A Fun Story of a Couple Who Got Serious About Paying Off Their Student Loans

Here’s a fun story about a couple who got serious about paying their student loans off quickly. It’s a great example of being intentional about getting out of debt.

Here is the essence of how this couple decided to tackle their student loans.

“Rather than starting off our adult lives buying new vehicles, taking vacations, purchasing new electronics and appliances, or buying a home, we denied ourselves these enticements. Rather, we rented a small 600 square foot apartment, worked overtime, made most of our meals at home, didn’t take vacations, and drove used cars.

In turn, we were able to keep costs to about a 30 percent of our combined income. This allowed much more money to go toward student loans.

And by paying as much as we could toward loans rather than just the standard monthly payment, we had my wife’s loans paid off in less than three years…and so, the wedding planning began.”

It took sacrifice and a commitment to make it happen. That’s the important takeaway.

I doubt it was necessary to hold off the wedding until they got rid of the student loans! But maybe that helped.

If nothing else, it made the story a little more controversial… and probably increased the number of people who read it.

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Have You Tried to Pay Extra on Your Student Loans?

Trying to make extra principal payments on your student loans is amazingly difficult. And I say difficult because the loan processors almost always mess up the application of those additional principal payments to your loan balance.

Almost every other lender of any sort (credit cards, auto loans, or mortgages) can handle an extra principal payment effortlessly and accurately. But not student private or federal student loan processors. For some unexplained reason they can’t handle such a very basic transaction… and you need to be on your toes as a result.

The new federal agency, the Consumer Financial Protection Bureau, said some interesting things in this article. Here is a quote from the article:

“In the ombudsman’s annual report, released Wednesday, Chopra detailed the problems that borrowers have trying to pay down their private loans, and how a seemingly intentionally confusing system often holds borrowers hostage. In the end this takes a toll on their credit score—and on their ability to buy a home or anything else with borrowed money.

“Repaying a student loan should be simple,” CFPB director Richard Cordray said in a statement. “When servicers process payments to maximize fees and penalties they undermine the trust of their customers. Student loan borrowers deserve better; they deserve transparency and accountability.”

I’ll talk about the interesting focus of this new government agency in a future post (private loans vs. federal loans), but for now I just want to encourage you to be all over the details of how every single payment you make on your student loans are recorded.

Especially when you are aggressively paying extra in order to get your student loan out of your life.

Knowledge is key. Know the facts… because your loan servicer might not!

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Making Money and Having Money: Two Different Things

People tend to confuse the concept of making money and having money.

Here is a quote from a great book The Millionaire Next Door, by Thomas J. Stanley, Ph.D., & William D. Danko, Ph.D.:

“Most people have it all wrong about wealth in America. Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend.”

One of the traps people fall into with their student loans is trying to get the lowest monthly payment possible. What that usually ends up doing is making it easier to spend money on “stuff” rather than on paying off your student loans.

A low student loan payment is a wealth destroyer rather than a wealth builder.

Here’s an important question for you: Do you have a net worth or a NOT worth? Your net worth is the difference between your assets and your liabilities. It’s a reflection of how well you are creating real financial value in your life.

What is your personal net worth? Read this post and determine what your net worth is.

Creating a strong net worth is a critical part of winning financially in life. Paying your student loans off as fast as humanly possible will help you build a net worth you can be proud of.

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Getting Creative About Paying Off Your Student Loans

Talk about getting creative in trying to pay your student loans off! Here is a guy who is thinking outside the box for sure.

“Determined to pay off the remaining $30,000, Kasher, 23, quit his job working as an operations manager at a central Pennsylvania-based logistics firm and embarked on a new endeavor. He launched his project, paidtorun.com, and aims to run through the U.S. with sponsorship from local companies and individuals. Kasher plans to run 1,000 miles total between this month and March 3, 2014 and will wear any T-shirts or other attire that a company sends him with their logos and branding.”

Here is the article about Jason at Mainstreet.com.

I am not suggesting you do something as wild as Jason. But I would encourage you to take a couple minutes for a quick brainstorming session.

Pull out a piece of paper and quickly write down 20 ways to create some extra cash to pay against your student loan balance. For this exercise, don’t worry about whether the ideas are practical or even doable.

Just get creative for a few minutes. Maybe 3 or 4 of the ideas can help you get your student loans paid off quickly.

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Piling Student Loans on Top of Student Loans

One of the hazards of dragging out your student loans is you might end up with your loans PLUS your kid’s loans. Double trouble.

I read an interesting article this week titled Student Loan Vicious Cycle: Parents Pay Their Own Debt and Kid’s Too. I want to share a few selected quotes from the article and my input.

“Some parents who took out student loans for their own education are still repaying them after 20 or more years and now have incurred additional significant student debt for their children to attend college.

While there is no available data on parents who have accumulated debt for both themselves and their children, parents are now borrowing larger amounts for their children to attend college, said Shelly Repp, President of the National Council of Higher Education Loan Resources.”

… Some parents are still repaying their own education loans, because they had consolidated the loans or enrolled in an income-based payment program.

… Many people elect to defer making payments on their student loans for a long as their lender will allow, said Jeremiah Heck, an Ohio consumer debt attorney.

“During that time, even with relatively low interest rates, the balances have compounded to a point that becomes far beyond what was borrowed for their education,” Heck said. “No parent wants to tell their child they can’t afford to help them with tuition loans, but in many cases it would be a better choice. The Baby Boomer generation will forego paying down loans and saving for their retirement because of their sense of obligation to their children. Ultimately down the road, everything has to get paid. The answer is most always: stop borrowing, stop deferring and start paying more.”

One reason to get your student loans paid off as quickly as possible is it puts you in a better position to help your children pay for college. The longer you have your own student loans, the longer before you can start saving money for their college fund. The weaker you are financially (with a bunch of debt) the more likely they are to end up with student loans and perpetuate the nasty student debt cycle.

And maybe the worst outcome of all is that you end up with your own student loans PLUS loans for your children. That only creates weakness and lack of freedom as you age.

Sacrifice might suck in the short term (to pay your loans off quickly). But I doubt it sucks more than being broke and deep in debt as you reach what otherwise could be the prime of your life.

Dumping student loans is wise. Piling student loans on top of student loans isn’t.

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Save Money by Eliminating the Interest on Your Student Loans

Interest on student loans is why student loans make an already expensive education even more expensive. And the longer you drag those loans out the more expensive you are choosing to make your education.

As each day goes by you have the freedom to choose to make the education you already received either more expensive or less expensive. You are making that choice every single month.

Start by looking at the total interest expense you will be paying based on your current approach to paying off your student loans. Then look at how much money you could save by making some sacrifices in your budget and paying the loans off faster.

Here’s a quick example assuming your student loan balance is $20,000 and the interest rate is 6.8%. Pay if off over two years and your total interest expense is $1,447. Pay if off over 20 years (which many people do) and your total interest expense is $16,640. Dragging the loan out over 20 years means you basically pissed away over $15,000. You basically threw away 150 $100 bills. That doesn’t sound smart (or educated) to me.

Borrowing money comes at a price. You have to pay the money back (the amount you borrowed) plus interest (the expense you pay for borrowing the money). Interest is the reward, or profit, the lender receives for loaning you the money. Part of your monthly payment on your student loan is to repay the loan and part is to reward the lender for having made the loan.

You can save a lot of money by paying your student loans off quickly. It’s a decision you can make right now.

Make the wise choice.

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The Wisdom of Paying Student Loans Off Quickly – Part 2

My purpose in this blog is to help you become free from your student loans.

I want to convince you that paying your student loans off quickly is smart. That it’s wise. And that it’s an exciting step toward creating financial freedom and financial independence in your life.

I sincerely believe in my heart, deep down in my bones, that the quality of your life will be lifted and improved by making student loans a part of your past rather than a part of your future. I believe it can actually lift your spirit and create an exciting and lasting impact on you and your family in amazing ways. In ways you have probably never even considered.

In short, I want to help you get on a different financial path than the one you may be on right now. And that path begins with saying goodbye to your student loans.

Your Future is Bright

Think about how fortunate you are right now. You have done the hard work to get through school and get your degree. It takes a huge commitment of both time and talent to pull that off. You have shown that you can make sacrifices to win and achieve goals. You have proven to yourself and your family that you have the determination and persistence to make things happen. That’s a huge accomplishment.

You are well on your way to creating an exciting and fulfilling future for both you and your family (or your future family).

I encourage you to take advantage of your momentum and commit to paying your student loans off quickly.

Go for it.

Part 1

In the first part of this series, I shared my personal experience with a student loan and the lessons I learned. Check it out (especially if you are not doing such a great job at the moment in tackling your debt).

You will relate to how poorly I handled it back in my younger years. :-)