As a young adult, I was clueless about the true impact of interest. My parents never taught me much about money and weren’t exactly savers themselves, so I learned many of life’s biggest financial lessons the hard way — especially when it came to paying off my student loans.
I was offered both merit and academic scholarships to my first-choice university, but they still weren’t enough to cover my high tuition and expenses. In order to pay for school, my parents and I turned to private and federal student loans.
They were a necessary evil at the time and as an 18-year-old, I didn’t pay much attention to the interest rates. When it came time to start paying back those loans upon graduation, however, my jaw hit the floor. Would I ever be able to climb out of this debt?
The 3 student loan moves that saved me $41,000
When I graduated from Baylor, I had $79,000 in student loan debt spread across 11 different federal and private loans. My kind stepdad paid off all the federal loans for me, which brought my obligation down to four private loans totaling about $50,000 … still a hefty chunk of change.
I had considered student loan refinance, but the process seemed really daunting. Plus, I didn’t think I would qualify for the refi on my own; even though I had a credit score near 800, I was a freelance writer with fluctuating income. So I simply trudged along.
I made my scheduled payments (about $675) every single month, but never really saw much of a dent. After five-and-a-half years of payments, I still had about $45,000 and 14-plus years left to go, with interest rates ranging from 10.60-11.40% (yikes, I know).
I realized that if I continued paying off that debt as scheduled, my remaining cost would have been more than $87,960 — which included more than $43,882 in interest alone. After seeing that number, I decided it was time to make a change.
1. I refinanced my loans for a lower interest rate.
Because I wasn’t eligible for student loan forgiveness, my options were limited. Short of winning the lottery or receiving a check from some long-lost great-aunt’s estate (the odds of both were about the same), student loan refinancing seemed like my best bet to get out of debt.
I immediately began applying for refinance loans through a number of trusted lenders until I got approved for a rate that was better than I’d even hoped. That night, I consolidated my four private student loans into one, refinancing $44,078 in student loan debt at 3.29% for a six-year term.
This one action:
- Reduced my monthly payments by $10 (not much, but I’ll take it)
- Trimmed more than eight years off my repayment time
- Lowered my interest rate to 3.29% overall, when it had originally ranged from 10.60-11.40%
- Cut my total scheduled interest down to $4,554, a jaw-dropping savings of $39,329 over the life of the loan
I chose Earnest as my student loan refinance lender, as it offered me the best rate (with an autopay discount) and the ability to pay biweekly (more on that later).
I did a little happy dance to celebrate the savings, and called my dad to tell him he was released from being my cosigner. Then, I set out to save even more.
Money Move #1: Refinance loans for a lower rate
Savings: $39,329 in interest and 99 months in repayment time
2. I cut my family’s monthly expenses.
While I was all amped up about saving money, I also looked for ways to cut our monthly expenses. My first win involved our household cable bill.
Cutting the cord isn’t for everyone, and it took a bit of adjusting (mostly for my husband). By adding a number of streaming service subscriptions though, we managed to not only closely replicate our TV-watching experience, but also saved $76 a month in the process.
I then called our cell phone provider and flat-out asked how we could lower our bill. Turns out that we were on an old, grandfathered plan and that their newest unlimited program would actually save money. We switched plans, snagged a loyalty discount, and added another $57 in monthly savings to the pot.
Overall, this saved us $133 a month, or $1,596 a year. Because that was money we were used to spending anyway, I began applying it to my student loans each month as an extra principal payment.
This serves to lower my principal balance even earlier than scheduled. Because the principal balance is lower, this effectively reduces my interest charges each and every month. In fact, this strategy cut an additional $813.38 in interest across the life of my new refinance loan, in addition to trimming my repayment time by another eight months.
Although I’m almost done repaying my student loans now, I plan to use the Trim app in 2020 to further reduce my monthly household expenses. Any savings I can find this time around will go toward my car payment!
Money Move #2: Cut monthly expenses by $133 and applied the savings to my principal balance each month
Savings: Another $813 in interest and an additional eight months in repayment time
Total Savings: $40,142 in interest and 107 months in repayment time
3. I started making biweekly student loan payments.
My last money move involved switching from monthly student loan payments to biweekly payments. This is something I also did with my mortgage a couple of years ago, and I have already started to see the impact on my loan balance.
With biweekly payments, you take your current monthly payment amount, split it in half, and make that payment every two weeks. If you pay $400 a month right now, you’ll make $200 biweekly payments moving forward.
This does three things:
- It allows you to easily make one additional, full payment each year. Because you’ll be making 26 biweekly contributions on this schedule, you’ll be sneaking in a 13th payment over the course of the year. This helps lower your principal balance significantly while spreading the pinch over 12 months.
- Depending on how your lender applies your biweekly payments and calculates your interest, you may save even more. If you’re able to reduce your principal balance mid-month — before interest is calculated — you could be charged less in interest overall. Confirm with your lender if you’re not sure how payments are applied to your account.
- Because you are paying down your loan faster than scheduled, you’ll be out of debt sooner.
By making biweekly payments, I was able to cut another $392.25 in interest off of my loan repayment. This also reduces my repayment term by yet another four months, which is exciting news for me.
Money Move #3: Make biweekly payments instead of scheduled monthly payments
Savings: Another $392 in interest and an additional four months in repayment time
Total Savings: $40,534 in interest and 111 months in repayment
My only regret is that I waited more than five years to figure out how to get a loan to refinance my student debt. Thinking about all of that interest paid (and lost) stinks, but I learned a very important lesson in the process.
In the end, my three money moves — refinancing, cutting my budget, and making biweekly payments — saved me more than I could have imagined. When I make that final student loan payment next year, I will have saved myself nearly $41,000 and more than nine years.
What has that done for me?
Well, it means nearly an extra decade I’ll get to enjoy being free from student loans. After paying off my debt more than nine years early, I can put that monthly payment toward something else, such as a new car.
It’s nearly $41,000 in interest saved, which my husband and I can put toward the down payment on a new home. Or maybe it’s a few amazing family vacations with our kids and a little extra money in their college accounts. Or perhaps we simply contribute more toward our retirement savings.
We haven’t precisely nailed down what we will do with the time and money saved on student loan repayment. No matter what we decide, though, I am so thankful that I finally bit the bullet and tackled my educational debt — before I wasted all of that time and money.