Hey Money Wizards! Today I’m excited to have a very special guest on the blog – my own brother!
He paid off $100,000 in student loans in just 3 years.
Read on to see the brotherly Q&A, where Bro Wizard explains exactly how he broke free from debt on the typical officer worker’s salary.
So why on earth did you accrue this much student debt?
Graduate school isn’t cheap! My advanced degree cost me 4 years and about $100,000.
On the plus, jobs in my chosen field are relatively plentiful, so I didn’t have any apprehensions about being unemployed with an enormous loan burden and monthly payment. The average debt for a person with my degree is about $150,000, but I was fortunate to have a few scholarships and to enter higher education with the mindset of having as little debt as possible while not completely sacrificing fun.
Honestly I thought I did pretty well!
What was your interest rate?
I received loans from the federal government at 6.8%, the standard rate at the time. Thankfully, I avoided any private loans like the plague.
After you graduated and saw the balance, what was your first thought?
What would any money wizard think? Honestly, it was a little overwhelming. Staring down a monthly loan payment close to $1,300 made me nauseated.
I was eligible for income based repayment and other graduated payment plans, but I wanted it gone!
I had a few thousand dollars of my original loans leftover, and I decided to use that money to make a lump payment at the outset to try to decrease the monthly payment. While it would have been nice to reward myself with a giant graduation gift, I opted for delayed gratification.
So you say jobs were plentiful, how did that pan out?
I did get a job in my field after graduation. I was making about $60k a year, although I took home less because of taxes and health insurance. My paychecks totaled around $1,600 every two weeks, and I was making a minimum loan payment of about $1,200 a month in the beginning.
Tell us a little about your payoff strategy.
My plan was simple. Because 6.8% is pretty close to what stocks historically return, I didn’t want to try to invest money while carrying such a significant loan burden. I took the majority of my expendable income and applied it towards the loans. If I had leftover money that was building in my savings account after a few months, I’d make another payment.
(The Money Wizard’s Note: Very smart! If you want to see more of this line of thinking, check out my article The Correct Order for Investing Your Money.)
All of my loans were the same interest rate. If they weren’t, I would have concentrated on paying the higher rates first.
One thing I did have control over, however, was my loan groups. I had $100k in loans made up of several smaller pieces. I focused on paying the smaller pieces first. As these smaller pieces were paid off, it dropped my overall monthly payment in small increments, leaving me a bit more discretionary income.
Before the last check I sent in, my minimum payment had dropped from $1,200 to only $500 a month.
You said a priority was paying loans, but did you find a way to scrape together any money for retirement?
I actually did!
The instant 100% return on investment from employer matching beat the guaranteed 6.8% return from my loans, so I contributed 5% of my pre-tax earnings into my 401K to get the maximum employer match.
Everything else went to loans. I just wanted the weight of debt off my shoulders.
Let’s hold up for a minute. I’m doing some quick mental math, and this just doesn’t add up. You averaged nearly $3,000 dollars in loan payments a month!
I did live pretty frugally. I ate out as a treat. My employer often provided simple lunches, so I didn’t fall victim to the trap of constant eating out at lunch chipping away at my bank account. I live close to work, so on nice days I would walk to work and save a bit on gas.
That sounds great and all, but your loan payments approached your total take home pay. What’s the secret?
You’re astute, Mr. Money Wizard!
I am fortunate to have a job where you can pick up an additional shift here and there. Because of my extra shifts plus my usual schedule, it isn’t unusual for me to hit 60-70+ hours per week, depending on how many shifts I have going.
I saved up for a couple vacations with this extra money, but everything else went to the loan.
The ONLY benefit to working so much is that I frequently don’t have the time or energy to spend the money I earned. I’ve noticed on my free weekends I spend a lot more time on Amazon!
My goal is to cut the working back now that my loans are paid and make more time for family and friends… maybe my lighter version of an early retirement.
I do have an older car. My computer is from the relative Stone Age (circa 2010). I live in a modest apartment in a downtown metropolitan area. I could easily spend double on rent, but I have what I need. I bought new phones whenever mine stopped working, rather than at the industry standard 2 year intervals.
I splurged on a few bigger ticket items such as some great vacations both in and out of the country and a new iPad. I’m not really a small impulse purchase kind of person, so overall my expenses remained pretty low. I think I just focus on spending money only on what really matters to me.
Tips and tricks or general advice for anyone paying off loans?
Making payments over the minimum can save you heaps of money. I saved about $25k in interest paying the loans off in just over 3 years rather than the standard 10 years. Every little bit counts.
And stick with it. Becoming debt free was one of the best decisions I ever made. I can’t even tell you how amazing it felt to make that last loan payment. As soon as I submitted it, I instantly felt a huge burden disappear.
You talk a lot about buying your freedom on your site, and that’s exactly what I did. Best purchase I ever made!
Thanks for joining us, Brother Money Wizard!
The Money Wizard’s Thoughts
I know several of you are struggling with student loans or other types of debt, so I hope you all enjoyed that one!
Maybe you picked up some tips and tricks, or at least some motivation!
I can tell you, this neat post makes the journey look like a nice, smooth process. But Brother Money Wizard’s journey wasn’t easy. He was OBSESSED with those loans. And he side hustled like crazy with those extra shifts. I can also remember him venting frustration about throwing thousands of dollars per month towards those loans, with what felt like nothing to show for it.
But remember, the hardest part of any journey is when you’re in it. It can feel like you’re not making any progress at all, which is usually when it’s a great time to stop and pat yourself on the back for just how far you’ve come.
So to anyone still finishing off their debt of any time, keep it up! It will be so worth it when you’re done!
And if you need a little help along the way, I continue to recommend Personal Capital.