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?
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