I paid off $33,850 of student loan debt in just over four years. Here’s Part 1 of how I did it.
I graduated from college in 2008 with $33,850 in debt. Most of that debt was in the form of Stafford or Perkins loans that were no higher than 5% interest.
However, I had one Tuition Answer loan from Sallie Mae at an astronomical 8.5% interest rate. I knew I had to pay that sucker off as soon as possible!
The original loan disbursement in Fall 2007 was $5,225, and the balance had grown to $5,729.53 by November of 2008. I’d be damned if I was going to let another $400 of interest get added onto that loan! I needed to lower the interest rate somehow and get it paid off!
I didn’t have a lot of cash in my bank account, but I did have a good amount of income from my job. I figured that I could spend at least $500 a month to aggressively pay down this loan and get rid of it within a year. Now I just needed to figure out how to get out from under that 8.5% interest rate.
Enter a balance transfer credit card.
Use a Balance Transfer to Reduce Interest Rates
I had a 12 month, 0% APR balance transfer offer on a credit card, which included a 3% balance transfer fee. A 3% fee on $5,729.33 was $171.89, and I knew that I could get the full balance paid off before the 0% APR ended and I would save money overall.
It’s important to note that the longer the promotional period, the lower your monthly payment would be and the more money you’d save. If I were doing this today, I’d get a 0% APR for 18 months instead of 12 with the Discover® More Card.
With a 12 month promotional APR, that meant I was paying about $500 a month on that one student loan, in addition to the roughly $300 a month I was paying for the rest of my student loans.
So how did I manage $800 a month in student loan payments my first year out of college? I was living with roommates, which meant my rent was only $475 a month and utilities were split 3 ways.
Lesson 1: High interest debt sucks. If you have high interest debt, consider a credit card like the Discover® More Card – 18 Month Promotional Balance Transfer, which gives you 18 months of 0% APR with a 3% balance transfer fee, or essentially a 2% APR for the next 18 months.
Lesson 2: Just because you’re an “adult” when you graduate from school doesn’t mean you should pay “adult” bills. Live like a kid, get some roommates, and save a bunch of money.
Student Loan Payoff: Stage One Complete
The first step in paying off my student loans was to aggressively get rid of the high interest debt. I did it within a year. That brought me to the next phase of paying off my student loans, which I’ll talk about tomorrow.
Readers: Have you ever used a balance transfer to reduce interest rates on high interest debt?
Carnival of MoneyPros at Finance Product Reviews
Carnival of Retirement at Simple Finance Blog
Totally Money Carnival at Financial Success for Young Adults
Yakezie Carnival at Free Ticket to Japan
Fin. Carn. for Young Adults at 20s Finances
Wealth Artisan’s FinCarn at Wealth Artison
Carnival of Financial Planning at Cult of Money
Festival of Frugality at See Debt Run
Join the Thousandaire newsletter
Subscribe to get our latest content by email.