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Why I Switched to Income Based Repayment
Student Loans

Why I Switched to Income Based Repayment

Why I Switched to Income Based Repayment

This post may contain affiliate links. Check out my Disclosure Policy for more information.

When I created my debt free plan in 2015 when I had just started my journey, it took me awhile to figure out just what I was going to do with all of my different loans. Even though I was generally following Dave Ramsey’s principles, I was definitely going about it in my own way that made the most sense for my situation. It’s important to remember that your specific situation may not allow for following a specific way of doing things. The important thing to do is focusing on creating the plan that works best for you and sticking to that plan. For me, I knew I needed to switch to income based repayment for my federal loans and it might be a good strategy for you to use as well.

Switching to Income Based Repayment: Choosing a Strategy

It’s important to pick a strategy that works best for you when you are first beginning your journey. If you need help with this, check out my post of how to go about choosing a strategy. The reason why this is so critical is because switching to an income based repayment plan might not make a difference in your payoff. I chose to go with the avalanche method because my private loans were mostly very large with large interest rates. If you need help figuring that out, this tool is wonderful to see the different ways you could pay off your loans.

Switching to Income Based Repayment: Prioritizing Private Loans

For me, I knew I wanted to prioritize my private student loans over my federal loans. This is a personal choice I made based on many different reasons. For one, my federal loans came with some protections in the event I couldn’t pay them, something my private loans did not come with. Also, my parents cosigned my private loans and I didn’t want them to be hit with the burden of my student loans if I couldn’t pay them, which includes my death (YES, my private loans would still need to be repaid if I died, how terrible is that! Luckily, they have changed this policy in the last year or so). This meant that I wanted to put as much of my money to my private loans as possible, making a lower payment on my federal loans ideal.

For these reasons, I knew switching to an income based repayment plan was the better choice for me. This has allowed me to put more money towards my private, higher interest loans each month. It is important to know that no matter what my payment is technically (one year it was $30.85!) I always make sure to pay off my interest every month. It’s important to do this because the loan company will capitalize your interest at the end of the year and add it to your principal. Have you switched to income based repayment?

 

Student Loans Impacted my Credit
Student Loans

How Student Loans Impacted my Credit

Student Loans Impacted my Credit

When I graduated grad school in 2015 I had a plan in place to pay off my $200k in student loans. I had a teaching job lined up and planned to find some extra tutoring jobs to increase my income. I had just started really looking at my personal finance in the months leading up to graduation, started budgeting, created my plan, and started looking at my credit score. I always thought my credit score was my lifeline to doing anything in my future and I only assumed that with my crippling debt that my score would be horrendous. Boy was I wrong, my student loans impacted my credit, but in a way I never imagined.

Of course, my student loans did impact my score, they obviously come up, but they didn’t impact it the way I had thought they would. My assumption was that my credit score showed how much debt I had, so my score would be terrible. How could it not be terrible when I was 22 years old and had accumulated $200k in student loans? What I didn’t realize was that your credit score simply shows how good you are at managing all the debt you have accumulated, the amount you have doesn’t necessarily matter. For example, if you keep your credit usage under a certain percentage, you have a good score because it shows you are good at managing your debt. If you always make your payments on time, you have a good score because you are good at managing your debt. My score at 22 years old fell in the “good” range, which excited me because I assumed I could get it to excellent quickly and refinance my student loans.

Again, I was very wrong about my credit score and how it is used. Within one year my score fell within the excellent range, I was so excited to refinance my student loans with a lower interest rate. The time didn’t matter to me, I wanted the lower interest rate to apply more money to the principal each month. With my excellent score set I did the paperwork to apply to refinance my student loans. Originally I was “pre-qualified” for a wonderful interest rate of 5%, a HUGE improvement from my 8% loans I was dealing with. This was simply based on a soft credit pull, meaning it doesn’t impact my credit score, but they get my credit score number. So, based on my lovely “excellent” score, I was viewed as a “safe” borrower and was rewarded by a great interest rate. That is until they did the final hard credit pull to determine my definitive refinanced loan. I was quickly denied because my debt to income was too high. So even though I had an excellent credit score, partially due to making 100% on time payments, I was denied because I had too much debt.

This was a part of my debt free journey that I didn’t expect. I was making huge payments every month, well over the minimum and had my nice “excellent” credit score, but still couldn’t help myself pay off my debt quicker because I had too much of it. This is where the credit score doesn’t make sense. I stuck to my plan and have now paid off 4 of those private student loans and every time an account closes, my score drops briefly. So, as I’m lowering my debt, lowering my debt to income ratio, my score drops initially, followed by an increase. Do you check your credit score regularly? How has it impacted your debt free journey?

 

Debt Snowball or Avalanche
Student Loans

Debt Snowball or Avalanche?

Debt Snowball or Avalanche

This post may contain affiliate links. Check out my Disclosure Policy for more information.

This is something I really struggled with when I began my journey to financial freedom. When I first began I was really into Dave Ramsey and using his baby steps. It’s what started this whole thing for me. As I did more research and learned more about personal finance, I was stuck with trying to decide which method I should use to tackle my debt. There are pros and cons to each and you ultimately need to decide what is the best method for you. But, I hope this can help make your decision a little bit easier. There is also a wonderful tool you can use to figure out what the best method is for you and your debt free date, you can read a review about it here.

Debt Snowball

This is the method that Dave Ramsey always recommends, and it is a great method for tackling debt. This strategy involves listing your debts from smallest to largest amount. You focus on your smallest debt first throwing all of your extra money at that debt, the rest of your debts get just the minimum. This allows you to make traction on one account. Once you have paid off the first debt, then all the money you were putting to it goes to your next smallest debt. This continues until all debts are paid off. This allows you to experience quick wins in the beginning and motivates you to keep going once you get to the larger debts. If you are someone with consumer debt, I would definitely recommend this method because it will help you when you are first changing your habits. This is also beneficial if you don’t have a lot of debt because if you can get out of debt in 2 years or less, interest won’t really make a huge difference in the big picture of your debt payoff. The negative of this strategy is that if you have large debts with high interest rates that will take you a long time to pay off, then you will lose a lot to interest.

Debt Avalanche

The other strategy is the debt avalanche, which is very similar and follows the same system of the snowball method. The difference is that instead of listing your debt smallest to largest by amount, you list them largest to smallest by interest rate. Once you have your list, you focus on the debt with the highest interest rate first and everything else gets the minimum payment. When the first debt is paid off, you move onto the next highest interest rate. This is good for people that only have student loans and don’t necessarily need the motivation of paying off debts in the beginning. The biggest positive of this strategy is that you save money in the long run and is good for people that are going to need multiple years to pay off their debt. This allows you to save the most possible money during your debt payoff. The negative of this method is that you might not experience any debts being paid off for a little while if your biggest interest rate is your largest debt.

I personally use the debt avalanche method, which took me awhile to decide on. Ultimately, I knew it was going to take me many years to pay off my student loans of $201k and my sole motivator was paying them off fast and saving the most money in the process. Which debt payoff strategy do you use?

How to Get Out of Debt Fast
Student Loans

How to Get Out of Debt Fast

How to Get Out of Debt Fast

This post may contain affiliate links. Check out my Disclosure Policy for more information.

I know I’m not debt free yet, but I have paid off a hefty amount of debt in a very short amount of time. In my first two years, I have paid off $70,000 of my student loans. So even though I haven’t completely paid them off, I have clearly created a solid plan to get out of debt fast. This didn’t happen over night, it takes time and clear planning to create a strategy that works for you. Follow my steps to get yourself out of debt fast!

How to Get Out of Debt Fast Step 1: List Your Debts

The very first thing you need to do is figure out just how much debt you actually have. Create a list of all of your debts, including the total amount and interest rates and total them all up. This is going to be a tough step, it was for me at least. It was a total reality check and made me realize just how much debt I actually had. When I first started, I had about $201,000 in student loan debt. Don’t get discouraged by your number, get angry and motivated!

How to Get Out of Debt Fast Step 2: Track Your Spending and Income

You need to figure out how much money you have coming in and how much is going out each month. This is going to help you create a budget. I created a Mint account for myself that allows me to track all of my spending and create budgets within the app. Once I figured out how much money I had coming in and going out each month I was able to see how much I would need to budget for each month.

How to Get Out of Debt Fast Step 3: Create a Budget and Stick To It!

This is one of the most important steps in this process. After you’ve tracked your spending for a month you can see exactly where your money is going. This made me realize how frivolous I was being and quickly made me look for ways to cut my budget in certain areas to get more money towards my loans each month. Once your budget is made you need to stick with it and do whatever you can to find ways to come in under budget each month. In the beginning my budget was changing every month, that’s okay! I got super creative and found unique ways to cut my spending more than I originally did when I first created my budget. Your budget can be changed at any time, but I don’t suggest adding more to your budgets because that is just enabling you to spend more and put less towards your debt. This will also let you know how much you can put towards your debt realistically.

How to Get Out Of Debt Fast Step 4: Create a Payoff Plan

This was the most exciting part for me. You need to figure out what strategy you want to use. My suggestion is to use a website like undebt.it to create a plan for you. This way you can pick the type of plan you want, snowball, avalanche, combination, and see your debt payoff date. Also, you will be able to see how much adding more money to your snowball will change your payoff date. This continues to be incredibly motivating for me because when I make a large extra payment, I see my debt free date get closer immediately. Once your plan is created, you just need to make sure you follow it each month.

How to Get Out of Debt Fast Step 5: Create More Income

Now that you have a plan and a budget, it’s time to find ways to make more money. I have my teaching job, but I spend about 10-15 hours each work working my side hustles of tutoring and occasionally babysitting. I’ve gotten to the point now where I can comfortable live on my side income each month on my current budget. My entire paycheck, plus some of my side income, goes straight to my debt now. This absolutely took time, about a year and a half to be exact, but it was a wonderful day when it finally happened.

How to Get Out of Debt Fast Step 6: Live and Adjust

Now that you have a plan in place for your spending, income, and payoff, you need to stick to the plan, reflect, and adjust. At the end of every month I look over my budgets, income, spending, and debt payoff and I reflect on the month. If I notice that over a few months I was under budget in a certain category I change that budget to free up more money to go to my debt. My budget has changed drastically in the last two years, mostly because I’m constantly thinking of ways to save more money each month to put more money to my debt. In order to really pay off debt fast, you will need to constantly be doing this step each month to find more ways to make your money work for you.

Once you have your plan in place, this crazy debt free journey doesn’t seem so daunting. I know for me, once I created my plan I felt a huge weight off my shoulders because I finally saw that I could do this sooner then the 20 years that my loan provider said. It is possible and you can do it, as long as you create a plan and stick to it. What is your plan to get out of debt fast?

Debt_Free_Journey_Update
Student Loans

Debt Free Journey Update: $70,733.11 Paid Off

Debt_Free_Journey_Update

I graduated from graduate school in August 2015 with about $200k in student loans from undergrad and grad school.  My private loans went into repayment on November 2nd, 2015 and my private loans in March 2016. My debt free journey has been going on for two years now. I truly can’t believe it’s already been two years and I think it’s super important to reflect on my last two years of repayment to see ways I can improve my current plan.

Total Principal Paid Off to Date: $70,733.11

Current Payoff Date: October 2021

Debt Free Journey: How I Paid $70,733.11 towards my Student Loans in Two Years

  1. Sacrifices. As a twenty something who recently graduated from grad school, the first thing I always wanted to do was rent my first apartment and start my teaching career. However, I knew that wasn’t the best choice for my current financial situation. Instead I found a teaching job 20 minutes from my parents house and moved back in with them. This was the biggest way I have been able to pay off so much in two years.
  2. Budgeting. These past two years I have really cracked down on my budget and tried to be very strict with it. This has helped me immensely to pay down my debt.
  3. Side Income. This was huge for me in the last two years. Throughout the year I managed to add 4 different streams of side income through 2 different after school programs, private tutoring, and babysitting. At this point, I can completely cover my monthly expenses through my side income with some left over, my entire salary and some of my side income go straight to my loans. Find out how I make on average $1,200 per month in side income.
  4. Debt Avalanche. Since I have such high interest rates, I have chosen the avalanche method. This allows me to focus on my highest interest, largest accounts first and then apply that payment to my next account. This continues until all accounts are paid off. This has been working out wonderfully for me. I paid off three accounts in two years and was able to apply those payments to my next account making that payment even larger. This has helped my loans get paid off even faster.

Debt Free Journey: My Plan to Make Even Larger Payments

  1. Selling Items. Recently I have started purging my belongings that I don’t use anymore, like clothes and purses. It is crazy how much stuff we accumulate and don’t even realize it. In the next year I am planning to get more serious about selling my items I don’t use anymore to apply that money to my debt.
  2. Side Income. In the last year I have added many new students to tutor, it is now getting hard to schedule new clients because my schedule is so booked. I’m now going to focus more on creating income streams from my computer. I plan to find new ways to make money from home, since I have reached my maximum amount of babysitting and tutoring I can realistically schedule.

I’m very proud of myself for being able to make my money work for me and pay off so much of my student loans in two years of repayment. My goal was to finish paying off these loans by my 31st birthday, which would be April 29th, 2023, since I have clearly met that goal, my new goal is do everything I can to pay these off before my 29th birthday, which is April 29th, 2021. I’m so excited to improve my strategy and plan to pay off even more in the next year to pay off my debt even earlier! How much were you able to pay off in two years of repayment? What was your strategy?

July Debt Payoff
Student Loans

July Debt Payoff

I started my debt payoff journey in November 2015 officially. That’s when my student loans officially went into repayment and I started throwing all of my money at my debt in order to pay it off as soon as possible. Since then, I’ve made many changes in order to increase my payments every month. When I first made my plan, my debt payoff date was just before my 31st birthday. My goal is to get that date closer and closer every month by improving my budget and increasing my income. I’m going to share with you all a breakdown of my loan payments and how I increase my monthly payment. I’m also hoping that by sharing with you all my goals, it will hold me more accountable to work towards them.

 July Debt Payoff

Income

The summer is tough for teachers, I don’t receive my normal paycheck in the summer, I’m on a 10 month salary. That means my income is strictly from my side hustles. However, I do save $300 every month during the school year, so I can afford my debt payoff on a 10 month salary. Here’s a breakdown of where my money came from this month.

Fitness Coaching: $100.00

Tutoring/Babysitting: $1,129.76

Summer School: $506.83

Ibotta: $30.50

School Year Savings: $1,500.00

Total: $3,267.09

Expenses

I save a lot in my expenses by living at home. I don’t have rent or utilities to pay each month, which saves me a ton of money and allows me to put a lot more towards my debt. My expenses here do not include my loan payments or my investment accounts. In July my expenses were $693, which includes my groceries and gas.

Loan Payments, Savings, & Investment Accounts

It might come as a surprise, but I actually contribute money every month to my savings and investment accounts. I know this is not typical for most people on their debt free journeys, but for me, while I am living at home, I am contributing $100 each month to my high yield savings account and investment accounts.

My current debt payoff date is September 2021, I’ll be 29 years old. I have been able to make significantly greater payments then I originally thought I could thanks to my side hustles. In order for this date to stay the same, I need to at least pay $3,166.71. My loan payment for the month of July was $2,473.92. This means I came in short this month, but considering I was working strictly from side hustles, I’m pretty proud of this number. This just encourages me to work even harder come September when I’ll have my salary back.

A_Review_of_my_Favorite_Debt_Payoff_Tool
Student Loans

A Review of my Favorite Debt Payoff Tool

This post may contain affiliate links. Check out my Disclosure Policy for more information.

Back in November of 2016 my debt payoff world came crashing down around me. My favorite debt payoff tool, ReadyForZero, was no longer going to be offering their tool. This tool had the works, everything I could have asked for, and it was free! I’ve spent months trying out new tools and just couldn’t find one quite like ReadyForZero and felt as though I was settling with the one I was using. Then, I stumbled upon undebt.it and my debt payoff once again feels organized and is motivating me once again. Here’s a review of my favorite debt payoff tool!

A_Review_of_my_Favorite_Debt_Payoff_Tool

Many Different Options

One thing I really like about undebt.it is that there are different options of plans based on what you want from the tool. There is a free version that allows you to input all of your debt information, a customized payoff plan based on what strategy you want to use, and keep track of your payments on your accounts. The tool updates your totals for you once you add payments and allows you to see how much debt you have paid off and when you will be debt free, my favorite part!

Debt_Payoff_Tool_3

They also offer undebt.it+, which costs $12/year and gives you access to everything that the free account gave you, and then so much more. With the plus account you are able to manage bills, get payment reminders via text message or email, an account summary emailed to you monthly, projections and stats to represent your debt payoff, and so much more!

Motivation

This tool is incredibly motivating and makes it so easy for someone new to debt payoff. Once you input all of your accounts they create different plans for you and you get to pick which one is best for you and your situation. I personally use debt avalanche because I have such high interest rates and large loans.

Debt_Payoff_Tool_1

They keep on every page you go to in the top right corner your current progress on your debt payoff. I LOVE this feature. I find it so motivating to see if the debt payoff day changes when I make extra payments and see the percentage paid off get larger.

Payoff Plan

Once you have picked your plan, they create a debt snowball table specific to your plan. I love this feature because it tells you exactly what to pay on each of your loans to stick to your plan. For someone who is new to debt payoff and not totally sure how to navigate it, this would be so helpful! I also love that your payments that you already made for the current month are in blue so you know exactly where you stand in the plan.

Debt_Payoff_Tool_2

I really love this tool and I am so happy I found it finally. What I really love about it is that the creator of this tool was just paying off his own debt and needed a tool to use and he wasn’t happy with any of them out there. I love that he took initiative to help himself and so many others pay off their debt. I personally really like this tool and found it very helpful immediately after I set up my account. I highly recommend this tool, especially for people who are just starting their debt payoff journey and could use a tool to help them get started. One downside of the tool is that they don’t have an app for your cell phone. The website does load nicely on my iPhone, but no app is currently available. What tool(s) do you use to manage your debt payoff plan?

Ways_to_Keep_Motivated_During_Debt_Payoff
Student Loans

Ways to Keep Motivated during Debt Payoff

Recently I have had some serious low blows in terms of keeping motivated during debt payoff. Things just don’t seem to be going my way and it’s making it hard to stay motivated. I’m extremely stressed at work this year, which is making me extremely tired. This then makes it hard to get myself to all of my side jobs in the evenings. I recently tried refinancing my student loans only to be told I have too much debt. Why thank you sir, I’m aware I’m drowning in $156,000 in student loan debt, but do you see that I’ve paid off $44,000 in 14 months?! I feel like my life revolves around my student loans and it’s been incredibly hard for me to keep pushing myself recently, especially after being told I can’t refinance because I have too much debt. However, there are some ways I do motivate myself when I feel like giving up.

 

Ways_to_Keep_Motivated_During_Debt_Payoff

Focus on your accomplishments.

The first thing I always do when I feel unmotivated is look at how far I’ve come in my debt payoff and remind myself I’m doing everything I can. I look at my monthly payments that I’ve made and see how much they have increased over the last 14 months. It’s important to acknowledge and celebrate the big and little victories in this long journey. I celebrated paying off my first loan this past year and celebrated breaking into 5 figures for my private loans. It’s important to do that to make this journey a little less overwhelming.

Recognize the sacrifices you’re making.

When I’m feeling unmotivated I remind myself about all the sacrifices I’m already making for my debt payoff. I remind myself that I’m already doing so much, I don’t need to do more than I’m doing right now. I work 4 jobs currently, live with my parents, and budget my spending each month. For my sanity, I need to remind myself that it’s enough, I can’t do more than that.

Find others who are going through debt payoff.

By far the most motivating thing for me to do is to head over to Instagram and Pinterest and find others who are working on their debt free journey. I find it so motivating to hear other people’s debt free stories and how they got to debt freedom. It can be hard to find people around me that can relate to my situation and want to pay off their debt, which is why the Internet can be a wonderful thing.

I hope these few things can help you when you’re feeling down on yourself about your debt payoff. I know it has helped me when I feel like I’m never going to finish paying this debt off. What are some ways you keep motivated when you feel like giving up?

debt_free_journey_update_36342_paid_off
Student Loans

Debt Free Journey Update: $36,342 Paid Off

debt_free_journey_update_36342_paid_off

I graduated from graduate school in August 2015 with about $200k in student loans from undergrad and grad school.  My private loans went into repayment on November 2nd, 2015 and my private loans in March 2016. My debt free journey has been going on for exactly one year. I truly can’t believe it’s already been a year and I think it’s super important to reflect on my first year of repayment to see ways I can improve my current plan.

Amount Paid Off Including Interest This Year: $36,342.51

Total Principal Paid Off to Date: $37,264.73

Current Payoff Date: December 31, 2022

Debt Free Journey: How I Paid $36,342 towards my Student Loans in One Year

  1. Sacrifices. As a twenty something who recently graduated from grad school, the first thing I always wanted to do was rent my first apartment and start my teaching career. However, I knew that wasn’t the best choice for my current financial situation. Instead I found a teaching job 20 minutes from my parents house and moved back in with them. This was the biggest way I have been able to pay off so much in one year.
  2. Budgeting. This year I have really cracked down on my budget and tried to be very strict with it. This has helped me immensely to pay down my debt this past year.
  3. Side Income. This was huge for me this year. Throughout the year I managed to add 4 different streams of side income through 2 different after school programs, private tutoring, and babysitting. At this point, I am able to almost afford all of my monthly expenses, except my student loans, with my side income. This has been amazing for my student loans because my salary can almost all go to my loans each month.
  4. Debt Avalanche. Since I have such high interest rates, I have chosen the avalanche method. This allows me to focus on my highest interest, largest accounts first and then apply that payment to my next account. This continues until all accounts are paid off. This has been working out wonderfully for me. I paid off one account this year and was able to apply that payment to my next account making that payment even larger. This has helped my loans get paid off even faster.

Debt Free Journey: My Plan to Make Even Larger Payments

  1. Budgeting. I plan to look at my budget even more and find more ways I can save even more each month. I’m trying really hard to search through my house and use what I didn’t know I had before going out and buying it. For example, whenever I run out of my favorite shampoo or conditioner, my first thought is I need to buy that kind again. Now, I’m looking through my house and bathroom closets to see if we have any kind of shampoo or conditioner that I can use instead of buying new.
  2. Side Income. I don’t think I’m going to add any new streams of income, but I plan to do more within the streams I have. Right now, I only work 2 days at the after school program, but I’m planning to pick up any extra shifts I can and find more students to tutor and kids to babysit.

I’m very proud of myself for being able to make my money work for me and pay off so much of my student loans in my first year of repayment. My current goal is to finish paying off these loans by my 31st birthday, which would be April 29th, 2023, which means my current progress gets me paid off early! I’m so excited to improve my strategy and plan to pay off even more in the next year to pay off my debt even earlier! How much were you able to pay off in one year of repayment? What was your strategy?

Debt_Payoff_on_a_10_Month_Salary
Student Loans

Debt Payoff on a 10 Month Salary

Debt_Payoff_on_a_10_Month_Salary

Debt payoff can be tricky, especially when you’re on a pay schedule that doesn’t provide you with a paycheck every month. However, with some planning and budgeting, it can be easy to get around this problem. I’m a teacher and am on a 10 month salary, meaning I don’t get a paycheck during the summer months. But I was still able to make extra payments on my student loans in the month of July, with no paycheck from school. Continue reading to find out what I did to lower my debt by over $4k in the month of July.

Plan for the Months Ahead

It’s so important to plan and budget in order to make your debt payoff plan work for you. My monthly minimum payment is roughly $1,500 for my student loans, so I knew I needed to set aside $3,000 for my loan payments in July and August. This way I knew I had enough budgeted for at least my student loan payments in case I wasn’t able to find a job over the summer. So, $3,000 spread across 10 months is $300/month, it really wasn’t bad at all.

Find Side Hustles

Side hustles are the best thing ever. It’s always exciting to make extra money to put towards your debt. I know, that sounds crazy, but I seriously get a rush of excitement every time I make an extra payment and lower my daily interest I’m paying. I’m pretty sure these loans have made me a little crazy ha! But, I do after school tutoring at school during the school year and tutor local kids over the summer. I have also found a wonderful family to babysit for this summer.

July_Loan_Payment_IG

Debt Payoff

I ended up not even needing that extra money I saved throughout the school year, as you can see from my July loan payment. I easily made my minimum payment of $1,500 and was able to payoff much more than that. It’s amazing what you can do with a little planning ahead 🙂 What have you done for your debt payoff on an unpredictable pay schedule?