800 pound gorilla

Ignore Your Interest Rates: How to Pay Off Your Student Loans in Half the Time

If you’re a 20-somethings with student loans, you have a few options for paying them back:

1. Ignore your loans, default, never get married and end up in a van down by the river.

2. Move to Niagara Falls, NY (the city will reimburse a portion of your monthly payments if you live there for two years… but you have to live in Niagara Falls, NY).

3. Face the facts and figure out a plan for paying down your debt, even with a limited amount of income.

When I graduated from college, I was tempted to do the second, but I’m not a big fan of 10-degrees-below-zero winters. So I ended up facing reality and making a plan to pay back my loans.

I started reading everything I could about getting rid of debt. I researched debt snowballs, APR, ROI, debt consolidation, income-based repayment plans – you name it.

Then one day, I stopped reading and started repaying my loans with my own plan.

I paid off $16,000 in debt in a year and a half by ignoring conventional advice and listening to my gut.

My Quest for the Perfect Pay-Off Strategy

800 pound gorillaWhen I graduated with $30,000 in debt, I didn’t feel very confident about my financial future.

I was confident about one thing, however: I wanted to get out of debt and fast.

Once I first started earning a real income after graduation, I began with the basics: paying off my credit cards, starting an emergency fund, and even opening a retirement account. Even by taking these small steps, I felt like I finally had a say in my financial destiny.

But there was still the $30K gorilla in the room.

It didn’t matter that I was making quadruple my previous salary – my entire paycheck would have barely made a dent in my student debt. My loans made me feel anxious and helpless. It was such an intimidating amount that I didn’t even know where to start.

So, like anyone else with a question, I turned to Google 🙂

My Plan to Pay Off My Loans

In my search, I stumbled upon a few personal finance blogs and began reading advice about the best way to start paying off my student loans. One theme came up over and over again in my reading: Return on Investment (ROI) and interest rates.

The finance experts all agreed that step one was knowing the APR on each of my loans. Easy enough. My debts were neatly divided into a federal loan and a private student loan:

  • $16,000 federal, 6.8% APR
  • $14,000 private, 3.5% APR

Debt SnowballI then needed to compare those interest rates with other investment opportunities, like investing in the stock market.

Let’s say that the stock market has a 5% return, conservatively. This means I would have a better return on investment (ROI) on the market than it would paying down a loan with 3.5% interest.

I had a plan to maximize my ROI: I would pay as much as I could afford on my federal loan and start investing in my 401(k) before putting any extra money toward my private loan.

On paper, this plan worked. I was making the most of every dollar I had.

But in my head, this plan made me incredibly nervous.

Why Psychology Matters More than Interest Rates

The logical, financial half of me said, “This makes sense!” The overly-cautious, panicky half of me had a few different reaction:

  • “What if the market crashes again?”
  • “What if I get a pay cut or lose my job?”
  • “What if the interest rates on my private loans go up?”

Everything about my student debt made me nervous, even my plan to eliminate it.

I quickly realized there was only one strategy that made me comfortable: Get rid of my debt, as much as possible, as quickly as possible.

The interest rates on my loans didn’t matter. The possible returns on the market didn’t matter either. The only thing that mattered was that my debt made me feel uncomfortable and insecure.

I realized that how I felt about my debt mattered more to me than choosing the “right” strategy for eliminating it.

I started saving less for retirement and paying back both of my loans with the full force of my disposable income. My 401(k) stopped growing. But my loan balances were shrinking quickly.

And I felt great.

The Best Strategy: Do What Makes You Feel Good

Some people cringe when I tell them I cut back on my retirement savings and focused on paying down a loan with a 3.5% APR instead. The ROI strategy might make others feel great knowing they’re maximizing the return on their dollar. For me, I knew I had to listen to my nervous, overly-anxious, debt-ridden conscious.

The bottom line: do what works from you.

Since I made the decision to go with my gut, I’ve paid off almost half of my debt in half the time. I still have a ways to go, but the amount doesn’t make me nervous anymore.

I know I’m doing everything I can to get rid of it, and I’ll finally be able to relax once it’s all gone.

For now, I can rest a little easier knowing the $30K gorilla is a little smaller and I’m twice as close to my goal of living debt-free.

Portions of this post originally appeared as a guest post on Budgets Are Sexy.

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21 thoughts on “Ignore Your Interest Rates: How to Pay Off Your Student Loans in Half the Time

  1. Sean @ One Smart Dollar

    It could be paying down student loans, credit card debt, and anything else we are still going to need to fight off the psychological aspect. It’s awesome that you have stuck to your plan. You made the plan because you think it’s right and that’s what matters.

    1. Stephanie Halligan Post author

      Thanks, Sean! You hit the nail on the head: make a plan because you think it’s right, not because someone told you that it’s right.

  2. Joe Cassandra

    Student Loans suck, we all know that, building a plan to pay it off is definitely a good financial strategy, but more a psychological boost that propels you forward!

    A good tip I implement is trying to pay each month’s payments as early as possible as it lowers the accrued interest amount. Especially with a balance at 30k @6.8%, paying it the 1st of the month instead of the 30th of the month saves a ton in interest over the life of the loan.

    Same with credit cards lol

    Cheers Stephanie!

    1. Stephanie Halligan Post author

      Wow – interesting tip! Makes a lot of sense. I never thought about the amount that would accrue over the month…

  3. Money Beagle

    I couldn’t agree more. Same applies to people who pay their mortgage down early even though they could get a better return than the 3-4% rate they’re paying. So what? That peace of mind that comes with not having that payment is worth more to some people than an extra 1% or whatever. Great post!

  4. Brad Chaffee

    I think psychology easily trumps math when getting out of debt.

    We paid off our debt by using a different method but we basically ignored interest rates while doing so. We were criticized for it.


    We’re out of debt now and some of those who criticized us are either on board now or are still struggling with their debt.

    We put all of our debts on a list from smallest to largest using the debt snowball method.

    The reason we liked this is because we paid off the smaller debts really fast and that jump start was what we really needed to get and stay motivated.

    If you can’t stay motivated because you are so worried about interest rates and other boring financial tactics then what good is your plan (or your supposed savings) in the long run?

    Great post!

    Getting out of debt as fast as you can is the best thing you can do for yourself, your family, and your finances.

    1. Stephanie Halligan Post author

      Thanks Brad! It’s easy to question your methods when others are nay-saying it. But you have to find what motivates you.

  5. Abigail

    I think psychology matters more. I mean, don’t shoot yourself in the foot, but go with what makes you feel secure.

    If you ignore your own comfort levels, it takes a toll. I’m a depressive, so if I feel extra stressed out I can’t function as well in the rest of my life. That means I inevitably make fewer frugal choices, which just makes everything worse.

    I actually blogged about something similar (on a much smaller scale) recently. We decided to put $1,500 on the card and pay it off over 2-3 months rather than empty our meager emergency fund for the THIRD time this year.

    And when we were paying down massive debt with almost no money, I refused to start an emergency fund. I wanted every cent to go toward our debt.

  6. May

    Thanks for posting this!! I used Dave Ramsey’s plan and knocked out $20k in 3 years ($17k of it was student loans). Sallie Mae will never live in my home again! 🙂

  7. Free to Pursue

    Amen! Good for you for determining that doing what gives you a feeling of control and comfort works best. Action is always better than uncertainty-driven inaction.

    Congratulations on getting past the 1/2-way mark!

  8. Kenny @ RockingRealEstate.Com

    Great insight Stephanie! One key thing that you pointed out was that although all the math nerds cringe when we pay off “safe, low-interest debt” instead of investing it, they are leaving one thing out of the equation: RISK!

    Dave Ramsey has been saying it for decades with his debt snowball method: Personal finance is 80% behavior, and only 20% head knowledge. All the math in the world won’t save you from yourself!


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