I, like millions of other Americans, graduated college with a heavy load of student loan debt that can be difficult to pay off.
To be exact: I was $25,302 in debt with no savings and no job. It was just me and my English degree out there in the middle of the recession.
My post-college professional life has been bumpy. I’ve never held a full-time job, and I’ve worked in the foodservice industry in some way ever since graduation. My grandma definitely thinks that I’m wasting my education. One year, I made $15,000 total.
Last year was the first time my income level broke into the $30,000 range. I earned $32,000 before taxes, and felt like a baller for it. Today, I’m debt-free, with $12,000 in my retirement accounts. I’m a full-time freelance writer now, and I’ll probably make around $30,000 again this year.
But I paid off all my debt and started socking away money into my retirement funds in the last three years. I pulled that off while being pretty damn broke, and I’m here to tell you how.
How to Pay Off Student Loans
Paying down student loan debt and saving money are two sides of the same coin. They both require one thing: focus. When I was 25, I felt terrible about myself. I was underemployed, working as a part-time caterer and a part-time gym receptionist. Plus, I was buried under a pile of student loans. I felt lost, and it freaked me out.
As difficult as that time was, it gave me the focus I needed. I realized my low income and high debt was the root of my stress. I was financially insecure, and it sucked.
So I lasered in on paying off my student loans as the way I was going to become happier, and it worked!
The first step to paying off your student loans should be deciding whether or not to consolidate your loans. You may have the option to consolidate your debt into one bill, through the Direct Consolidation Loan Application. This can take care of some of the stress involved in paying your bills and can reset the time requirements for Public Service Loan Forgiveness.
It is recommended that you use the Loan Simulator from the Department of Education and speak to a financial advisor before you choose to consolidate your loans.
The second step is to cut out absolutely every expense that isn’t a basic need. In my case, literally everything except rent, insurance, and gas was cut from my spending.
The obvious ones: eating out, drinking, clothes shopping, and vacations. The not so obvious ones: grocery shopping (I lived off catering leftovers), buying Christmas gifts, and makeup. Plus I walked or cycled more to use less gas. In addition to spending less money, I took on more part-time work and doubled my income.
As a result, I paid off my final $20,000 in student loans in just 14 months. I then transitioned the money that was for my debt payment to my retirement accounts.
As my student loan debt disappeared, so did my stress. I felt less anxious and much happier than when I was drowning in loan payments.
If you’ve cut every expense that you can and still struggle with paying off student loans, you may want to refinance them in order to make your payments more manageable.
Staying Frugal and Saving for Retirement
In the last two years, I’ve maxed out my IRA and started a solo 401(k). I simply shifted my focus and kept all my debt-payoff tactics in place. I still don’t eat out often, and I still bike instead of driving whenever possible.
Building my savings, including my retirement accounts, is my top priority right now.
Compound interest benefits you more the earlier you start saving! In the next five years, I plan to put an additional $45,000 into my retirement accounts. By the time I’m 45, I’d love to pay off my student loans, so that I can finally be financially independent. It’s worth it to me to make some sacrifices now to achieve that status later.
Why Work So Hard to Save for Retirement?
But why does retirement matter so much to me? There are literally decades before I retire.
That’s exactly why it matters. Kara at 72 will still be Kara. What I do today affects me in 40 years. I want to be comfortable in my golden years, and saving today helps to ensure that.
I also come from a place of financial insecurity. That’s a scary, stressful place. I don’t want to have to worry about how I’ll pay rent in the future.
Building up my personal and retirement savings right now puts more distance between me and financial insecurity.
Feeling ready to jump-start your retirement savings? Each year, single people can save up to $6,000 into their IRAs, according to the IRS. Other retirement options are 401(k) accounts, in which the maximum contribution amount (for those under 50) is $19,500.
The Bottom Line
Focus is all that it takes to see amazing changes in your life. There may be bumps, and your road may not look exactly like mine. But stay focused, and you will move mountains of debt in a short amount of time and you can help make your life easier when it comes time to retire.