By Wendy Palastro, MD
Like many young physicians, I am carrying a huge student loan balance from medical school. The training to become a physician is not only tedious and mentally and physically demanding, it also bears a hefty price tag. To make matters worse, the interest rate for federal student loans for professional school were (and continue to be) quite lousy, 6.8 percent. The professional school loans dropped a bit since I graduated, but have creeped back up to the 6 percent range.
I needed to borrow a bit more than my allotted direct federal student loan, to cover my costs. This extra loan took the form of a "Grad Plus" loan with even worse interest rates in the 7.6 percent range, if I remember correctly. (Fortunately, I have paid these off a few years ago, and so I no longer recall the exact interest rate.) It seems like an impossible task to pay it all off, while also investing in my retirement accounts and paying my other day to day bills.
Slow But Steady Progress
In spite of these challenges, I have looked back at my account balances over the years, and I have been buoyed to see a steady improvement. This has improved not just my financial health, but also my mental health and happiness.
As those out there who also suffer with debt can understand, I quickly try to forget where my accounts have been (maxed over $230,000 June 2011, at the time I graduated medical school). However, I think it is important not to neglect where things started. Taking an "eagles eye" view of things and looking back at the numbers of the years has really opened my eyes to my accomplishments. I love seeing how that balance has dropped! And once I get that balance to "0" and defeat my loans, I will be doing a happy dance and cruising on Cloud 9 for days, if not longer!!!
5 Easy Tips to Defeat Your Student Loans
The following 5 tips have helped me build momentum as I payoff my student loans. I believe they will help you succeed as well!
- Make a payoff plan. Adapt as you go along!
- Minimize new expenses.
- Put your loan payments on Autopay.
- Put extra money toward your loans each month.
- Track and celebrate your payoff progress!
1. Make a payoff plan. Adapt as you go along!
I decided in my 4th year of medical school that I would start to pay off my loans in residency. I had an option to defer but I realized that this would simply raise my loan burden, as loans start to accrue interest once you graduate from medical school.
In my third year of residency, as the promise of an attending salary drew closer, I sat down and came up with a plan to pay off my loans faster. Paying off my loans in 20 years sounded unappealing, so instinctively, I decided to apply more money to my goal. In the last couple of years, I have encountered other financial blog sites recommending similar strategies to what I employed.
My plan consisted of putting an extra amount each month to my Grad Plus loans first. I then strategized to pay off each of my subsequent loans, paying off the highest interest rates first, and then tackling the lower interest rate loans. I downloaded a loan amortization Excel spreadsheet from the web, and calculated the time it would take me to pay each loan off. This made things tangible, as I was able to see a date of loan payoff. Always helpful to have a finish line!
However, just because I had a plan, this did not mean I have stuck to it without swaying. I have constantly revisited my plan and tweaked it as I have been able. When I first graduated from medical school in 2011, refinancing was not a viable option. However, in the last several years, student loan refinancing has been introduced. I have refinanced my loans twice, and have lowered my rates to 6% and then 4%. If you have not yet explored refinancing, and you are toting 6.8 percent plus rates, you should seriously consider this. It will save you tons in interest and will help you pay off your loans faster!
2. Minimize New Expenses
You should come up with a spending plan or Budget if you haven' yet. I know, I hate that B word too. But you need to know how much income is coming in, how much expenses are going out, and what the difference is. You want a net positive each month. Whatever that net positive is, is leftover for saving and (**insert Rocky theme song here**) loan payoff.
(Note If you have more expenses than income each month, this is the first problem you need to tackle. Going further and further into debt is not healthy nor sustainable. Stop this process ASAP!)
The biggest detractor from your plan will be too much spending, and taking on new loans. Tracking your spending, spending mindfully, and sticking to a budget is the best way to ensure success in your long-term goal of paying off your loans and debts.
I personally use Mint to track my spending and budget, but any of the websites are great. Or you can use the old-fashioned pen and notebook to track your income. Whatever your method, check your budget at least monthly to make sure you are staying on track.
3. Put Your Loan Payments on Autopay
Autopay is a must. This ensure you pay your bill on time and avoid late fees. Of course, if you are living paycheck to paycheck and do not yet have a nice cushion in your checking account, this can be anxiety provoking. However, my loans take the payment right on the due date anyway. You will need to have the necessary payment at that point in time, so nothing to lose.
This option takes you out of the equation as well. Things can go along smoothly, and there is one less bill for you to remember each month. Because of this simplicity, Autopay is something to strongly consider with other fixed bills each month. Also, as a bonus, the lender often will give you a small break in interest percentage for taking this option on. A few of my lenders have given me 0.25% interest discount. Awesome!
4. Put Extra Money Toward Your Loans Each Month
In addition to the money I had set in my payoff plan each month, I also strive to put any leftovers each month to my loan. I take surveys from time to time, get rebates from my rewards credit cards, use eBates for online purchases, and I subscribe to InboxDollars and MyPoints. These opportunities give me little bonuses irregularly. Sometimes a $5 check, sometimes $20 or more. Unfortunately, these are not as regular (or as big) as my paycheck. These seem small, but they are valuable and appreciated. There always seems to be an extra expense that crop up from time to time as well, vying for these extra dollars. Vacations, Christmas, birthdays, parties, medical bills, activity fees. The list goes on and on.
When I am lucky to have money leftover and an extra expense does not come up to snatch my wealth away, I sit down at my computer and make another online payment to my loan. It hurts to do this, "Wow, there goes that money into 'the sinkhole that is also known as my loan.'" And it seems there is nothing tangible to show for it. No Starbucks cup of coffee to greet me. No cool Amazon package on my doorstep. However, later in the weeks and months that follow, this little work pays off. As you chip away with each extra payment, the loan balance will drop slowly but steadily. This is an amazing thing to behold!
5. Track and Celebrate Your Payoff Progress!
I have created a note on my computer, with 2 columns: the date and my loan balance on that date. I started doing this when I read another post advising you to write down your loan amount on a sticky note and placing it somewhere prominent that you will look at each day (e.g. your mirror). This really solidifies it and makes it real. No more excuse like "oh yeah, there is this big ugly number that follows me from medical school, but it is only something I think about when I login to the website." Seeing it each morning in a real, tangible form is hard, but also makes you more determined to attack and conquer. I found that listing the date and balance over time is also very gratifying. It is neat to see how the number slowly and steadily drops, and how it can drop even faster with extra payments. This motivates me even further to stick to my budget, and put a little extra to my loans when I can.
Go out and Defeat Your Loans!
So there you have it. A handful of the things that I have found success with in my student loan battle. My loan payoff saga is still ongoing, and my finish line is still a bit in front of me. But I find every small drop in my balance as incredibly inspiring and motivating. I wish you success in your own battle to slay your student loans!
Guest blogger Wendy Palastro, MD, is a family physician practicing in the Pittsburgh area. She has been in practice for 3 years with Deer Lakes Medical, a family medicine practice serving the northeastern suburbs of Pittsburgh. She graduated from Carnegie Mellon University in 2004 with an undergraduate degree in Electrical and Computer Engineering. She served in the United States Navy, participating in the Naval ROTC unit at Carnegie Mellon in college and completing 1 year of service in the Naval aviation training pipeline in Pensacola, Florida before being honorably discharged to pursue a career in medicine. She graduated from The Ohio State University College of Medicine in 2011, and completed her family medicine residency at UPMC St. Margaret in 2014. She has since devoted her time to her serving her patients, while simultaneously nurturing her devoted husband and two beautiful children. In her spare time, her passions include bowling and distance running.
Dr. Palastro blogs at Busy Doctor Mom.