Whether it’s student loans, credit card debt, car loans or any other type of debt, you should aggressively pay off your debt.
There are two main ways to go about paying off your debt.
Pay off accounts that have the highest interest rate first.
Pay off accounts that have the lowest balance first.
The first method is more practical because you will pay a lower amount of interest because you’re paying off debt with higher interest rates first.
However, the second method has more of a psychological effect as you are likely to be more motivated as you pay off your smaller accounts first.
I really like both methods and you can’t go wrong, it’s really up to personal preference and whether you’re motivated by seeing smaller accounts being fully paid off or more motivated by paying the least amount of interest total.
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I graduated University of Southern California (USC) with $26,000 in student loans.
However, in my senior year of college I took out an extra loan in order to invest in the stock market. Read more of the backstory.
This was extremely risky and dumb, but I did get lucky and made a couple grand (please don’t do this).
So, right before my loans went into repayment status, I returned the extra loan and a bit extra to lower my student loan balance to $16,000.
Graduated to Reality
In the beginning, paying off student loans was not a priority.
I figured I’d pay the minimum and they’d be gone after 10 years.
I was making about $3,200 a month after taxes at Fandango in digital marketing. Thinking I was grown up now that I had a real job, I upgraded my lifestyle with a new leased car and one bedroom apartment.
My monthly expenses in Los Angeles were usually $3,000 – $3,500. So, often I was losing money each month.
That’s when I discovered personal finance blogs and books.
After a year of making changes to my life (eating out less, buying an old used car, selling extra things, etc) my monthly expenses averaged closer to $2,800.
Still, I was not thinking about student loans.
Instead, I was focusing on saving as much money and investing in index funds.
Investing in Stock Market versus Paying Off Student Loans
This is a hot topic and deserves its own post, so I’ll just touch on this briefly and then jump back into the story.
I am definitely one who looks to maximize my returns.
But, now that I know what it feels like to have no debt, I know paying off student loans was the right decision versus sticking that money in an index fund.
Reducing your risk and freeing up your mental energy beats a higher investment return, especially when it’s a relatively small amount like $16K.
From Fandango to Facebook
A couple years passed, I kept working at Fandango and paying the minimum on my student loans.
I believe I was at $13,000 when I got hired at Facebook.
I moved up to San Francisco to take the higher paying job.
In conjunction with raising my salary, I lowered my expenses by living with roommates and taking advantage of the free food at Facebook.
At this point, because I didn’t inflate my lifestyle (actually deflated it), I was able save more than 50% of my income most months.
This allowed me to quickly build up my investments and cash reserves.
Meanwhile, I started listening to Dave Ramsey and got inspired to look at my debt differently. Fortunately, I never had credit card debt, and I had bought an old car in cash the year before.
The only thing left was my student loans.
So, I stopped contributing large amounts to my 401K and instead stockpiled cash.
It took a few months, but I paid off the student loans in two payments of $6K each.
And then it was done!
In reality, my first emotion was that I felt cash poor.
Cash makes us feel safe and insulated.
But, the next day I felt amazing. Like an invisible weight had been lifted off my back.
I really never thought my student loans had much control or power over my emotions, but I was wrong.
Knowing that you owe no one, nothing, is a freeing feeling.
So, get out there, save more money, make more money and pay off those student loans!
This article recounts my college history and how I was able to attend a good school without going into a crazy amount of debt.
A couple years later at 26 years old, I was able to pay off my student loans.
Accompanying video at the bottom.
Student Loans…eh, who cares
When I was in college, I didn’t think much about student loans.
I figured they would somehow get paid off because I was going to make a bunch of money right out of college.
When I got my first job out of college, my expenses were between $3,000 – $3,500 a month living in Los Angeles. I was making about $3,200 a month.
But let me backup for a moment.
School #1: University of Colorado – Boulder
I initially went to University of Colorado at Boulder. That lasted one semester. I got bad grades and left. I went home to St. Louis and took a semester off.
I accumulated around $8,000 in loans from that one semester.
School #2: Community College in St. Louis
I enrolled in Community College in St. Louis. I come from a low-income family so FAFSA gave me $5,500 a year for school. After tuition and books, I usually had around $1,000 leftover each semester.
Being paid to go to school!? Pretty awesome.
I was also working part-time and living at home, so I was able to pay off some of those loans from Boulder.
School #3: University of Southern California (USC)
After a year and getting a 4.0 GPA in Community College, I was able to transfer to University of Southern California (USC). This was my dream school and I was ready to take out as many loans as needed (not smart).
However, because USC is a private school with good funding and my family had low-income, USC and FAFSA paid for 95% of my tuition.
Looking back now, I can’t believe how much money this saved me.
Instead of $26,000 in student loans, I would’ve had $150,000+.
Living in L.A. was still not cheap despite living as a student. Going into my senior year in college I had about $18,000 in student loans.
My (Almost) Terrible Mistake:
In the summer of my junior year, I landed a high-paying internship in digital marketing. I made enough money to cover a good amount of expenses for my senior year (~$10K).
At this point I had started investing and playing around in the stock market. I had done pretty well so far and had made money from all my investments (#dangerous).
So, I got this little idea that since I had most of the cash to cover my expenses for the year, I could take out a subsidized loan and use it to invest and make money off it.
This is about the worst idea you can have.
Well, anyway, I did that.
In my senior year, I had about $26,000 in student loans.
Fortunately, after risking my student loan money in the market, I made ~$2,000, sold and banked the money.
I was still working part-time at the digital marketing agency and had a few freelance projects so I made an extra few thousand throughout the year.
I graduated college and paid off $10,000 of the loan balance immediately. This was mostly just returning the money that I risked in the stock market plus some extra from working in my senior year.
So, I got my first job at Fandango in digital marketing with about $16,000 in student loans remaining.
Key Takeaways: how I was able to get into a top school
I went to Community College and had a 4.0 GPA.
Colleges love transfer students with high GPAs from other colleges. It is the single best indicator that you will succeed at their school.
Spent a lot of time crafting an amazing college essay.
Stellar referral letters.
Key Takeaways: how I escaped college without crazy student loan amounts:
Ultimately, I was in a good position because my family had low-income status.
Community College paid me over $2,000 to attend.
Also, lived at home and worked so I banked most of the money I made.
At USC, most of my tuition was paid for so I had to work and take out loans for LA living expenses.
Had multiple internships, including a high-paying one that I worked in the summer and then part-time during the year.
Always was working some job or side gig.
Got lucky to not lose my shirt when I risked loan money in the stock market.
So bad, do not repeat this.
In the next article, I’ll discuss how I was about to pay the remaining student loans off by 26.