$25,000 Paid Off Student Loans
Graduating from college should be an exciting time for new beginnings. Unfortunately, for most college grads that exciting time starts out with large student loans that will follow them for the next 10 years or more.
Facts about Student Loans
According to Education Data Initiative, graduates have on average $33,500 in student loans a year after they leave school. And as of May 2023, 45.3 million people have student loan debt. But the truth is, borrowers end up paying more than that by the time the loan is paid off because of growing interest.
I was right within that statistic when I graduated from college in 2008 with about $30,000 in student loans.
I knew I did not want to be dumping my money into my student loans for the next 10 years. When I had some extra cash I would pay a little more than the minimum payment in order to pay down the principle. My mom kept telling me to tackle the loan with the highest interest rate first but I didn’t feel like I was gaining any traction.
Then I learned about the Debt Snowball Method!
What is the Debt Snowball Method?
The debt snowball method focuses on paying off 1 loan at a time, starting with the smallest loan balance first, no matter what the interest rate is. The debt snowball is different than the debt avalanche method. The debt avalanche method focuses on paying off the loans with the highest interest rates first. The advantage of the debt snowball method is seeing quick wins, which help you stay motivated.
How Does the Debt Snowball Method Work?
Most of the time your total loan balance is made up of several loans. For example, let’s say your student loans are made up of 3 different loans.
- Loan 1 balance is $2,000 with a minimum monthly payment of $40.
- Loan 2 balance is $4,000 with a minimum monthly payment of $80.
- Loan 3 balance is $6,000 with a minimum monthly payment of $127.
By adding an extra $100 a month to Loan 1, the new monthly payment towards Loan 1 will be $140. Once loan 1 is paid off, roll over the $140 to Loan 2, making the new monthly payment $220 ($140 + $80). Continue to do this for each loan until your balance is zero! As each minimum monthly payment gets bigger, the principle of the loans gets smaller faster.
In order to pick up the speed of my snowball, I also added some additional payments when I could, such as from a bonus from work or tax return.
If I can do this, so can you!
With the debt snowball method, I was able to pay off all my student loans by September 2013, about 5 years early! That is half the time the loan companies calculated for! This also has saved me thousands of dollars in interest fees.
This also gave me piece of mind a year later (September 2014) when we welcomed our first baby. We decided that I would stay home with her. This decision was a lot easier to make without my student loan payments looming over our heads.
Whatever you can contribute to your debt snowball will benefit you in the end. Not sure how much you can contribute? First, make a written budget. This will give you a clear picture of what you can afford. With commitment and focus you can say goodbye to those student loans for good!