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.

Interested in refinancing your student loans?

Here are the top 6 lenders of 2018!
LenderRates (APR)Eligible DegreesMore Info
2.47% - 7.80%Undergrad & GraduateVisit Sofi
2.47% - 6.32%Undergrad & GraduateVisit Earnest
2.47% - 8.72%Undergrad & GraduateVisit Lendkey
2.80% - 7.02%Undergrad & GraduateVisit Laurel Road
2.48% - 6.25%Undergrad & GraduateVisit Commonbond
2.57% - 8.69%1Undergrad & GraduateVisit Citizens