By Gerri Detweiler, Credit.com
When Richard Kline graduated from law school in 2003, he had $117,000 in debt and jobs in the legal field were scarce, so he took a job as a mortgage loan officer. Despite his hard work and a housing market that was just starting to boom, he was barely making a dent in his balances.
Within a few years, though, he was debt-free, in large part because he was willing to take a step back in order to move forward. Here's how he did it.
The first year after graduation, Kline deferred his payments on his loans, but since interest continued to capitalize, he quickly grew frustrated by the fact that his balances were growing larger. His next step was to make minimum payments (about $450 a month) and pay extra when he could.
But living and working in an expensive city -- New York -- meant a big chunk of his income was going toward rent. The fact that he was getting paid largely on commission didn't help. No loans closed meant no commission check.
That's when he decided to get serious about paying off his debt. He wrote in an email:
"I didn't want to be a debt slave my entire life. I saw the handwriting on the wall and it was kind of scary to have this debt hanging around my neck for the next 30 years. I felt like I was running to stay in place. It made no sense to me to be in this situation."
So he asked his parents if he could move back in with them, a step that wasn't as common as it is today -- especially for a law school grad. "Just a few years ago, everyone was snickering at people that moved in with mommy and daddy," he said.
With no rent payment though, he was able to put a large chunk of his income toward his debt. He also tried dabbling in the stock market, but it turned out to be a expensive mistake. He said he "lost about $5,000 on silly junk stocks. Never again."
His strategy paid off and within six and a half years he had paid off his loans completely. He's also now working in his chosen field as circulation manager and partner of LegalAdvice.com, a website that connects clients looking for legal advice on the Internet with a licensed legal professional.
His advice to other grads with lots of student loan debt? Don't dismiss the option of living with family if it helps you free up funds to pay off your loans as fast as possible. "I think it is wise to move into your own apartment and get married and buy a home, only after student loan obligations are paid off," he said.
His only regret is that he waited a few years to return home. "I could have paid off the loans much faster if I had moved back in with my parents even sooner, but I was brainwashed by society that says there is a social stigma for moving back in with mom and dad."
If you're worried about how your student loans are affecting your credit, be sure to keep close tabs on where you stand. You can use free tools from Credit.com to monitor your credit scores, along with a clear explanation of why they are what they are, and what you can do to help them.
This article originally appeared on Credit.com. Gerri Detweiler is Credit.com's Director of Consumer Education. She focuses on helping people understand their credit and debt, and writes about those issues, as well as financial legislation, budgeting, debt recovery and savings strategies. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.com.
Image courtesy of Richard Kline
However, Brian McBride, an associate producer at CNN and a 2010 graduate out of Arizona State University, managed to pay off $26,500 in debt in just two years. He explained his plan on CNN Money's website. McBride owed $20,500 in student loan debt and $6,000 for his 2003 Honda Civic. He said he tackled his car loan first to pay down a higher interest rate during a six-month grace period following graduation on his student loans. In his first job out of college as a local reporter in Green Bay, Wisc., he lived frugally while working for $13 an hour. Read more here.
From her story: I started by making a budget for each of my expenses, and then made it a point to look at my bank account and my budgets spreadsheet once a week to categorize all of the money going in and out. I also calculated my monthly expenses, and tried to determine what it would take to put $500 to $1000 extra each month–on top of the $800 in minimum payments I was already making–toward putting a further dent in my loans. Since I couldn’t do it based on how much I was earning, I got creative: - Rent: I gave up my Dupont neighborhood studio and found a roommate in a cheaper neighborhood, which halved my rent. Cable I canceled my subscription, and streamed shows for free on my computer instead. - Gym: Rather than pay $95 a month for health club membership (D.C. gyms are expensive!), I started using the free facility at work, joined a running club on Meetup and streamed free workout videos online during rainy days. - Phone Bill: I limited my data usage and calls, and switched to a plan that cut my monthly bill by $30. I even told friends not to text me! - Entertainment: Instead of relying on happy hours and dinners out, I found free events on Meetup, like hiking trips and book clubs. Or I’d invite friends over for food, and they’d bring their own beer. I also only ate out if it was beneficial to my career, like networking lunches. - Travel: I went to Peru in the winter of 2010, and this year, I’m planning on Malaysia — both countries where the exchange rate is great. I stayed in hostels, and ate where locals do instead of going to pricier tourist spots. Plus, I put a little aside each month, so the expense is built into my budget and doesn’t take away from my savings. (Make travel a Priority Savings Goal in your own budget.) Read the whole thing here.
Kristin Wong paid off $12,000 in a year, despite having only a $10/hour job. In an op-ed for MSN Money, among other things, she said she moved in with her parents and held back from taking a trip or shopping for new clothes.
Sarah Knutson explained how she paid off $30,000 in debt in two years: With her first job, she made $2,000 a month and lived at home. "Each month, I repaid $1500 in debt, leaving $500 of 'fun' money," Knutson explained. She also skipped skiing and snowboarding trips.
Ohio state Rep. Christina Hagan may be an elected lawmaker, but she's waiting tables and working at her family's heating & plumbing business to try to pay off her $80,000 in student debt.
A couple paid off $30,000 in one year by skipping out on having a cell phone at all, and skipped out on having Internet and cable TV packages. "We stuck with dial-up [Internet]," one of them said.
Art Institute of Atlanta graduate Amy Kroezen collectively owed $116,000 with her husband. Neither of them made more than $35,000 a year. They decided they would commit one of their incomes solely to paying off their debt. Among other steps, she took to building her own furniture since they couldn't afford it, constructing a king-size bed, dining table and toy box. She made her own cleaning supplies and grew some of their own food. After four years, they've paid off $103,168 of their student loan debt.
Kent Lister paid off $36,000 in 7 years, saving $2,907 in interest. Tax returns had to go back into his loans, he picked up a weekend job, and then "snowballed" his payments: "When you pay off one loan/recurring payment, add that amount to your next loan. Once that loan is paid off, take those two amounts and put it into your third payment (like a snowball, it just keeps growing). Repeat until all debt is cleared."
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