6 Simple Step by Step Instructions to Pay Off Your Student Loans

If you are reading this, it is probably because you just finished 4 or more gruesome or fun (depending on how you spent your time) years of university, only to realize the pile of debt you have left behind - student loan debt to be exact! Well first off, let me congratulate you on completing university/college as  I can attest it was no easy feat. Unfortunately, this is where the fun ends and life really begins.

Student debt, like any other debt, is no doubt a pain, but trust me when I say it can be managed and paid off in a reasonable time with patience, careful planning, and discipline. I am living proof of this! I finished Brock University (Go Badgers!) in April 2013 only to find myself in $38,000 of OSAP (Ontario Student Assistance Program) debt. On November 26, 2017, I made my final payment towards the last penny of my student loan debt. You can only imagine how happy I was after this!

No matter your current living conditions, this article will break down, in detail, the steps I took to do this and hopefully, you too can erase this debt from your life in no time! Let's begin:

Step #1: Determine How Much You Will Owe in Total ASAP (Ignore Interests For Now)

This is a crucial step as it will help you determine if your current financial situation is enough to start making payments. The sooner you know, the better.

For me, I knew I would owe around $40K by the end of 3rd year university based on how much I was borrowing in prior years. I also knew it would be hard to get a job with my undergraduate degree (BSc in Biomedical Science) especially after being ignored numerous of times for internships. With this information, I knew my current financial situation was not going to be enough to make any payments towards student loans and I started my planning process in step #2.

Step #2: Find a Higher Paying Job (with or without your Degree) by Any Means Necessary

This is an obvious and the most important step. After graduating, try, by any means necessary to use your degree to find a higher (keyword - higher) paying job. By higher paying job, I mean a job that allows you have to at least $500 or more extra money after all your monthly expenses (including you student loan payments) have been paid off. A job that pays $40K to $60K per year may satisfy this depending on your spending habits and how much you owe. The extra income you make from this job is key in making your debt disappear in no time.

If you cannot find a higher paying job with your degree after graduation before the next school year begins, you have two options:

1) Branch out of your degree and take a shot at other job/career opportunities

2) Leverage your degree by going back to school to do a 2 years or less certification program/course (preferably one with an intern).

Option 1 is pretty self explanatory.

Option 2 on the other hand, needs more insight. You might be thinking, "Wait, I am already in debt, so why would I want to go back to school acquire more debt?"

The reason is simple. First off, by going back to school, you are able to delay student loan payments until you have completed school again. Secondly, leveraging your degree (especially with a certification) allows you to specialize in a specific area/field, make your resume more specific, and let's you stand out from millions of others with just a bachelor's degree. Even better, if your certification comes with an internship, you are almost guaranteed a higher job after graduation!

That being said, there are a few ways to pay for your certification program (if you choose this route). You can: 1) use your own money, 2) ask a family or friend to help (with an agreement that you will not pay them back) or  3) as a final resort, ask for more student loans. To get over the hump of asking for more student loans, think of this as an investment in your future.

For me, I could not find a higher paying job with my undergraduate degree. As a result, I chose option 2 and asked my mom to help pay for my certification program with an agreement that I would not pay her back. I love you mom! :). As predicted, after graduating, I landed a high paying intern by May 2014 which later turned into a higher paying, $45K salary, full-time permanent position by Oct 2014. Woohooo!

If you to have found a higher paying job, proceed to step #3. If not, please work on option 1 or 2 of step #2.

Step #3: Find A Budgeting App to Help You Manage Your Money

Now that you have a higher paying job, DO NOT make the mistake of going on a shopping spree (I know it was tempting even for a minimalist like me). Get a budgeting app to help you track how much you are spending, how much you are earning, and how much extra money you have at the end of the month after expenses. This is major key!

I used Intuit Mint (Mint for short) to track my income, expenses and profit/loss (money, if any, left over after expenses). Mint is a secure financial tracker and planning tool (available for Free online or through an app) that retrieves transactions from your bank account, and categorizes those transactions in order to provide you with information about your spending habits. Based on this information, you can create a monthly budget which will determine how much of your money will be allocated to your usual expenses versus how much will go towards student debt loans.

Without going into too much detail, here is a snippet of what my Mint app currently looks like. The main thing to monitor in the app is your budget, and your cash flow.

The image on the left is an overview of your budget and cash flow based on how you have categorized your transactions. The image on the right shows you how much of your budget has been used up to pay various items. Ideally you always want your cash flow to have a positive value by the end of the month and you NEVER want to spend more than your budget allows. This is why getting a higher paying job is super important. It give you an extra cushion to rely on in cases of emergencies.

Step #4: Figure Out How Quickly You Want to Pay off Your Debt and How Much You Need, Monthly, To Do So

This is the exciting part. Now that you have a higher stream of income and you are managing your money well, it is now time to set a goal of how quickly you want this debt off your back. Be realistic and honest with yourself. Understand that no matter how fast you want to pay it off, it will still take time.

My goal was to pay off my student loan in just 3 years. Knowing I had $38K in student loans (again ignoring interest), the calculation I used to calculate monthly payments was:

Monthly Payments = Amount of Loan Owed divided by # of years to pay off divided by 12

For example, with a $38K student loan to be paid in 3 years, the monthly payment was going to be $1055.56 (38,000 / 3 / 12).

Side note on interest on the loans: Typically the loan agencies take interest out of your monthly payments to account for interest on the loan. For this reason, I made sure I would pay a few extra hundred dollar on top of my calculated monthly payment to account for this. I didn't have to calculate how much interest I needed. If there was money left over after I had paid all my expenses (including student loans), the remaining would simply be added to my monthly student loan payment to account for the interest. Now back to regularly scheduled programming :).

Based on the 3 previous steps, I knew this was manageable and if it wasn't I was prepared to make sacrifices to make it work.

Step #5: Evaluate Your Living Conditions and Make Adjustments as Necessary to Meet Your Goals

After getting a higher paying job, I wanted to move out and live on my own so so bad! However, I knew this would not help me pay off my student loan debt. I opted to stay at home with my parents while I paid off my debt because it would mean less expenses for me and of course free food!

If you really want this debt off your back, you will need to make a few (or in some cases, many) sacrifices. If living at home is not an option for you, try living with a roommate, or renting a cheap basement apartment. Your living and eating expenses are going to be the biggest hindrance stopping you from paying off your debt. Try as much as possible to find the cheapest option when it comes to food and living accommodations.

For me, living at home allowed me to have monthly  recurring expenses of less than $1000 ($950 to be exact). With a monthly pay from work of about $2600, this meant I had about $1600 left over to pay off my student loan.

I made student loan payments a priority above all else, which also meant I had no life for 3 years. Don't feel sorry for me, it paid off, literally :).

Step #6: Start Making Payments and DO NOT Miss A Payment Ever, No Matter What!

Yaay! This is the last and final step! Now that you know how much is needed each month to pay off your student loan and you are tracking your finances, it is now time to start making payments.

Typically, you will have an agreement with the student loan agency telling them how much you are willing to pay towards your loan. Always give them a number much lower than your calculated monthly payment in step 4. For example, if you calculated your monthly payments in step 4 to be $1000, tell them you will only pay about $500 or less or even the minimum. This will prevent you from defaulting on any payment and will allow you to still make payments in case of emergencies. Don't forget though that your payment to the student loan agency has to be based on your calculated monthly payment in step 4 or higher in order to clear your debt by your set deadline.

A big mistake people make is forgetting to make a payment. Let's be honest, life get busy and this could happen to be best of us. To prevent this, set a reminder on your phone to make the payment and be sure to account for weekends and short months when making payments. For example, do not set your monthly payment to be on the 30th because well, February ends on the 28th. Also, to prevent payments from being late due to end of the month weekends or holidays, set your payment about 4 or 5 days prior to the 30th of each month. I set mine on the 26th of each month to be safe.

Another big mistake people make is letting the student loan agency take out their payments for them. This is a big no no! Not only do they now have control over your bank account, they can also screw you bad especially when you default on a month and genuinely don't have money to pay. Limiting the control of payments to yourself delays the time in which they can collect money if you have defaulted and the time you have to get your life and payments back in order :).

...And finally, DO NOT ever, ever, ever ever ever miss a payment. If life happens, which it will, find a way to pay the minimum until you can get back on your feet to pay the calculated monthly amount.

Now that you have the blueprint, picture yourself rolling in a pool of champagne knowing your student loan was just paid off fast! That's major key!