I have shared how I ended up in massive student loan in the first place and how my student loan lender messed up my Caribbean student loan. In this post, I will share how in spite of these two challenges, and a few more, I was able to off $37,000 of debt, 5 years after getting my first full-time job, while saving for retirement, a down payment on a home and supporting my extended family, all at the same time!
I graduated with a bachelor’s degree in civil engineering in 2007 and that same year, I continued to graduate school. I then finished a civil engineering graduate program in December 2009 and 8 months later I was relieved to get my first full-time job, as a civil engineer, with a starting salary of $52,000.
My Personal Finances Starting Out
My personal finances starting out included $68,000 in student loan debt and little savings, plus the responsibility of supporting my parents, as they had recently relocated from St. Kitts & Nevis to the United States. I really wanted to start making a dent in my student loan debt and committed to paying as much as I could in spite of my circumstances, at the time. 5 years after getting my first job, I paid off $37,000 in student loan and credit card debt, saved $36,000 in my retirement fund and had put aside $11,000 towards a downpayment on a home.
How I Paid Off Debt, Saved For Retirement & Bought A Home
Here’s How I did it.
I Had A Desire To Get Rid of My Debt
This is the number one factor in this journey. I really, really, really wanted to get rid of this debt. During the 8-month period, I was job searching, I would keep tabs on my debt and estimate how much the minimum payments would be and how I would have to factor my debt into my future budget. Once I did get a full-time job, throwing money at my debt was a priority. There would be no lifestyle inflation for me, just inflation of my student loan payments.
I Understood How My Student Loans Worked
I had a good handle on how credit card debt worked but I needed to spend a lot of time researching and understanding how my student loan debt worked. I had four student loan accounts:
- Caribbean Private Student Loan;
- U.S. Private Student Loan;
- Consolidated U.S. Federal Loan; and
- U.S. Federal Graduate Plus Loan.
I reviewed my promissory notes, made note of the outstanding balance and interest rate for each loan. I also checked the nslds.ed.gov and my credit report to make sure I did not miss any of my student loan accounts. I knew who I owed, when each loan would come due, the minimum payment required, and kept my contact information up to date with each servicer.
I Paid Attention to the Student Loan Cycle, Interest & Capitalization
As part of educating myself on how my student loan debt worked, I paid attention to the stage of the student loan cycle each loan was in, how interest would accrue and how capitalization would affect my outstanding principal balances. (I actually learned this late. I did not realize how much interest would accrue and capitalize, while I was in undergrad and I could have paid the interest during that time.)
Not paying attention to interest while I was in college lead to accrued interest being added to my U.S. Student Loan principal balances, and an even worse outcome with my Caribbean student loan. The interest that accrued on my Caribbean student loan, caused that loan to become an interest only loan for almost a year. I would use this lesson to avoid interest from being added to my principal balance in the future.
Once I had a full-time job, informed myself on the workings of my debt and was in debt slay mode, I paid close attention to how interest accrued and capitalized, especially in deferment.
For example, when I put my loans in deferment while I was on maternity leave, this time I paid the interest accrued to avoid it from being capitalized. If I had allowed the accumulated interest to capitalize, it would have increased my principal balance and my minimum monthly payment.
I Budgeted Around My Debt
Budgeting around my debt was another key strategy I used to able to cover my own expenses, pay down debt, save, invest for retirement, and purchase a home, while supporting my family, in 5 years. I set my pre-tax 401K retirement contribution to 6% of my gross income and an additional 6% to a post-tax Roth 401k. Those contributions were automated and were taken out of my earnings and never hit my bank account.
When it came to my take home pay, I had to prioritize payments to my debt, paying for my essentials and committing $400 to $900 per month to my parents. And, I still saved for my other financial goals too. I was able to do this by keeping my personal expenses way below my income and making some sacrifices, which included:
- Living with roommates.
- Giving up international travel & vacations.
- Forgoing financing a new car. (I kept my old paid-in-cash car).
- Directing bonuses and raises towards increasing retirement, savings and debt payments.
- Committing the extra paycheck in a 5-week month towards my debt.
- Keeping my entertainment & dining spending in check.
- Purchasing a home that is 15% of my household income.
- Keeping a rainy day fund so that I didn’t rely on credit cards for emergencies.
At times it felt like I was just working to save for the future and pay debt, but when I look back at it, I am glad I prioritized paying off debt while saving and investing at the same time.
I Set Up My Own Debt Repayment Plan
My minimum payments had me on track to pay my student loans for 20+ years. Although income-based and extended repayment plans for student loans are touted as solutions to crushing debt, making minimum student loan payments for 20+ years just didn’t make sense to me. I set up my own payment plan by:
- Tallying up the outstanding balances on my credit cards and student loans.
- Listing each debt from highest interest rate to lowest interest rate.
- Identifying the debt that was most annoying to me.
- Budgeting for the minimum monthly payment of each debt.
- Committing at least $500 for extra debt payments.
- Making a plan to commit any unexpected money towards my debt.
- Increasing the money I put towards debt with each pay raise.
I started out by applying extra payments to my credit card and my most annoying student loan debt, and after my fist year of working full-time, I had paid off about $13,000 in debt. My debt pay off slowed after that due to my financial commitment I had to my family and having a beautiful baby boy, who I spent a partially paid maternity leave with, and the childcare expenses that followed when I went back to work. I stayed the course and after 5 years I was able to pay off $37,000 debt, save almost as much in my retirement fund and have $11,000 in cash for a downpayment on a home.
If you have massive student loan debt, you can pay it off if you are committed to getting rid of it. I was not fortunate to have parents to live at home with to cut costs, actually my parents were depending on my for some time. Neither did I have six-figure job that made getting rid of debt a breeze, but I was still able to dump the debt.
Start with your desire to get out of debt, get focused and get started!
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