Paying back student loans can be a greater challenge than earning a degree. According to the Pew Research Center, nearly 1 in 5 households carries student loan debt. That’s nearly double the number of households from 1998. The average U.S. student borrows nearly $27,000 for education, according to the Project on Student Debt, which is more than twice what students borrowed, on average, about 20 years ago. No matter what debt-busting strategy you use, giving up a chunk of your paycheck takes discipline and sometimes radical lifestyle changes. Three couples explain their strategies on how they worked to pay down their student loan debt in record time.
Understand the problem
Deacon Hayes graduated with a bachelor’s from Arizona State University in 2007 and racked up some serious debt getting there. It wasn’t until he got married almost a year later and combined his $18,000 student loan with his wife’s $9,000 student loan and their other debts that the couple got serious about paying it off.
“We realized that we had $52,000 in debt, which was kind of a shocker in the sense that we didn’t realize how much debt we had until we put it all on one piece of paper,” he says. “We had just about as much going out as coming in, so any time there was an emergency, it was going on a credit card.”
Hayes credits strict budgeting and using the debt snowball method (paying down debt starting with the smallest amount and working up) as the reasons why he and his wife were able to pay off all of their debt in just 18 months. Putting all of their expenses on paper, the couple sought to reduce each budgetary line item, from combining cellphone plans to save $50 per month to selling Hayes’ brand-new car.
“We also used the cash envelope system, which was a big help for us,” Hayes says. He currently blogs about his experiences and offers financial coaching at WellKeptWallet.com.
For recent college grads, building a budget before making long-term financial commitments such as signing an apartment lease or taking out a car loan is critical, says Kristy Vienne, assistant vice president for student services for Sam Houston State University in Huntsville, Texas, and supervisor of the school’s Student Money Management Center. That means tracking your spending over several months, then analyzing where your money is going.
“Take three to six months to evaluate your situation. Make sure it is what you anticipate, and then tread lightly into those long-term obligations,” she says. “That’s oftentimes what gets people in the quickest amount of debt in the shortest period of time.”
To help see where your costs are going, try using an online budget tool or smartphone app and make adjustments in your spending as necessary.
Close the leaks
Once you understand where your money is going, plug budget leaks and open new income streams. Both tactics are helping Bryan Lovgren and his wife in their plan to tackle nearly $28,000 in loans in just 10 months. Due to be debt-free by this November, the Orem, Utah, couple cut spending by switching to a more vegetable-based diet to save on food. They also bargain shop for necessary items and have committed to living off of one salary while Lovgren’s wife devotes her entire paychecks to the loan.
To generate extra income, Lovgren does freelance communications work on the side and his wife, a former cheerleader, judges cheerleading competitions for extra money. They also have generated $7,000 to $8,000 by selling things they own through a local classified service when money gets tight.
“The awesome part is, we still have fun. We still travel,” Lovgren says, adding that paying off debt doesn’t mean sacrificing everything pleasurable.
Sallie Mae spokeswoman Patricia Nash Christel says her customers have employed the usual savings strategies to pay off loans ahead of schedule, such as taking on a roommate, delaying major purchases, living close to work to avoid having a car and applying tax refunds to pay off loans, but there are a couple of money-saving areas where borrowers may not think to look.
“Student loan interest is typically (tax-) deductible depending on your income,” she says. Borrowers can also apply shopping and restaurant rewards earned through Upromise to pay down a Sallie Mae loan.
Statistically, consumers spend less when they use cash over credit cards, plan purchases in advance, automate their savings and keep projected savings goals in mind. They’re also more likely to save when they steadily transition into hardcore saving, says Vienne.
“Find what works, start down that run and then gradually tier back from certain things,” she says. “Don’t just try to cut everything out initially. If you’re eating out five times a week, maybe cut that down to two.”
Keeping your eye on the prize also helps. To pay off more than $100,000 in student loan debt in five years, Tricia Meyer and her husband made loan payments equivalent to their mortgage payments each month and built that into their necessary household expenses. To make the extra payment, they both took freelance consulting or teaching jobs and Meyer launched a couponing website where she now works full time. Together the couple generated between $10,000 and $15,000 annually in side income.
But staying on track for five years is a challenge. To stay motivated, Meyer and her husband went to open houses and dreamed of a new home they could buy once they were debt-free.
“At one point, we wanted a swimming pool so badly. But we knew that we couldn’t have one in the backyard in our starter home, so we had a little baby pool in the backyard that we’d sit (next to on) lounge chairs,” she says.
“We knew we wanted a bigger house. We knew we wanted a basement. We knew we wanted a swimming pool — and we knew that the only way possible that we could do it was to pay off the student loans.”