I have started on a new plan to pay off my student loan. Some of you may recall that I had a plan a couple of years ago to pay off my student loan. That plan started off strong. I got my student loan debt down to $122,000 from $138,000. After that the plan fizzled out and my student loan debt climbed back up to a total of $132,000 earlier this month. It is depressing to see $10,000 get eaten up by interest. That money basically went up in smoke. Having a student loan accruing about $600 in interest every month really sucks.
That is why I’ve started on a new plan to pay off my student loan. My previous student loan payoff plan fizzled out due to a lack of income. This plan will be different because I now have a steady source of income. I might be counting my chickens before they hatch, but my seasonal job has offered me a long-term position. I should be signing the paperwork to make it official today. With this steady source of income I’ll be able to consistently make payments on my student loan.
Even with the new job the task of paying off $132,000 in student loan debt can seem overwhelming. I’ve come up with my 132 plan to make the task seem a little less overwhelming. Rather than thinking of the humongous $132,000 of debt I have to pay off, I’m thinking of the debt as 132 $1000 payments. This amounts to the same thing, but it seems more achievable.
With the income from my current job I should be able to make 1.5 payments a month. At that rate it would take me about 7 1/2 years to make 132 payments. With interest my loan wouldn’t be paid off with 132 payments over 7.5 years. With interest included it would take a little over 10 years of payments to pay off my loan. However, I plan to make a big payment sometime this year and hopefully refinance the loan next year so the 7.5 years could be a reasonable estimate of how long it will take me to pay off the loan.
Even though I like my current job okay, it would be extremely difficult for me to stay there 7.5 years. In order to shorten the payback time frame I plan to make extra money in addition to my job income. Last year, I made about $10,000 from FBA and another $1000 from my blog. That would be an extra 11 payments a year which would help pay off the loan quite a bit faster. If I could figure out a way to make 10x as much money from FBA I could have the loan paid off in a couple of years. Of course, that is easier said then done. The reality is that I’m making much less from FBA now that I’m working. To start making significantly more from FBA in the reduced time I have available I need to start selling wholesale and/or private label products. I’m making it a goal to do at least one of those this year. I will keep you updated on those plans as they develop.
It would also be nice if I could start making more money from this blog. In my best year I made about $20,000 from this blog and some other blogs I own. It isn’t likely I will ever get my blog income back up to $20,000, but I do believe I can do a lot better than I am now. I need to start blogging more consistently and producing better posts to get more readers. And I need to start trying to make money from my blogging. I’ve been pretty lazy about optimizing my blog for display ads and affiliate income. If I could just get 26,4000 people to sign up for Qapital with my referral link I could have my debt paid off. Okay, maybe that is a bit of a longshot. I’d only need 1320 people to sign up for Personal Capital to get my student loan paid. Okay, that isn’t realistic either, but I could make enough from these to make a couple extra payments a year.
For now, I’ll be concentrating on making money from my job. During the tax season overtime is available. If I were to work all of the available overtime I should be able to make an extra payment a month. Once I no longer have the option of working overtime I’ll concentrate more on ways to make money beside the job.
Although I will be happy when I finally have this debt paid off, it is also depressing to think that after paying all of this money I’ll just be at zero. There are some minor fringe benefits that go along with paying off the debt. I get a tax credit for $2500 of the student loan interest paid each year. Another plan I have to get some extra benefit from paying my student loan is to use the student loan payments to help meet minimum spend requirements on credit cards for signup bonus purposes. I should be able to cycle through 3 or 4 credit card bonuses each year. Also, while I’m paying off my student loan I should have my highest ever income years which will help increase my social security benefit a little bit. I’ll need it since I won’t be saving any money for retirement while I’m paying off the student loan. I’m sure there are some more positives to paying off the loan than I’m thinking of right now.
The 132 plan is off to a good start. I’m already down to 130 payments since the start of this month and I’ll make one more payment before the end of the month. Although, I’ve broken the debt down into 132 payments of $1000 I will also be sending in smaller payments between paydays to help decrease the debt a little faster. Every little bit will help.
If you have any suggestions on ways I can pay my student loan off faster I would love to hear them.
That’s a great way to approach that debt in increments like that. It reminds me of a blog I recently found, studentdebthustler.com. She has the same approach but is trying to eliminate about $50,000, in addition to regular monthly payments on her student loans. Hers is 500 one hundreds, though. So far, she is down to 400 one hundreds. I hope you will be able to stick with it this time. The interest is a killer!
Isabella – Thanks for the link. It is pretty cool that she has a similar method to me for thinking of the student loan debt. And her most recent post is about bank bonuses which is a way I make extra money too. I’ll have to read more of her blog.
http://www.studentdebthustler.com
Corrected
Andy, you’re probably smart to not own at this point…but I do wonder whether it would be smarter for you to find a small house on the edge of town and BUY. It should turn a profit in the long run.
We’ve done this once, getting ready to do it for a second time, and have more than doubled our money each time, even with paying interest.
P.S. Hire me as a part-time staffer again. I’ll help keep your blogs going!
Cindy – I think it will be a while before I can afford a house. If this blog ever starts making decent money again I’ll definitely rehire you as a writer.
Love the increment plan! That’s part of how I paid off $200,000 in debt. Love where you’re at, too.
Suggestions:
1. For motivation: break it down into interest per month, or interest per day, too. I used to keep a chart of that at my desk. Each time I knocked $.01 per day off, that’s a victory. It’s a latte a year that I won’t owe some banker for the rest of my life. A mere $0.5 per day is $18.25/year, or almost a steak dinner.
Then, use that to compare your purchases: do I really want to buy that latte today, or do I want to give myself back a latte a year, every year? Do I want to eat out today, or would it make more sense to chip off that free steak dinner I’m giving away every month.
As you’re learned, every cent you pay now is far more cents you don’t have to pay later. Or, in other words, the first $1,000 – those early big payments – are the most important. Once the interest becomes more manageable, the repayment really takes off, and by the end, it’s like you’re skiing downhill.
2. Huge tip: The IRS may still allow you to count capitalized interest as deductible too. For instance, you could deduct the repayment of interest money that was recapitalized while you were in school. So, for instance, if you took a $10,000 loan your first year of school, and then weren’t paying as you went, the loan probably added on interest (most non-subsidized loans gladly pack that on for you). The loan might reach $12,000 before you graduate: that’s $2,000 of recapitalized interest. And paying it back is all tax-deductible. You can calculate out how much of each of those loan payments you made – I’d look at your total payments for the year to that particular loan – were actually paying back that $2,000 of interest. Each dollar you save is tax-free, and it allows you to boost your payments even faster. (I used my refunds from that to make more payments.)
Note: you can’t rush it and, say, claim you’re paying the whole $2,000 with your first $2,000 repaid; I believe the IRS makes you spread it out in proportion to your normal payment. See the IRS website for details – I’m not a tax lawyer, it’s merely information I would suggest that you look into – it could save you hundreds if not thousands!
3. Do you have one loan, or more than one? There may be other options, too.
4. Check into your loan terms. Some loans have specific terms that can help. Some repayment companies will give you automatic interest-rate breaks for doing auto-payment. “Give me a 0.25% interest rate break on a $35,000 loan for simply letting you debit the payment I can make early anyway? That’s $875 a year in interest I’m saving! Why yes, I think I will.”
Small changes – especially now – make huge impacts over time.
I’m posting at my blog on student loans soon too – with a lot more of this. Stay tuned! And great luck to you, Andy – keep up the initiative!
In honor of you, I went ahead and posted key strategies to tackle big student loans, along with some of my story. You can see it on my site. Best wishes!
FinancesWithPurpose – Thanks for the info. I’ll check out your post. I have one consolidated loan and I do receive a .25% discount for having autopay. It will take a while before the payments I’m making reduce the interest at all, but I’m looking forward to that day.
Hi Andy,
I was wondering, how large is that student loan APY, if you do not mind me asking? That compounding is terrible, especially since there is such a large balance.
Unfortunately, other than zero balance transfer credits cards, I could not think of any other way to lower the APY. Other than that, I think that working for as long as possible is the best option for you. Are there any options for debt consolidation, or are those scams?
DGI – I’m going to do a post tomorrow with some more details on my student loan. I will be using 0% balance transfers to help pay down the loan.