Loan To Pay Off Student Loans

Loan To Pay Off Student Loans – Paying off six-figure student loan debt is no easy task. Find out how I paid it all off with the long snowball method (Dave Ramsey) and a 401(k) loan.

I was ten years old and my dad took me to the University of Michigan and I fell in love with it. So at 17 I applied to the University of Michigan and was accepted. There was no doubt that I would go elsewhere. I was so happy.

Loan To Pay Off Student Loans

Loan To Pay Off Student Loans

Without thinking about how I would pay for four years of study abroad, I asked my mother for a $200 deposit to secure my place as a student in the class of 2009. That same year, I filled out a roommate application form. , ordered a football pass ($160 more, thanks again mom) and you’re good to go.

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My mom filled out a FASFA and a private student loan application. Filling out the FAFSA made it possible (ha!) to get a $5,000 a year loan. I was approved for the private student loan – I was the borrower and my mom was the co-signer (though I didn’t know it at the time). I signed the loan documents without reading them… without knowing how much money I was borrowing.

Then I started freshman. College was… simply the best! I graduated with an engineering degree and met my future husband. Every year I filled out the same application for my private student loans – I asked for money and wow, it came out.

After graduating from college, I started working as an engineer at a salary of $60,000 a year. The student loan bills started coming in. During college, I never calculated the total loan amount and had no idea what my monthly payment would be (is this common?).

Turns out I owed $125,181 and my minimum monthly payment was $1,179. I had $19,125 in federal student loans, $102,056 in private student loans, and $4,000 in student loans from my college. All of my student loans had fixed interest rates ranging from 2.2% to 7.9%, but the average was around 7%. (<– Or I thought they were fixed. The interest rate on my private student loan increased by 2% after 48 months of repayment. Seriously?! I'm banging my head against the wall. Apparently I didn't read the terms of the student loan. The new rate is 9.9% rose!)

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After graduating, I found out that I had a six-month grace period on my student loans. That means I didn’t have to pay for the first six months after graduation, but the interest still accrued.

Since I only had a few hundred dollars, I decided to take advantage of the grace period because so much was happening in my life at the time – new job, new city, new friends, new responsibilities. I felt it was best to adapt to these new things and focus on getting excellent results at work and then I could turn my attention to these terrible reports. I needed a little more money to pay the first month’s rent (+ security deposit), a bed and a few other necessities (kitchen stuff, table, etc.).

After the free period ended, I started paying. Each month I paid the exact amount on the bill – $1,179. It never occurred to me that I could pay more than the bill (neither did it occur to me that I could skip a payment – that’s a good thing).

Loan To Pay Off Student Loans

I was taking home about $3,100 a month (I think, not sure). This was after taxes, health insurance deductibles, and my 401(k) retirement contributions. I just remember that there wasn’t much room in my budget to begin with.

How To Pay Off Student Loans

I prioritized my student loan debt, then rent, then utilities, and everything else. I had to live quite frugally and it was difficult because I lived in a very expensive part of the country. My rent bill equaled my student loan bill – crazy! I’m not sure if that reflects how expensive the neighborhood I lived in or how much student loan debt I actually had.

I don’t know where to fit this into this story, but about 9 months after I graduated (and a few months after I paid off my student loan bills) I got a letter saying I was seriously delinquent on my Student Loans. They threatened to send me to a debt collector if I didn’t start paying. That was really scary.

First of all, I had no idea what they were talking about. I was so diligent about paying off all my student loans (well, that’s what I meant

From my student loans). Second, I felt like I was in trouble and ruining myself financially because I was in arrears with this debt. Long story short: I took out $4,000 in student loans and didn’t know it. Because I didn’t know I had this loan, I didn’t make the monthly payments. I think they sent bills and overdue mail to my old college address.

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Around the same time I got the first call, I got an opportunity to work overtime on a big project. It meant long hours, but a lot of money. The project lasted three months and I managed to pay $4000 and get rid of this loan for good (yes, I was so scared that I just wanted this loan and company out of my life).

It was a little humbling to pay almost $1,200 a month and see your credit balance drop by just a few hundred dollars. Yes, I was throwing away about $1,000 a month in interest. After a few years, I still had six figures in debt. I felt like I was paying that much money every month for this debt (and I was! it’s almost 40% of my take home pay). I got nowhere.

After working for a few years, I started raising and had a little extra money every month. I wanted to see if I could put some extra money towards the debt.

Loan To Pay Off Student Loans

After many articles and charts, I decided to pay a little more each month for my highest interest loan. I did this for a few years and honestly, I still didn’t feel like I hurt my credit.

Can You Use A Personal Loan To Pay Off Student Loan Debt?

About 3 or 4 years after graduation, after hitting a dead end looking for “how to pay off my student loan debt”, I heard about Dave Ramsey. I read a few articles about him and bought his book (a must). I read it and liked it. But I did nothing about what I read. Then I discovered his radio show. I listened for a year. And again I did nothing.

Then I decided it was now or never and finally started the Dave Ramsey plan. I listed ALL my debt and started paying off the one with the lowest balance first (The Debt Snowball Method). I was doing pretty well. But it didn’t go as fast as I thought. I still contributed to my retirement — that was one of the things I did

Quit (even though it’s part of Dave Ramsey’s plan). I also don’t think I was as “tough” as Dave Ramsey’s other followers. I even let some “luxuries” into my life.

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Which Student Loans Should You Pay Off First?

Then I got so fed up with my loans that I decided to go all-in. The first drastic thing I did was stop contributing to my 401(k). It hurts. I didn’t save for retirement and I missed out on a 5% match.

The second drastic thing I did was borrow from my 401(k). No one recommends this. There are about 2,342,342,344 personal finance writers out there – all of whom advise against taking a 401(k) loan for whatever reason. 401(k) loans are basically a no-no among all financial gurus.

But I did the math. It made sense to me. One of my student loans had an interest rate of 9.9%! This is crazy.

Loan To Pay Off Student Loans

I borrowed $40,000 from my 401(k) and was able to pay off about 70% of my private student loans right away (I still had my private loan and all my federal student loans). It was only 2.25% on a 401(k) loan (compared to 6.5-9.9% on some private student loans). Also, the money we paid as interest on the 401(k) loan was put into the 401(k). You paid yourself interest! It only cost $50 to withdraw the loan. OKAY.

How To Tackle Your Student Loans [infographic]

(Although I now owe another company for my 401(k) loan, I still considered this part of my student

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