In the black: Climbing out from $170k of school loans in 3 years

When I saw how many numbers were in front of that comma, my chest tightened. I owed more in debt than I would make in a year. I couldn’t imagine how I would pay it off with marginal savings, or when I could consider riskier, potentially more fulfilling career opportunities. Business school opened up possibilities, but I had also never felt so debilitated.

After much reflection and shifting to a “growth mindset,” I was able to feel empowered and proud of my progress. I’d like to share with you how I stopped being crushed by debt.

Where I started:

I’ve learned from my friends that everyone’s situation is different. We have different interest rates, salaries, responsibilities (e.g. supporting family, kids), and priorities (e.g. experiences, saving for a home).

My situation:

  • Debt = $170,000
  • Single = No safety net
  • Potential family financial responsibility

My initial approach, that didn’t work for me:

I chose the longest term plan for the lowest monthly payments, in case I needed the flexibility. I sent additional payments whenever I accrued $500+ in savings. Most months, I sent in more than $2,000 — a sizable amount for me. You’d think I felt some progress by actively sending in thousands of dollars, but instead, it felt futile.

Why?

$1,000 doesn’t make a dent when the monster is $xxx,xxx and growing at 7% interest.

What DID work for me:

1. Know where everything is

  • I made a spreadsheet with each loan balance and interest rate.

2. Focus on one small goal at a time

  • I discovered a faster way to pay loans with the highest interest rates first. My loan provider auto-allocated monthly payments evenly across all loans (regardless of interest rate), but if all outstanding interest was paid, they were willing to re-allocate completed payments. I emailed them every month to re-allocate my payments to the loan with the highest rate.
  • I chipped away at on one loan at a time. It’s easier to see progress on a small number.

3. Change how I measure success

  • After a while, I wondered how much I had paid and added it up. I was surprised at what I had accomplished! But every time I signed into my loan account, the monster stared at me instead.
  • To measure my progress, I built a balance sheet:
  • Adding $1,000 at a time made a significant impact to THIS number.
  • Focusing on progress made a big emotional impact. I’m not sure if I paid off my loans any faster, but I definitely FELT a lot better. Feeling empowered is a healthier place to be.

Results

  • Paid off all my loans that had interest within 3 years
  • For the first time in my adult life, I’m in the black

I didn’t feel like a “real adult” for a while. While many of my friends were purchasing homes (in San Francisco, no less), I wasn’t even in a place to invest or save up for retirement. Now, my perspective is more grounded by what I’m capable of.

Other decisions I made along the way:

You might make different ones. We all have different priorities.

  • I temper the cost of living in San Francisco by living with roommates and in a rent controlled apartment.
  • I had a hard conversation with my parents. I felt extremely guilty, but couldn’t continue to financially help out, not with these interest rates. My mom hadn’t realized the weight I had chosen to carry, and with some tears in her eyes, asked me to please be more selfish. She offered me a $40,000 loan at 0% interest; I accepted it. This is different for me. She helped ease my guilt and helped me accept help.
  • I used my IRA savings to pay for tuition and postponed saving up for retirement until after my loan payments were complete. Why?
  • No early withdrawal if the money is used for education
  • I didn’t know what to invest my retirement savings in, plus the debt would definitely cost 7% interest vs. the stock market’s uncertain x% growth.
  • I paid off as much interest as I could in the first year. You can get a tax deduction for up to $2,500 for student loan interest payments as long as your income is within limits (IRS). Your first year out of school is most likely when you’ll qualify because you’ll only work part of the year.
  • I did not refinance. New lenders offered a lower interest rate, but I weighed the options and the savings weren’t worth limiting flexibility in deferring payments if I needed it.