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.
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?
So, the day finally arrived that I had been anxiously waiting for, my first student loan bill arrived in the mail. I just finished my graduate studies in August and knew it was coming. My private loans did not have a grace period, so I assumed my first bill would most likely be due by November. Sure enough, my first payment is due November 2nd. Before I got the bill, I wasn’t sure how much my payments were going to be each month. I guessed that they would be around $1,500 a month because that’s what my sister pays with a similar amount of debt. Of course, I budgeted for the worst and went for $2,000, since I went to grad school. It turns out all the debt I paid off during grad school was worth it, my private student loan payment is $1,400, much less than I thought it would be. My federal student loan payment was originally $600 each month, but I switched to an income based repayment plan and got it lowered to $250. It was a tough decision to switch to a different payment plan, but I wanted to be able to put as much money to my private loans, since they have much larger interest rates.
Where to Begin: Get Angry
Like I have mentioned in previous posts about my amount of debt, when I first really acknowledged the amount of debt I had, I felt like I would never be able to pay that off. I mean, $200K is a massive amount of debt. I don’t want to be paying this off still when my children are starting college, which is what will happen if I stick to the 30 year repayment plan. Honestly, that’s what really lit the fire under my butt, knowing I wanted to buy a house, have kids, send them to college, things that will be much more difficult if I have this massive amount of debt looming over my head. Plus, who wants to be paying off their student loans at age 50, definitely not this girl. Get angry at your student loans, put things into perspective and get crazy mad at that large sum of money that is preventing you from doing more things and saving more money. And just think about how nice it will be once it is all paid off 🙂
Create a Plan to Payoff the Debt
Once you have reasons to motivate yourself to payoff your debt, create a plan. Some people need to use the snowball method because they need motivation in the beginning to get going. Others think more long term and prefer a method that allows them to save the most amount of money, or the avalanche method. Personally, since I have such a large amount of debt, I’m thinking long term and how I can save the most amount of money. So, I’m sticking with the avalanche method. This means that right now I am focusing on one of my debts that has a 8.05% interest rate and started at just above $40,000 (I’m proud to say that this debt is now at $12,000 after chipping away at it for the last year during grad school, WOOHOO!!!). After this debt is paid off I will move onto my next largest interest rate and so on. If two loans have the same interest rate, then I pick the loan that is largest amount. I strongly recommend using ReadyForZero, I basically swear by this website in my debt payoff. It does take some time to type in all the information each month, but it provides me with a graph of my progress and when I’ll be debt free. Also, it’s completely free and has an app that allows me to check my progress wherever. I find it extremely motivating to see my daily interest go down after I make all my payments each month and to see how much sooner my debt payoff date is.
Update June 2016: I officially paid off that first loan!!! This means that I have now moved onto my next focus loan, which also has a 8.05% interest rate, but it is much smaller, only $16,000. I plan to pay this one off in one year, June 2017.
How Much to Pay Each Month
It can be difficult to decide how much you can afford to pay towards your debt each month. I strongly recommend paying extra each month, any extra money you have, even if its $20, can make a difference in your debt payoff date. For me, I can afford my required payment in one paycheck, so I pay my bill on the 15th, when I’m paid. I never budget for my additional payment. This may sound odd to some people, and for a lot of people this might not work. However, I am currently in a very different situation than most. After I finished grad school, I moved back in with my parents in order to really tackle this debt, and they live 20 minutes from my job. This means that I don’t have many bills each month. Also, I work other jobs each month, like tutoring and babysitting, that make my income vary month to month. I do budget for gas each month, my bills, my 2 savings account, and my 403b account. You’ll notice that I do save each month, it’s not much, about $250 across the 3 accounts, but while I’m living with my parents I want to make sure I’m saving some money while I can. Since I pay my bill on the 15th each month, this allows me to make my additional payment at the end of the month when I am paid again. This is when I go through my budget for the month and see how much money I have left over that can go towards my debt. I hope to be able to pay an additional $1,000 each month.
Update June 2016: Since writing this post my monthly payment plan has completely changed, I found ways to make it much more aggressive. I made it a goal for myself to pay off all my student loans before I turn 31, that’s in 7 years. So, I went to my ReadyForZero account and changed my debt payoff date to determine what I would need to pay each month to pay it off by then. Turns out an extra $1,000 allows me to be debt free by my 31st birthday. I’m currently paying at least $2,600 each month with my teacher salary, living at my parent’s house (thanks Mom and Dad!), working extra jobs, and lowering my savings withdrawn each month. Instead of $250 I only put $125 into savings each month so that I can focus on my student loans.
This system might not work for you, but it’s what is working for me and my current situation. If I wasn’t living at my parent’s house, I don’t think this system would work for me since I probably would not be able to afford paying my entire bill in my one paycheck. What’s your debt payoff plan? What strategies have worked for you?
Now that I’m finished with my grad degree, my loan payments are about to begin. This might sound crazy, but I’m actually really excited to start this journey. As I shared in my student loan story I have about $200k in student loan debt, mostly from my undergraduate studies. When it all really hit me how much I owed, I quickly began searching the internet and Pintrest to find out as much information as possible about debt payoff. This was almost a year ago now (Fall 2014) and I can’t wait to put my plan into action. Through the process I found these helpful tips that I have been using throughout grad school, and will really start using next month when my first bill comes in the mail!
Find a budgeting system that works for you, and stick with it! I was shocked to find how much I was carelessly spending each month, mostly on going out to eat. The easiest way I have found to budget is to use Mint to track all my spending. I have all my banking accounts linked up to my Mint account and created a budget for the things I spend money on each month, like gas and groceries. Also, it reminds you of the bills you have to pay and you can get a free credit check with advice on ways to improve your score! They even have an app to make it super easy to check and edit your budgets whenever you want.
2. Manage your Loans
For me, this meant using ReadyForZero to manage my loans. This tool allows you to enter in all of your loans and create a plan to pay off your debt. It even has this nifty tool that lets you see how much faster you would pay off your debt and how much your would save by making larger payments. Also, it shows you how much your daily interest is, talk about motivation!!! I have to say I am not planning to follow my plan completely that they mapped out for me because I don’t love the order that they pay loans off in. They go by the smallest loan with the highest interest rate, and that just isn’t something I want to do. However, this tool is wonderful to see your progress and easily calculate daily interest rate, how much is left, etc.
3. The Snowball or Avalanche Method
Look into Dave Ramsey, the man is a financial genius. He has some great tips about managing your finances in general, but has a debt repayment plan called, the snowball method. This method has you focus paying down one specific loan by putting all of your extra money towards this loan. All your other loans you should make a minimum payment on. When your focus loan is paid off, you apply that payment to your next focus loan. How you pick your focus loan should have some reasoning, either you are focusing on loan amount, interest rate or a combination of both. If you’re focusing on the smaller loans first, this would be the snowball method. This method plays more to emotions because you get small victories in the beginning to motivate you through the end. If you focus on your highest interest loans, this is the avalanche method. This method is purely mathematics and allows you to pay less in interest. Personally, I am focusing on my highest interest rate loans first, if I have more than one loan at a certain interest rate, I focus on the larger one.
4. Get Organized
This is going to look different for everyone, but it is important to find an organization method that works for you. Personally, I use a combination of ReadyForZero and a binder. ReadyForZero allows me to keep track of the bigger picture of my plan, how much I’ve paid off, my daily interest amount, etc. While a binder keeps all those pesky bills organized because they tend to go missing if they don’t have a home, and it helps me keep track of each individual loan I have.
5. Have Fun
During grad school I said no to doing a lot of fun things because it would cost me money. At the beginning, I was in hardcore debt payoff mode, and wanted to put as much money as possible to my loans. But I sacrificed having fun with my friends, and eventually the stresses of going to grad school full time and working full time weighed down on me. I realized I needed to enjoy myself and quickly found ways to do that without spending a lot or any money. My personal favorite is having a potluck with friends. What’s better than great food, great friends, and wine. It’s a lot of fun, and pretty cheap, too.
The goal of paying off student loans is pretty hefty, with a plan it makes it much more manageable. I hope these 5 tips help you as much as they have helped me to plan my debt payoff. What are some tips you have for making a debt payoff plan?