during the grace period like any financially literate adult, I used that time to save up this total number, and put it on reserve.
I was also very aware of all the traveling I wanted to do, and made sure to put away money for that as well (it’s not every day you get to live in Europe).
Your game plan should depend on your situation, and yours alone.
5. Pay More than the Minimum
Now that your grace period is coming to a close, your next step is to actually make the payments.
And the best way to pay off student loans faster is to pay more than the minimum monthly payment.
So why did you spend all that time trying to lower the minimum if you’re going to pay the same amount anyway?
Because now more of your money is going toward the principal (good), and not the interest (bad).
(The lower your principal, the lower your interest, the less time you spend paying off student loans.)
The reason why I paid off $10,000 in such a short time period is because I AGGRESSIVELY hacked away at the principal.
My minimum payment started out at $700 and was reduced to $500 (shout out to refinancing), yet I was paying $1000-$2000 every month regardless.
How, you may ask?
6. Make More Money
In addition to using up the money I saved from my grace period, I got serious about making more money.
If you already have a job and are struggling to make your payments, then it’s time to start hunting for side hustles.
While working in France, my 800 euros a month was enough to cover rent, food, and phone bills. I also continued my summer job as an Online English Teacher through VIPKID, which I cannot gush enough about.
The beauty about this job is that you can do it from ANYWHERE.
It’s the sole reason why I was able to pay more than the minimum payment, and I highly recommend it as a viable side hustle.
You can check out The One Side Hustle I Use to Pay Off Student Loans and Travel the World to find out more about the position, eligibility requirements, application process, wages, etc.
If you already know you’re interested in becoming a teacher for VIPKid, feel free to use my referral link (I’d be more than happy to coach you through the process).
Teaching’s not your thing?
Head over to 5 Legit Ways to Make Money from Home for some more online, from-anywhere jobs.
7. Save More Money
If you spend less, then you have more money to funnel to your loans.
Before I moved to France (and since I’ve been back in the US), I have saved money by:
- living at home
- NOT getting a gym membership (you can run outside and use free workout apps!)
- Walking instead of driving, when possible
(I have tons more tips and tricks on saving money in 25 Simple Money-Saving Tips for Frugal Living Beginners.)
When I was in France, I worked hard to find a balance. I used most weekends to get tons of hours in teaching online (aka loan payments), and I used my longer breaks to travel.
And when I traveled, I traveled cheap.
For example, I would book overnight buses to take away the cost of accommodation, and I would bring back free souvenirs (i.e. paper placemats with restaurant logos).
If you’re interested in finding out more about traveling on the cheap, head over to 12 Ways to Find the Cheapest Flight Possible as well as The Ultimate Guide to Traveling for Free (or Otherwise Lowering the Cost).
8. Stay Motivated
Other than making the loan payment itself, this is arguably the most important part of my student loan repayment strategy.
Since student loans are usually thousands of dollars, it can be hard to see the end goal.
It can be hard to funnel money toward your student loans when you’d really rather buy those new combat boots (your old ones are just fine), or buy a shot for all your friends (you’ll regret it in the morning), or buy a nice gift for your significant other (homemade gifts go a long way, too).
That’s why you should figure out your motivation, and figure it out early on.
You can ask your partner or best friend or mom or dog to be your confidant-someone you can go to when you feel the urge to splurge, and who has no problem smacking some sense into you (hopefully not literally, but whatever works).
You can create something visual to keep you on track.
I saw someone draw a huge thermometer (somewhere on Pinterest), and color in a line every time they reached another thousand.
Personally, I stay motivated by breaking up my goals into smaller steps. Out of the $70,000 I still owe in loans (ouch), about $45,000 of them are private.
Instead of saying “Crap, I have $45,000 left,” I think “Awesome! $5,000 more and then I’m out of the 40s.”
This motivates me to put more toward my loans, because $5,000 is clearly much more attainable than $45,000.
This type of thinking is along the lines of the Snowball Method, even though I’m actually using the Avalanche Method.
DON’T PANIC! I will explain:
The Snowball Method is when you focus on the smallest loan you have. You pay the minimum payment on everything else, and funnel everything you’ve got plus a little more to the smallest loan.
This is the first stage of your snowball.
Once this loan is paid off, you then take all the money you were funneling into the smallest loan, and use it on the next smallest loan (on top of this loan’s minimum payment).
This turns your tiny snowball into a respectable fist-sized snowball.
You keep going and going until you have enough to make a snowman (that is, until you’re funneling all your money into the largest loan) and then-
SNOWBALL FIGHT (which is code for PARTY because your loans have been paid in full)!
The Avalanche Method is when you focus on the loan with the highest interest rate. This loan, regardless of how big or small it is, will accrue more money the fastest.
You will, accordingly, want to nip it in the butt (while paying the minimum on everything else, of course).
And after you get rid of this pesky loan, you funnel everything to the next loan with the highest interest rate, and so on and so forth.
Since higher interest rates correspond to higher minimum payments, it will take the longest time to get rid of the first loan.
But like any good avalanche, it will build momentum, and crush the ensuing loans faster and faster.
Snowball vs. Avalanche
In a fight between a snowball and an avalanche, who do you think would win?
Ding ding ding.
In the financial world, the Avalanche Method is the better route to go as well. Since you’re first paying off the loans with higher interest rates, you will be paying less in the long run.
For those of you rooting for the underdog, don’t worry. Snowballs have their purpose, too.
Although the Avalanche Method is hands down financially smarter, the Snowball Method is more psychologically friendly.
Paying off smaller loans first means that you will pay off the first one fastest.
Getting this small win does WONDERS for motivation, and could be the key to keeping you on track to pay off student loans faster.
But why not get the best of both worlds?
As I alluded to before, my student loan repayment strategy is a mix.
My private loans have the highest interest rate, so I’m attacking them first.
But I’m breaking up this huge chunk of loans into smaller, tangible wins.
This way, the snowball keeps me motivated and the avalanche keeps me crushing debt as fast as possible.
So now I ask you:
Why not both?
Student loans suck.
Here’s the breakdown of my repayment strategy, which will hopefully make them suck less:
- Learn all the nitty, gritty details of your debt.
- Reduce (or pause) your payments by inquiring about an income-driven repayment plan, refinancing, and lowering your interest rates.
- Plan for your payments using Student Loan Hero and creating a separate bank account specifically for your loans.
- Use the grace period to start paying back loans, or to start saving up money for the first few payments after the grace period ends (depending on your situation).
- Pay more than the minimum monthly payment (for at least one of your loans).
- Make more money with side hustles.
- Save more money by living frugally.
- Stay motivated with a combination of the Avalanche and Snowball Methods.
If my repayment strategy allowed me to pay off $10,000 in just 6 months, on top of traveling through Europe, imagine what it can do for you.
Take my strategy, tweak it to your specific situation, and go pay off student loans faster!
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