1/8/18

Success Story: How I Paid My Student Loan Debt


Smart Money Squad, welcome back! We last spoke about different ways to manage debt in our  post “Attack Mindset”,where we dived into the snowball & avalanche methods to effectively eliminate balances on your loans/bills. Both of these are solid approaches to approaching the debt equation & I’ve personally tried both while managing my own finances. I’ve continued to monitor how I approach my total balance to my creditors while being cognizant of keeping overall debt down. 
I hope to continue to update this journey to being debt-free throughout 2018 and beyond, checking in periodically when I hit another personal milestone. With that said, please enjoy the first few miles on this long highway ride to eliminating my debt!

A Little Background…

2017 was a wild year filled with twists and turns in both my personal & financial life. I got engaged to my best friend and had my best financial year-to-date in terms of net wealth. Of course, with personal growth comes added stress. With a fast-approaching wedding in the cards in October 2018 + car & student loans, you could say my financial situation has been hectic over the past year.



Needless to say, I’ve been busy “balancing the checkbook” while trying to figure out what debt to attack first. There are many factors that play into this: interest rates, total money owed, personal satisfaction, to name a few. To better grasp my personal situation, let’s first take a look at the total balances I have when deciding what debt to ultimately pay.


Debt Breakdown

Ty's January 2017  Active Debt
Debt Type
Dollars Owed
Min. Payment
Interest Rate
Car
$10,000
 $299
3.10%
Student
$11,000
 $129
5.30%

Before we get into my debt, this doesn’t include the monthly expenses for food, rent, utilities, etc. These are strictly balances I have with creditors, where I’m not using my liquid cash to pay a bill up-front. As you can see above, I have two loans to choose from when deciding where to divert my funds allocated for monthly debt payment. This number differs for every person, but for me, I clock in at roughly $1100/month I can pay on my loans and still live comfortably within my current lifestyle. Keeping that lens, I know that I have $428 in minimum payments that I must make every month. This leaves me with an additional $672 that I can divert towards either loan-but how do I choose which one?

My Decision-The Avalanche Method

When deciding which debt payment method I wanted to use, I went with the option that will ultimately save me more dollars-the avalanche method. If you don’t recall from our previous post, the avalanche method uses your remaining money to pay the loan with the highest interest rate after taking care of the minimum amount owed on all existing balances. When we take a look at my two loans, the option was simple; throwing the remaining $672 towards my student loans (5.3% interest rate on average) was the best option.

I have been doing a miniature version of this method with my student loans already, as I have multiple student loans with different creditors.  I simply have paid the balances with the highest interest rate first, eliminating loan after loan until finally I was able to make the last payment in November. The avalanche method ultimately knocked my remaining student loans out in 2.5 YEARS, something I did not think was possible.

While this method may not be the best option for everybody, it was the best option for ME, and truthfully that’s all that matters. As long as you are paying down your debt to the best of your ability while making informed financial decisions, who is going to fault you? You’re saving yourself thousands of dollars in interest down the road- a figure I do not take lightly. Paying my student loans off in 2017 was a goal I set at the beginning of the year and I’m proud to report I achieved it.


Reflection

Needless to say, it was a freeing feeling leaving that debt in the rearview mirror. Paying my student loans and gaining that feeling of satisfaction ultimately was worth pinching some pennies in 2017. To those that are on the fence of aggressively paying your debt, I hope this is a testament that discipline pays off. I am the closest I’ve ever been to being debt-free (until that pesky mortgage kicks in) and the most in-touch I’ve been with my financial wellness.

As we kick off 2018, I hope to continue on the path that I’ve laid out here and inch ever closer to that freeing feeling again. Hopefully I’ve inspired you to help set those financial goals at the beginning of the year and stick to it. Trust me, life is much sweeter on the other side!

Cheers,
Ty



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