Friday, February 5, 2016

how I paid off my student loans years early

Confession: This is not as impressive as it seems. I am nearly 8 years out of college, and my original loan balance was $55,000. I was on a 10-year repayment plan, and when I paid off my balance, I still had three more years to go. By the time I graduated with my Masters in Teaching, I had five loans from two lenders. From ages 22 - 29, I paid $500 monthly for my student loan payments.

So what changed that allowed me to pay off my balance in four months?

That's easy: we became a double income household.

I married my husband when I was 23 years old. Four years of our 6-year marriage have been sustained by a single earner. I was unemployed for one year, and my husband was the sole earner. Then, I was the sole provider for our family for three years while my husband earned his degree.

This past September, we became a double income household again for the first time since July 2012. The very first thing we did when we both received our September paychecks was to crunch some numbers.

The first number we calculated was our combined monthly take home pay, which, depending on the fluctuating exchange rate from New Taiwan Dollars to US Dollars, is roughly $5000 USD.

The second number we crunched was the total outstanding balance between my five loans, which was roughly $20,000 USD.

The third number we crunched was our monthly cost of living. Luckily, we keep our past bills -- water, gas, electricity, internet-- in a folder. Also, because we have lived in Taiwan for 3+ years, we know very well what to expect for other expenses such as groceries and gasoline. Our lean monthly cost of living is roughly $400 USD.

It was very important to us to eradicate my debt as soon as possible for both practical and personal reasons, so we were willing to live a lean but still mostly comfortable existence in order to pay it off as quickly as possible. According to our calculations, it would take 4.3 months to pay off my debt if we did not spend additional money outside of our necessary cost of living for 4 months-- from September to December.

However, we also got to crunch a fifth number: my October bonus. Each October, Taiwanese public school teachers get two of their monthly salaries as long as they were found to be in satisfactory standing the previous school year. Every single year I have been here, I have received the bonus. So, we were also able to add an additional $2,500 USD to the pot of money we would have at our disposal from September to December to pay off my debt. Luckily, this tipped the scale perfectly so we were able to do it in exactly four months.

In early December, after receiving our December paychecks, I made my final loan payment.

The method we used to do eradicate my debt was simple: 
we tackled each lender separately.

Lender A owned three of my loans with a total balance of $11,000 USD. Lender B owned two of my loans with a total balance of $9,000 USD. Lender A cost me more monthly, making up $350 USD of my $500 USD monthly loan payment. Further, two of my three loans from Lender A had 6.8% interest rates. Therefore, we eradicated debt from Lender A first, in October.

In one fell swoop, at the beginning of October, I transferred enough money from my Taiwanese account to my stateside account to pay off all three of my loans from Lender A. I left only enough money in our Taiwanese account for our projected cost of living for the month. Then, we started the saving process anew for Lender B with November's paychecks.

In December, after being paid, I once again left only what was needed in our Taiwanese account for our cost of living and transferred stateside the money to pay off both loans from Lender B.

By the end of the first week of December, I received notices from both lenders that all five of my loans were paid in full.

In January, we had to start making monthly payments for my husband's student loans. His monthly payments are much smaller than mine were at only $200 USD monthly. We are using the same method to tackle his debt that we used for mine, which is why we chose not to travel abroad for winter break this year. In the end, it will be one school year of sacrifice, but we feel it is worth it in order to be 100% debt free and own as much of our take home income as possible. 

That way, we can decide what we want to do with our money instead of financial obligations making decisions for us. 

WORDS OF WISDOM:
Lessons I learned from this process 

Overpay your "payoff" amount
When you pay off your debt, it won't be finalized until a few days later. In those days, your loan(s) will still accrue interest. Therefore, the total shown as your "payoff amount" is actually not correct. When I paid off Lender A, I had to go back and pay 8 to 14 cents extra for each loan. Wiser, when I paid off Lender B, I overpaid by $5 USD just to be safe. I received a refund of $4.20 from Lender B a few days after I received my notice that my accounts were paid in full. 

Some lenders show you a pay off amount that accounts for the interest accrued until your last payment is finalized. My husband's lender, for example, shows two amounts: the current total balance and the total projected balance for one week later, so people can account for the interest that will accrue while final payments are being processed. 

If your lender does not do this, I would just recommend overpaying. What is an extra $5 to avoid the headache and hassle of going through the process one more time for something as negligible as cents? The funniest part of Lender A? I had to overpay the 14 cents to account for the days it would take to finalize my second final payment of $1 USD. 

Oi vey. 

Overestimate your cost of living
We left the NTD equivalent of $450 USD in our Taiwanese account for each month even though our projected cost of living was only $400 USD. The $50 extra dollars were there just in case. It was a good thing too. In September, our scooter died on the side of the road. I have to admit that it only cost $20 USD to fix. Seriously, there are many perks to living in Taiwan! Obviously, we felt pretty safe having a small safety net of just $50, but that is because we know what to expect from Taiwan. Choose a reasonable safety net for your circumstances. 

A FINAL NOTE

I know how fortunate we are that 92% of our take home income is true disposable income. I know how fortunate we are that within 4 months of becoming a double income household, we had the option of paying off an outstanding balance of $20,000 USD.

However, 4 months was never the goal!!

The goal was as soon as possible. Four months happened to be our "as soon as possible". If you truly want to pay off outstanding balances and eradicate debt, you can use the same exact method we did. If you are more fortunate than us, maybe your ASAP could be less than 4 months. On the other hand, your ASAP might be 2 or 3 or 7 years. Regardless, for us, for personal and practical reasons, it just made no sense to continue plodding along an arbitrary payment plan when we could take control of our own finances years before a random payment plan scheduled for us to do so.

SIDE NOTE

We live a very intentional lifestyle so that 92% of our take home income can be true disposable income. We don't have cell phones. We don't have TV service. We don't have credit cards. When we moved to Taiwan, we chose to buy scooters rather than a car-- the equivalent would be taking public transit. We cultivated free hobbies. We plan our meals and use a list when grocery shopping. We are international teachers.

I could go on and on.

I am not suggesting that doing these things will provide you with a disposable income that is 92% of your net income, but I am saying that those things do cost money and, more often than not, are not necessities.

Different strokes for different folks.

I believe that young people-- especially those carrying around massive student loan balances -- can take control of their finances. It might take some finagling. It might take some uncomfortable realizations and changes. It probably won't happen in the blink of an eye. Remember: I religiously paid for 8 years on those loans before finding myself in a place that I could just rid myself of them once and for all.

But those 3 years I got back? 
To me, they were worth living very tightly for 1/3 of last year. 

2 comments

  1. This is fantastic! Congratulations! I am always so pumped when people choose to focus on paying off their student loans and taking back financial freedom. Thanks for sharing.
    www.california2catalonia.com

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    Replies
    1. FREEDOM! It is pretty amazing, I'm not gonna lie! Thanks!

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