- If you're paying down student loans, make sure you fully understand what you owe, including your total balances, interest rates, and loan types.
- Following a budget may help you free up cash for loan payments.
- Make sure that any extra payments you make are applied directly to your loan's principal.
- Consider whether consolidating, refinancing, or switching repayment plans (for federal loans) is a good fit for your situation.
In the summer after graduating from college, Trevor Oldham had a wakeup call.
"I wanted to see how much I had in loans," says Oldham, 24, who graduated from the University of Massachusetts Dartmouth in May 2019, with a degree in Management Information Systems. Because his total debt was spread across almost a dozen individual loans, he'd had only a tentative sense of his full balance up until then.
"I figured it was maybe $50,000 or $60,000," he says, because that was about how much debt his older brother, who'd attended the same university, had graduated with.
The actual tab? Some $89,500.
"I started freaking out," he says. "I didn't want to be paying my loans until I was in my 30s."
Oldham had tried to avoid saddling himself with an impossible debt load in the first place. He'd chosen a state school to help save money and worked on the side during his college years—even while taking as many as 6 classes a semester to make sure he graduated on schedule.
Oldham has a passion for podcasts. He produced his own podcast during his first 2 years of college, interviewing entrepreneurs about their businesses. Then, in his junior and senior years, he started bringing in extra cash on the side as a freelance podcast editor and booking agent—charging clients a $50 fee in exchange for securing a guest appearance on a show.
Although he usually listened to shows about business and entrepreneurs, in the summer after graduating he started branching out into personal finance podcasts. Those shows gave him the motivation to better understand exactly how much he owed and to start getting serious about his loans.
Oldham found it difficult to get a handle on his student debt with it spread across so many individual loans, much less come up with a payment strategy. So his first move was to consolidate into a single loan.
Consolidating can make it easier to understand what you owe and the terms of your debt, including your loan types, total balance, interest rates, and loan terms. In Oldham's case, after consolidating he was left with a single $1,500 monthly bill and a 7-year payment schedule.
But consolidation isn't the only option to consider if you're looking to restructure your debt or modify payment terms. Federal student loans come with a number of repayment plans borrowers can choose from, including income-based repayment plans, in which the size of your payment may rise or fall with your earnings, and graduated repayment, in which payments start small and increase automatically over time. In some cases, it may also be possible to save on interest by refinancing into a new loan with a lower interest rate.
One of Oldham's next moves was to start following a budget. "Detailing all my expenses helped me realize I had extra money every month," he says. After a few months of paying the $1,500 minimum, he found he was able to start bumping his payments up.
Fidelity recommends the 50/15/5 budget, which limits essential expenses to 50% of your income and keeps 30% free for you to use as you see fit (such as for making extra loan payments).
Oldham also found online loan calculators helpful—letting him model how boosting his monthly payments could shorten his repayment period, which gave him motivation to continue increasing his payments. (Take a deeper dive into your own loan numbers with Fidelity's Student Loan Calculator.) And he made sure that his extra payments were applied to his loan's principal amount, which was key to reducing his total balance.
Following the money
Of course, it's hard to make progress on debt without sufficient income. Although Oldham had planned to work for a Boston-area startup post-graduation, the company hit business problems in the spring of 2019, and called him shortly before graduation to tell him that he was still welcome to come to work, but he wouldn't be getting paid.
So he went into business for himself, turning his full attention after graduating to his podcast-booking venture. He started finding a niche in real estate investing podcasts—taking on investors as clients, and landing them spots on podcasts about real estate investing—which let him build a name in the industry.
As his company gained traction, from late 2019 into early 2020, he was able to raise prices and start investing in marketing—paying for online ads and hiring a part-time assistant to send cold email pitches to prospective clients—which helped his business continue to build momentum.
And while the COVID-19 shutdown was scary for his company's prospects, it meant there was little temptation to go out and spend, so it was easier to send any extra income straight to his loans. "Anytime I got a new client the money was either going to the business, going to taxes, going to living expenses, or going to loans," he says. "I didn't have any fun."
Free and clear
By August 2020, Oldham had whittled his student loan balance down to just $5,000. "I realized if I had a good month in September, I could pay it off."
He made his final loan payment on September 30, 2020, exactly one year after his first payment on his consolidated loan.
Of course, not everyone has the inspiration (or stomach) to start a business, or will feel comfortable going to such extremes of avoiding all discretionary spending. If you're chipping away at your debt more gradually, consider whether following the avalanche or snowball approach might help you make faster progress. The avalanche approach entails making extra payments on your highest interest rate debt first, while the snowball method involves paying off your smallest balances first. (No matter what approach you choose, always make at least your minimum payments on all debts, to help protect your credit score.)
And even if it takes years to bring your goal of zero balances within reach, remember that all your hard work will eventually be rewarded. For Oldham, finally eliminating his student loans "felt as though a weight had been lifted off my shoulders." After a year of near-total frugality, he went out to a nice restaurant, and ordered a steak.