I was reminiscing back to the time period between 2012-2015 where Jess and I were throwing almost 40% of our take-home pay towards student loans.
I distinctly remember the feeling of living paycheck to paycheck despite making more than $100,000 per year. I also remember the sense of frustration that this was not what I had thought I signed up for when starting pharmacy school.
It goes without saying that for many new graduates, student loan payments can make a paycheck evaporate in no time unless you are on an income-driven repayment plan with low monthly payments, are seeking loan forgiveness, or decide to take out your loan payments for 20+ years.
I’ve talked with hundreds of pharmacists that describe the frustration of feeling like they are making little to no progress on paying off their loans despite making massive monthly payments.
Why is that the case? Simply put, a big debt load with interest getting in the way.
Making a Second (Big) Mortgage Payment
The average indebtedness for a Class of 2017 graduate was $163,494 (Ref: AACP Graduating Student Survey, 2017). Assuming a 6% interest rate and 10 year pay back period, that would equate to a monthly payment of $1,815.12.
The interest portion alone due on the very first month’s payment of this debt load is $817. Therefore, if you were to send in a first month’s payment of $818, only $1 of that would go towards the original balance of $163k. Ouch.
Even if you were able to throw $1000 per month at this loan, you can see that in the early months, your balance would decrease by less than $200 per month.
Thankfully as the principal is paid down, the interest gets lower and lower but in the first few years, it can feel like you are throwing a mortgage payment (or two) but not seeing the balance go down as much as you would like.
Speaking of mortgage payments, check this out.
Assuming a 6% interest rate and a 10-year payback period, the monthly payment associated with the average student loan debt ($163,494) is equivalent to buying a $380,200 home (assuming 4% interest and 30-year mortgage).
Ever wonder why pharmacists often say they feel like they are making two mortgage payments? This is why.
This post was written by Nick Ornella, PharmD. Nick is a 2009 graduate of Ohio Northern University. After paying off his student loan debt, Nick started to save to make his dream of taking one year off of work to travel the world a reality. You can follow his journey on Instagram (@nickornella) or Facebook. If you have any questions for Nick, you can e-mail him at [email protected].
“The wind was howling, temperatures in the single digits, darkness all around us. We set out across the glacier, shivering. I was chugging along, singing songs in my head to keep my mind off the cold, one cramped boot in front of the other, using my ice axe to balance myself, carefully stepping over bottomless cracks in the ice. Eventually, the sun started to shed some light, dawn was approaching. I began to notice the low lying clouds blanketing the land all around the mountain, peaks and valleys of white clouds undulating as far as the eye could see. What was at first just a faint light, turned into an incredible sunrise. Different shades of yellow, orange, and red lighting up the sky and the clouds down below. It was stunning. I was having the time of my life.”
This is an excerpt from a journal entry I wrote about my climb of Mt. Rainier in Washington this past August; from a journal full of stories that would not have been possible had I not achieved financial freedom. I got out of debt as quickly as I could, and I saved up as much money as I could, allowing me to fulfill my dream of taking one year off of work to travel the world.
I graduated from pharmacy school with much less debt than most pharmacists, thanks to some hard earned academic scholarships and two hard working parents, Pete and Celeste, but I was still in the mindset of paying off my student loan debt as quickly as possible. I lived at home with my parents for 10 months after graduating. I took a higher paying job with a large chain pharmacy, passing up an opportunity to work in a small hospital at a lower salary. I received a sign on bonus which I used to help pay off my loans. I picked up some extra shifts at work. I wanted to be free of the burden of loans as quickly as possible. Within one year of graduation, I was able to pay off my student loans.
Once I got out of debt, I shifted my mindset to saving as much money as possible and avoiding any more debt. I decided against buying a house or condo, opting to rent an apartment instead. I started contributing 15% of my salary towards my company-matched 401(k). Instead of just keeping money in a savings account, I took the riskier but more rewarding option of opening up a brokerage account and began purchasing some stocks and mutual funds. I established an emergency fund. I got my first credit card but never carried a balance, paying it off in full every month while earning some nice rewards points.
I have always been conscious about my spending as well. I think about a purchase before I make it and make sure I will get my money’s worth out of the item. There have certainly been some ill-advised purchases along the way, but for the most part, I’ve been able to avoid catching the consumerism bug. I have the same TV today that I purchased eight years ago. I make a smart phone last two or three years, as opposed to buying the new release every year. I have only owned two different computers my entire life. Clothes are only bought when needed, not to keep up with fashion. I rented a small one-bedroom apartment, avoiding the high cost of furnishing a house or big apartment and the high costs to heat, cool, and maintain them. I was also conscious of my day-to-day spending. Instead of ordering carry out while at work, I packed a lunch every day. I watched my spending at the grocery store and made sure to use everything I spent money on, no waste. I always buy store brand products, not name brand. All of these smaller day-to-day expenses can really add up.
After several years, I started to realize I was doing a good job at getting ahead in my finances, so I started to look into making my dream of traveling for a year a reality. I read several books and blogs about long-term travel and contacted the wise Financial Pharmacist for advice (very good advice by the way!). I crunched some numbers and came up with a budget for the whole year. I eliminated some monthly bills and moved into my friend Tony’s condo, avoiding being tied to an apartment lease. The more I looked into this year off, the more I realized it was a very real possibility, so I started to set some money aside. Within a couple years, I had enough money to finance the whole year.
All of the hard work to get out of debt, to build a nice financial nest egg, and to get a good head start on my retirement savings led me to comfortably make the decision to take a year off work to travel. It was always a dream of mine to do something like this, to break free of what society would consider a normal life, to get out and experience the world while still young and healthy.
I’m very thankful I’ve been able to achieve this goal. I spent all spring and summer out west, visiting nearly every western state and every western National Park, backpacking and camping and climbing mountains, being a kid again. I climbed Mt. Whitney, the highest mountain in the lower 48 states, as part of a fundraiser for a charity I support. I backpacked the 223-mile John Muir Trail through the beautiful Sierra Nevada Mountains in California. I spent two amazing weeks in Wyoming with my girlfriend, Alanna, and two incredible weeks in Colorado with my friends, Tony and Sam.
In September, I headed overseas and spent a fantastic week in Paris and London with my sister, Lauren. Since then, I’ve spent the past 9 weeks exploring 12 different countries and over 20 different cities in Europe, wandering through countless city streets and cathedrals, eating some of the best food in the world, and meeting some incredible people along the way. After spending the holidays at home in Cincinnati, I will be spending 11 weeks in Africa, volunteering and going on safari in Uganda, Tanzania, and Kenya.
I’ve been able to live my life on my terms, not on the terms of Sallie Mae. Achieving financial freedom has allowed me to live my dream. It can allow you to live yours.
Your Financial Homework
Your homework is a little bit different this time, no crunching numbers or coming up with budgets. Your financial homework is to dream, and if you’ve already been dreaming, then your homework is to start doing research into making those dreams a reality. Maybe your dream is like what my dream was, to take some time away from work, maybe to travel, maybe to spend a whole summer away from the stresses of work to be with your children. Maybe your dream is to ensure your children walk away from college debt free. Maybe you wish to open up a business, a pharmacy, or become an entrepreneur. Start looking into making this a reality NOW, not tomorrow. Do some research on the Internet, email or talk to people who have done something similar to what you want to do. Once you’ve begun this process of making your dream a reality, the dream will start to become reality. Once your dream is within your grasp, it will make financial freedom your top priority so you can pursue this dream. It will make your budget that much easier to adhere to. It will take away the desire to purchase things you don’t need. It will make living a simpler and more frugal life much easier. It will lead to a much more fulfilling life, a life not controlled by the burden of debt. I hope you’ve enjoyed reading about my journey.
This article was written by a former classmate of mine, Jonathan Bade, PharmD, describing the journey he and his wife (Lindsey Bade, PharmD) took to pay off $160,000 in a few short years. After paying off those student loans, they are coming close to having a paid for home and are well on their way to financial freedom! Jonathan and Lindsey are graduates of Ohio Northern University (Go Polar Bears!) and reside in the Dayton, OH area with their two children Alexa (4 years) and Jacob (19 months). Jonathan is the 340B Pharmacy Coordinator at Grandview Medical Center and Lindsey is a staff pharmacist at Ken’s Pharmacy.
Eight years have gone by, and we’re still aggressively tackling debt. Today, we’re starting to see the light at the end of the tunnel – as we are getting close to paying off our home mortgage. While not always easy, we’ve chosen to strive for financial peace. Here is the story of the journey my wife and I took to pay off our student loans and be on the path towards financial freedom.
Lindsey and I graduated from Ohio Northern University with student debt totaling $160k (I have to throw in a plug that $120k was mine) Ouch! Since I graduated a year before Lindsey, I made a decision (and was fortunate enough) to live at home with my parents my first year working as a professional. With virtually no living expenses, a nice company sign on bonus (in which every penny went to pay back loans), and putting in 50-60 hour workweeks, I was able to attack my portion of the debt viciously. I like to use the analogy “to start a fire with the sun and a magnify glass you have to keep steady on one single point.” That’s exactly what I did attacking my student loans starting from the smallest debt to largest (regardless of interest rate). Emotional wins by knocking one after the other spread like a wildfire. Quick wins! Mathematically it makes sense to go after the highest interest rate first, but emotion is what fuels our drive. The sense of accomplishment from paying off a loan gives you momentum to attack the next loan. I had been used to living on nothing like the typical college bachelor, so that’s the lifestyle I maintained.
2009 was a life-changing year for us. Lindsey graduated in May; we got married in June, and bought our first home with 20% down in July. Her small amount of debt became ours after marriage, and we continued to kill it together, smallest to largest. We became completely debt free (except for our 15yr mortgage) on New Year’s Day 2011. We remember that day like it was yesterday!
Lindsey and I continued to work full-time, and soon our focus shifted to family. She had a new professional opportunity arise unexpectedly soon after our last loan payment. She was excited to pursue it knowing it was a good fit for a part-time professional/part-time stay-at-home mom. Fast forward 5 years now and two beautiful kids later, Lindsey continues to work outside the home 12 hours a week electing to stay home and raise our one and four year old children.
Since becoming debt free in January 2011, Lindsey and I invest 15% of our own income (not including employer contributions) into retirement and invest monthly for the kids’ college since birth. All along our journey, we have given to our church and other charitable organizations. Giving is a win-win situation. You feel good when you give, plus there is someone benefiting on the other side. Not to mention, an important thing to teach the children.
Within the past year, we have really attacked our mortgage; contributing everything extra at the end of the month towards our principal balance. We now have less than 8 months until our home will be paid off (7 years early)!!! We have a giant red poster that we both see every day of the rolling balance of our mortgage. It’s a visual reminder of our progress and motivation that we are almost there! On it we have, “The borrower is slave to the lender” (Proverbs 22:7).
We all know financial problems can destroy relationships and lead to divorce. Lindsey and I want to protect something that means so much to the two of us. To help us stay on the same page, at the end of every month after the kids go to bed, we sit down and budget. We review how we did that month and set the budget for the next month. We don’t finish our meeting until we both agree on all budget categories. If something does come up in a month, we revisit the budget and decide where we’re going to take the funds from to keep our budget balanced. Every dollar of income has a purposeful agreed on assignment.
We are very goal oriented people. To help us stay motivated and disciplined, we have specific shared goals…
Fully fund our kids’ education (including college)
Pay cash for an oceanfront property
Have specific levels of net worth at certain ages
To give more freely and be outrageously generous
Retire no later than age 60, and so on.
Building wealth is 80% behavior and 20% head knowledge. Everyone knows what we should do, but do we have the discipline to do it? No matter how hard we try, we will never keep up with the Joneses. It doesn’t take an intricate investment portfolio to become a millionaire. It’s just the simple behaviors of investing, saving, and living on less than your make.
Our advice is to get rid of debt! ALL OF IT! It is so incredibly freeing not having any payments! We are financially sound, but we continue to cut our expenses because we don’t like payments… bye bye $120/mo DirectTV and hello $11/mo Hulu and free YouTube. If your employer didn’t give you a raise this year because of the ‘tough economy’, give yourself a raise! Kick the auto loan at 5% interest and get a 5% raise! It’s that simple.
Finally, we are a very spiritually oriented family. Lindsey and I want to be a good example and teach our kids how to manage money the way God intends. We always look to Christ and the scriptures for wisdom, guidance, and knowledge for anything in our lives. Do you know how much the bible references money and wealth? …Over 2000 times! Lindsey and I believe that all money and wealth is God’s; we are just the managers for Him. ‘A good man leaves an inheritance to his children’s children’ Proverbs 13:22.
So be different! Change your family tree! Don’t keep up with the Joneses. Don’t do what normal people are doing. If they’re making fun of you, you’re doing the right thing. Keep life simple and keep your priorities straight. As one of Lindsey and I’s favorite authors would say, ‘Live like no one else so later you can live and give like no one else’ (Dave Ramsey).
This article was written by a former classmate of mine, Jonathan Bade, PharmD, describing the journey he and his wife (Lindsey Bade, PharmD) took to pay off $160,000 in a few short years. After paying off those student loans, they are coming close to having a paid for home and are well on their way to financial freedom! Jonathan and Lindsey are graduates of Ohio Northern University (Go Polar Bears!) and reside in the Dayton, OH area with their two children Alexa (4 years) and Jacob (19 months). Jonathan is the 340B Pharmacy Coordinator at Grandview Medical Center and Lindsey is a staff pharmacist at Ken’s Pharmacy.
Eight years have gone by, and we’re still aggressively tackling debt. Today, we’re starting to see the light at the end of the tunnel – as we are getting close to paying off our home mortgage. While not always easy, we’ve chosen to strive for financial peace. Here is the story of the journey my wife and I took to pay off our student loans and be on the path towards financial freedom.
Lindsey and I graduated from Ohio Northern University with student debt totaling $160k (I have to throw in a plug that $120k was mine) Ouch! Since I graduated a year before Lindsey, I made a decision (and was fortunate enough) to live at home with my parents my first year working as a professional. With virtually no living expenses, a nice company sign on bonus (in which every penny went to pay back loans), and putting in 50-60 hour workweeks, I was able to attack my portion of the debt viciously. I like to use the analogy “to start a fire with the sun and a magnify glass you have to keep steady on one single point.” That’s exactly what I did attacking my student loans starting from the smallest debt to largest (regardless of interest rate). Emotional wins by knocking one after the other spread like a wildfire. Quick wins! Mathematically it makes sense to go after the highest interest rate first, but emotion is what fuels our drive. The sense of accomplishment from paying off a loan gives you momentum to attack the next loan. I had been used to living on nothing like the typical college bachelor, so that’s the lifestyle I maintained.
2009 was a life-changing year for us. Lindsey graduated in May; we got married in June, and bought our first home with 20% down in July. Her small amount of debt became ours after marriage, and we continued to kill it together, smallest to largest. We became completely debt free (except for our 15yr mortgage) on New Year’s Day 2011. We remember that day like it was yesterday!
Lindsey and I continued to work full-time, and soon our focus shifted to family. She had a new professional opportunity arise unexpectedly soon after our last loan payment. She was excited to pursue it knowing it was a good fit for a part-time professional/part-time stay-at-home mom. Fast forward 5 years now and two beautiful kids later, Lindsey continues to work outside the home 12 hours a week electing to stay home and raise our one and four year old children.
Since becoming debt free in January 2011, Lindsey and I invest 15% of our own income (not including employer contributions) into retirement and invest monthly for the kids’ college since birth. All along our journey, we have given to our church and other charitable organizations. Giving is a win-win situation. You feel good when you give, plus there is someone benefiting on the other side. Not to mention, an important thing to teach the children.
Within the past year, we have really attacked our mortgage; contributing everything extra at the end of the month towards our principal balance. We now have less than 8 months until our home will be paid off (7 years early)!!! We have a giant red poster that we both see every day of the rolling balance of our mortgage. It’s a visual reminder of our progress and motivation that we are almost there! On it we have, “The borrower is slave to the lender” (Proverbs 22:7).
We all know financial problems can destroy relationships and lead to divorce. Lindsey and I want to protect something that means so much to the two of us. To help us stay on the same page, at the end of every month after the kids go to bed, we sit down and budget. We review how we did that month and set the budget for the next month. We don’t finish our meeting until we both agree on all budget categories. If something does come up in a month, we revisit the budget and decide where we’re going to take the funds from to keep our budget balanced. Every dollar of income has a purposeful agreed on assignment.
We are very goal oriented people. To help us stay motivated and disciplined, we have specific shared goals…
Fully fund our kids’ education (including college)
Pay cash for an oceanfront property
Have specific levels of net worth at certain ages
To give more freely and be outrageously generous
Retire no later than age 60, and so on.
Building wealth is 80% behavior and 20% head knowledge. Everyone knows what we should do, but do we have the discipline to do it? No matter how hard we try, we will never keep up with the Joneses. It doesn’t take an intricate investment portfolio to become a millionaire. It’s just the simple behaviors of investing, saving, and living on less than your make.
Our advice is to get rid of debt! ALL OF IT! It is so incredibly freeing not having any payments! We are financially sound, but we continue to cut our expenses because we don’t like payments… bye bye $120/mo DirectTV and hello $11/mo Hulu and free YouTube. If your employer didn’t give you a raise this year because of the ‘tough economy’, give yourself a raise! Kick the auto loan at 5% interest and get a 5% raise! It’s that simple.
Finally, we are a very spiritually oriented family. Lindsey and I want to be a good example and teach our kids how to manage money the way God intends. We always look to Christ and the scriptures for wisdom, guidance, and knowledge for anything in our lives. Do you know how much the bible references money and wealth? …Over 2000 times! Lindsey and I believe that all money and wealth is God’s; we are just the managers for Him. ‘A good man leaves an inheritance to his children’s children’ Proverbs 13:22.
So be different! Change your family tree! Don’t keep up with the Joneses. Don’t do what normal people are doing. If they’re making fun of you, you’re doing the right thing. Keep life simple and keep your priorities straight. As one of Lindsey and I’s favorite authors would say, ‘Live like no one else so later you can live and give like no one else’ (Dave Ramsey).
The following post was written by Eric Christianson, PharmD, BCPS, CGP. Eric is the creator ofMed Ed 101, a popular educational web site that focuses on helping students and pharmacists prepare for licensure and certification exams. You can subscribe to his blog athttps://www.meded101.com/blog/. You can also follow him on Twitter (@MedEd101) where he provides updates that will help you stay current in your practice. He is the author ofPharmacotherapy: Improving Medical Education Through Clinical Pharmacy Pearls, Case Studies and Common Sense. I hope you find his story about becoming debt free and lessons learned as inspirational as I did!
Pharmacy student loans have felt like a black cloud in my life, but I try to look at the good in every situation. I learned a lot about what two people (my wife and I) working together could accomplish.
I graduated in 2009 from pharmacy school with $145,000 in student loan debt. It took my wife and I about 7 years to pay off those loans. There were a lot of ups and downs throughout the process, but we had a goal, made sacrifices that a lot of people don’t, and have found out what we can now do with an extra $2,000 – $3,000 per month!
The Downs
Throughout a multi year process of paying off debt, you run into all sorts of unpredictable life events. Being married, having a couple of wonderful children, and owning a home really impacts the finances. A couple of major things that happened to us were that we added an egress window to a basement room so we had enough room in our house for a second child. We also redid shingles on our home and needed to buy a used (new to us) car. Other less expensive things that happened were appliances that stopped working. We had to replace a washer, dryer, and stove over a five-year period. We may have been out of debt quicker without these expenses that probably cost us $20,000 – $25,000 total.
The Ups
I found joy in the little targets. Every $10,000 dollars paid was exciting. Breaking the $100,000, $50,000, and $10,000 barriers were really exciting and made me feel like progress was being made. Shorter-term goals were important for us to keep going and helped us look back and realize how far we had come. We had plenty of personal ups including the birth of our two children, several family weddings, and a couple of long weekend trips to warmer climates during the winter.
Lessons Learned Along the Way
# 1 – Define a dream versus a goal. If your plan is waiting for a distant relative to die and leave you a million in the bank, you will be disappointed and have wasted a lot of time and energy thinking about it. Trust me, thoughts like this have crossed my mind. Dreams mean nothing without action behind them. Start with the end in mind. Setting a long-term goal with short-term targets along the way helped me get excited and focused on a way forward. Write out a plan and take control.
# 2 – Discipline. No, we are not going out to eat tonight was something I had to tell myself and negotiate with my family.
# 3 – Revenue, Taxes and Expenses. Our family Pre-Tax income varied from the upper 90’s/year to the 140K range throughout this 7 year period of paying off debt. Expenses went up with children, and don’t forget about taxes!
# 4 – Sacrifice. To those who say you can’t live without a smart phone, you are wrong. Call me what you will, but I just purchased my first smart phone a few months ago. There were certainly times of discomfort and near embarrassment because of this fact, but it saved our family in the neighborhood of $100-200/mo. We also lived in a modest home and drove vehicles 8-10+ years old. I picked up extra hours as well as started a side business.
# 5 – What really matters? As I have gained more life experience, I have accumulated a greater appreciation for what really matters. If you have ever had a sick child, friend, or other family members, you understand how much you would give up for health. While my financial health felt pretty ill for a while, my family has overall been blessed with incredible physical health.
# 6 – Control. Your car breaks down, the washer quits, or wallet gets stolen are all things that are out of your control. Do your best to take action and fix the situation. Expect the unexpected and recognize the only thing in life you can control is your actions.
# 7 – Financial Freedom. Freedom is a great word. Money is not everything, but what money can do is provide you more freedom to live a happier, more fulfilling life.
# 8 – Interest sucks. My parents talk about interest rates in the “teens” and I can’t even imagine that. On $100,000 of debt, at a 5% interest rate, you will pay about $417/month in interest alone. Take that same $100,000 at a 10% interest rate and you will pay $833/month in interest alone. I realized how lucky I was to have a 4% interest rate.
Your Financial Pharmacist Comment: What an inspirational story of going from $145,000 in debt to $0 within a 7-year period despite a growing family and significant unexpected expenses. It was clear Eric and his wife had a mindset of controlling expenses while getting creative about bringing in more money by starting a side business. The double whammy of cutting expenses while bringing in more income helped him get out of debt and be on a path to financial freedom!
This article was written by Matthew Muir, PE, LEED AP BD +C. Matthew is a 2006 graduate of Ohio Northern University and currently works as a Mechanical Engineer at Advanced Engineering Consultants. He has some good points for us all to consider as we think about taking on any loan. If you have any questions about his article, feel free to comment on the blog or e-mail him directly at[email protected]
Quantifying debt can be challenging. You just graduated from college, purchased a home or took out a car loan. If you haven’t been reading Your Financial Pharmacist’s blog and saving up for a long time, you probably don’t have the cash flow upfront to fund a large purchase. For the sake of discussion, let’s assume you go to the bank and take out a 5-year loan for $25,000 to buy a new car. The bank hands you a check and you walk out the door with $25,000 in debt, right? Not so fast.
I’m going to challenge you to think a little differently. From now on, quantify debt by taking into account the total amount of money you will pay over the term of the loan, not just what you borrowed. Ready to get started?
Loan Amount (Balance or Principal you Owe): $25,000
Interest Rate: 6.0%
Term (Months): 60 Months
Before we start drawing conclusions, let’s talk a little more about how loans work. When you make your monthly payment, the bank divides your payment up into two categories: principal and interest. The principal is applied toward the balance of the loan ($25,000 in this case) and the interest goes into the bank’s pocket. The first payment of any loan is the most depressing one; you pay the most interest you’ll ever pay and the least principal you’ll ever get credit for (per monthly payment). Look at the numbers:
Bottom line: $480.95 of the $483.32 goes toward paying off your loan, that’s 99.5%
Yikes! If you paid the minimum payment for the life of the loan (5 years) than you would have paid a total of $28,999.23 (principal: $25,000, interest: $3,999.23) for your new car, which means you paid 16% more for the car than the dealership was charging. $4,000 might not seem like a lot of money to some, but keep in mind the loan amount and the term we looked at. Imagine what those numbers might be on a $250,000 house loan over 30 years. Scary, isn’t it?
Loan Amount: $250,000
Interest Rate: 4.0%
Term (Months): 360 Months
Monthly Payment: $1,193.54
Total Interest Paid: $179,673.77
Loan Amount + Total Interest Paid: $250,000 + $179,673.77 = $429,673.77 (that’s not a typo)
Seeing that number makes me sick. (Hold on for a minute while I locate the nearest trash can!) By showing you these numbers, I’m not trying to discourage you from buying a house or borrowing money for a purchase, but instead trying to encourage you to pay off your loans quickly to minimize the extra money paid in interest so you can keep more of your hard-earned money. How do I do that? I’m glad you asked. The good news is that you are already on your way.
Know how much money your borrowing, for how long and how much it’s going to cost you if just pay the minimum amount over the full term of the loan (we covered this today). Shop around for the best interest rate. Credit unions can sometimes offer a better rate than a larger bank (less overhead).
Don’t pay just the minimum payment. Start by rounding your payment up every month. In my new car example, around $483.32 up to $500.00. You won’t miss the additional $17.00 per month, and at the end of the first year, you will have paid an additional $204 toward the principal on the loan. If you can, increase the amount you pay even more.
Stick to your budget regardless of what income comes in. Did you get a raise or bonus, a birthday gift, or find cash on the ground? Instead of looking at that money as “I wasn’t planning on receiving this money so I might as well spend it.” Use that extra money to pay off your loan quicker.
Take advantage of the months where you get an extra paycheck. If you get paid bi-weekly you will get 26 paychecks per year; 10 months you will get 2 paychecks per month and 2 months you will get 3 paychecks per month. Use the extra paycheck to pay off your loan quicker.
Consider setting up automatic bi-weekly payments (of half your monthly payment amounts). This is a similar principle to what was discussed in item #3. You will actually end up paying extra in principal per year just as a function of how the payment math works out.
Look for opportunities to refinance and consolidate your loan. (Your Financial Pharmacist Comment: This is a big one right now with many student loan borrowers having interest rates on loans in the 6-8%. More to come on this topic in the near future).
Ask for a lower interest rate. Never hurts to ask right? The worst they can say is no.
Cut expenses. Look for financial areas where you can make sacrifices. Cancel memberships and services that you are not using. My wife and I canceled cable and were able to save $50.00 per month. We use Netflix, an antenna, and YouTube and haven’t missed cable at all. Okay, I lied, maybe a little during football season. Go Ravens!
This is not intended to cover all the details about loans or to make you an expert. It’s important to do your research to ask the right questions while applying for a loan. What are the right questions to ask while applying for a loan? I’m glad you asked. Maybe Your Financial Pharmacist will invite me back to answer that question.
If you are reading this and have any other ideas about ways that to pay off a loan more quickly, please share your suggestions in the comments sections.
The following post was written by Jenna Garlock, PharmD, BCPS. Jenna is an Emergency Medicine Clinical Specialist at Cleveland Clinic Akron General Medical Center. She has an inspiring story about becoming debt free in such a short time from graduation.
Coming out of pharmacy school with thousands of dollars in student loan debt was quite intimidating, especially knowing that I was going to have a resident salary for a year after school. I was fortunate to not have the $200,000 of student loan debt like some, but my loan debt was significant enough to require financial planning to become debt free in a timely manner. Through hard work and dedication, I was able to pay off my loans ahead of schedule in 3.5 years! While paying off my student loans I completed a PGY1 pharmacy residency, paid for part of my wedding, and still had money for a few spectacular vacations. Paying off student loans is very doable, but I would not have been able to do it without a few key concepts, which I have outlined below.
Though sometimes tedious, being meticulous with money allocation really decreased financial stress. In order to determine how much money to assign to each subaccount my husband and I set up spreadsheets outlining monthly expenses, wedding expenses, home renovation costs, vacation expenses, and retirement planning. Monthly expenses are necessities, so money was allocated to this first, and the rest based on priorities. Student loan payments were incorporated into monthly expenses, and overpayment was determined by prioritizing “left over” money after monthly expenses were covered. Ultimately, overpayment of student loans is the key to paying off loans ahead of schedule.
Schedule
If planning to pay off your student loans ahead of schedule, it is vital to set and stick to a personal payment plan. My goal was to pay off my student loans in under 5 years, which would require me to overpay each month at least double my monthly payment. There were many times that I wanted to take my overpayment money and buy something different, whether it be for a trip, new clothes or electronic gadget. Though all these items are attractive, the items I wanted to replace were still fully functioning. I realized how paying off my student loans early would allow me to save more for the future, so I stuck to the schedule as planned.
Unexpected income
There are things that come every year such as birthdays, Christmas, opportunities for extra work shift, and tax returns. Usually, these all become a source of unexpected income. Every year I took my Christmas money from grandma and grandpa, money from extra work shifts, and annual tax returns to overpay on my student loans. This was money I was not depending on in the first place, so I treated myself to a couple more months of being student debt free! That was my splurge.
Plan for the future now, even when paying off debt
One of the aspects of life that college does not prepare you for is retirement planning. My husband and I were clueless as to where to even start, so we took a free 4-session class that was offered through his work. The class introduced basic retirement savings concepts, different types of funds, and savings strategies. Saving early was a point that was continually reinforced. For example, assume you have a 6% compounded rate of return. Person A saves $5,000/year for 10 years then contributes $0 for the next 20 years, for a total of $50,000 contributed. Person B saves $0 for the first 10 years then contributes $5,000 for the next 20 years, for a total contribution of $100,000. At the end of 30 years, Person A will have $224,044 and Peron B will have $194,963. The early bird gets the worm! After this class we determined that saving for retirement was as important as paying off student loans, so it was a matter of finding a balance of money allocation. Whatever you do, do not delay retirement saving!
Planning for the Future
Now that my husband and I are officially student loan free there is really no breath of fresh air. Our money just has new allocations like retirement planning, family planning, home improvement projects, and updating cars. Don’t get me wrong, we did take a nice ski trip to Colorado shortly after because that money was no longer dedicated to loan payments. Being student loan free allows you to take advantage of more opportunities in life! Our next big focus is retirement and family planning and setting ourselves up for a successful future.
Through careful planning and dedication, I was able to pay off my students loans ahead of schedule without ever feeling restricted. Hopefully, this gave you some ideas so you can soon be student loan free too!
