It’s actually better than it seems, from the title. I started with $35,000 in student loans when I first graduated in 2007. And I actually took out over $40,000 in loans. I was fortunate that several thousand was forgiven as part of several grants that I received! I made payments for a few years, and then did my second degree, during which time my student loan payments were halted. I still made payments when I had money of course, but there wasn’t an official payment plan while I was taking classes. Now that I’ve been out of school for 6 months and gainfully employed, it’s time to (officially) pay the loans again! The outstanding balance is about $27,000.
Right now, my minimum payments are at $315 per month. That’s a decent chunk of my budget. I’m on a 9 year repayment plan (I have no idea how they came up with 9 years…) and a variable interest rate of prime + 2.5%. That does not work with the Master Plan! If you do the math, it works out to paying $6,000 in interest over 9 years. What! Student loan interest is tax-deductible in Canada, but that doesn’t mean I want to pay more of it than necessary.
With any debt, the best thing you can do is make extra payments over and above your minimum. So, (1) my plan to is regularly pay $500 a month towards my student loan instead of taking out a trust deed (here are answers to any trust deed questions btw). That’s almost $200 extra that will go directly towards the principle, reducing the amount of interest I will have to pay and getting me closer to student loan freedom. If I stick with a $500 payment, I can have my loan repaid in approximately 5 years. Suddenly, that looks a lot better, right?
Not to me – 5 years puts me in my early thirties and that’s just a sad and terrifying thing to think about. So I need to be a little bit more aggressive.
Luckily, my new job pays overtime! (I am still baffled at having a software developer job that pays overtime…) (2) I am planning on putting 50% of my overtime earnings towards my student loans. If I conservatively estimate 10-15 hours of overtime a month, that’s an extra $5,000 per year, of which $2,500 will go towards my student loans. I suspect that in many months, the overtime hours will be much much more but I’m trying to estimate on the low side… That brings me down to about 3.5 years.
Finally, (3) I hope to put 25-50% of my yearly salary increases, freelance income, blog income, and tax refunds towards my student loans. Based on my current output and a modest 2% cost-of-living increase in salary each year, I should be able to put another $1,500-$3,000 towards my loans, bringing me down to 2.5 years. Depending on what fraction of this extra income I want to divert towards my student loans, I might even be able to get down to 2 years!
Phew!
I admit, a lot of this involves counting unhatched eggs. But, I think that my estimates are conservative and my ability to generate side income is proven. With a bit of perseverance, I think that I will be able to pay off my student loans by the time I’m 30. Ish.
Finally, if you came to this article looking to see how I am playing off my debts, the best thing to do is to get some good solid advice. A good place to start if you aren’t going to shell out thousands for a financial planner or a financial coach is to get a copy of Dave Ramsey’s The Total Money Makeover. It sells for something like $15 on Amazon. This is a super cheap price considering that its helped millions of people discharge their debt. If you are serious about getting your obligations paid off, get a copy.
