How to Pay Off Your Student Loan Faster than the Rest?

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You have graduated, at last, from college with your degree. And now the cold, hard reality is starting to sink in – you owe $30,000 in student loans. You worked hard during summer and even took on part time jobs during the school year. You gave up your car and you lived with room mates. Friday night out was a pot luck dinner at your friend’s apartment followed by a rousing game of Scrabble. Just when you thought you could cut loose, the specter of debt hangs over you.

It’s not about paying off your student loans any faster than other debt you may have, but it is about paying off all debt resulting from your years at college. So let’s see how to do that – how to pay off your Student Loan faster than the rest!

Start by devising a budget so that you not only live within your means but also have a plan to repay debt. Some of the strategies you used to minimize debt as a student can be recycled, live with a room mate, prepare your own meals, get rid of the car and use public transit, and entertain at your place.

Your have started an entry level job in your career and your take home pay after taxes is $3,000. How fast can you pay off your student loans with that amount of money? Start with a budget and look for ways of minimizing your living expenses.

Let’s say that this was your budget as a student:

Cost Item

Cost

Times to be paid

Total cost

Tuition

$3,000

1

$3,000

Texts, Supplies

$1,000

1

$1,000

Security Deposit

$300

1

$300

Rent

$300

4

$1200

Utilities

$50

4

$200

Internet

$25

4

$100

Bus Pass

$50

4

$200

Groceries

$75

18

$1350

Entertainment

$50

18

$900

Clothing

$200

1

$200

Some expenses such as tuition are gone, but others such as transportation (bus pass) are increased. Previously, your average monthly spending was about $1100 per month for the eight months of the school year.

Housing – continue to live with a room mate until your student loans are paid off. You may decide that you can move into a larger apartment, one that has two bedrooms so you can have your own space. Two bedrooms will not double your rent, and you can still count on halving the security deposit, utilities, internet, and cable. Add $200 per month for housing.

Food – continue to prepare the majority of your meals yourself and fix a bag lunch to take to work. Eating out is still expensive, but you may treat yourself occasionally – once a month. Add $60 to food costs per month for eating out.

Car – You may keep a car for pleasure but continue using public transit for work. Insurance for driving a car to and from work is more expensive than for pleasure only. In addition, parking downtown in any city can add over hundreds per month. Likewise, many accidents occur during the daily commute. You no longer qualify for discounted bus passes so your transportation is going to cost more regardless. New total for transportation is $600.

Entertainment – Continue to entertain friends in your apartment, but it is also a time to allow some money for dating, especially if you are a man and you expect to pay for your dates. The key is to keep expenses in line with your earnings. Allow $50 per week plus $100 per month extra. Total for entertainment is $300.

Clothing – As a career person, the student shabby chic style won’t cut it. Your budget will increase to add clothing items suitable for your career. A woman can expect to pay more for cosmetics. And it’s not just clothing, but shoes and coats, gloves and hats. Additional clothing costs equal $200 per month.

Your new monthly budget might look like this:

Cost Item

Cost

Rent

$500

Utilities

$50

Internet

$25

Transportation

$600

Groceries

$135

Entertainment

$300

Clothing

$200

Your total living expenses as a new career person total $1810 per month. After expenses, you now have $1190 for debt repayment, and savings. With $30,000 worth of student loans, it could take 30 months of paying $1,000 per month – not factoring interest charges, to pay off the student loan. Still a good deal if you keep your expenses low!

But this could be accelerated by taking on a part time job or finding a way to make more. If you were able to manage the same part time work as a student that paid $640 per month for two shifts per week, and you dedicated that money to loan repayment on top of the $1,000 from your regular job, you would now be paying $1640 per month which would the time to repay to about 18 months, saving over a year of payments. If not, really any extra money thrown at your debt repayment would be a good choice and reduce the overall duration of the payment time.

Closing

It is important to pay off student loans as soon as possible once you have graduated from college. This is a time of your life when minimizing your expenses is easier than when you have a family. And the sooner you finish paying it off, the sooner you’ll get at least $1,000 (as per our example) in extra money per month!

Photo credit: SalFalko

4 COMMENTS

  1. $1,000 a month is a great figure to aim for. There’s something motivating about large, round numbers. And like you noted, throwing four figures at debt, almost of any size, makes pretty quick work of it.

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