Katrina McGhee was like many of us. She went to college, got some grants, took out loans, and landed a job after graduating that allowed her to make the monthly payments. But then something else happened: She got restless and unhappy.
“I didn’t love being an actuary,” says McGhee. “And after eight years at various companies and in various roles, I realized I just needed to change my career completely.”
With only $2,000 left to pay on her undergraduate student loans, McGhee decided to get her Master of Business Administration degree and acquired nearly $60,000 worth of new debt. The new loan payments were higher with higher interest, and it stressed out the grad student.
“No matter what happened in my life — if my car broke down, my HVAC [heating, ventilating, and air conditioning] system broke — I would be on the hook for $800 every month,” she says. “It then dawned on me that it could benefit me to pay this down as fast as possible.”
Debt and happiness
McGhee took major steps to start paying down her debt, but she hit that restlessness roadblock again. “I had been working at General Mills for a year, and deep in my soul I knew I didn’t want to work in corporate America,” she says. “But I was making all of this money and had all of this debt … I felt torn.”
She turned to a life coach, who helped guide her on a path toward finding happiness. “After working with her for eight months, I had this huge epiphany that I really wanted to take a career break,” says McGhee. “I was burned out.”
So, while she continued to make monthly payments on her loans, McGhee shifted her attention to saving up for an extended vacation. In 18 months, she saved $40,000, put her loans into forbearance, quit her job, and then traveled the world for 20 months.
When she returned, the world traveler felt refreshed and took a job that paid less, but it made her happier. McGhee then used her travel-budgeting skills to tackle the rest of her debt and was able to pay it off 22 months later.
“I know a lot of people approach paying off their debt like a crash diet, but that wasn’t for me,” she says. “I wanted to find the balance of paying off my debt, but also living my life. I’m so happy I was able to make that happen.”
4 tips for traveling the world and getting out of debt
Here’s how the now-certified life coach traveled the world and became debt-free — as well as her advice on how you can do the same.
1. Be clear about your goals
Whether you want to quit your job and travel, pay off your student loan debt in a year, or save up for a house, you should get honest and specific about your goals. Having vague goals, according to McGhee, makes it impossible for you to achieve them because you have no day-to-day guidance on your spending and budgeting habits.
“Don’t just say, ‘I want a break from work,'” she says. “Instead, say, ‘I want to take a year off and travel to see the elephants in Chiang Mai [Thailand]. It will take this amount of money.’ That is a much more powerful reality, and it makes it easier to choose your goal daily over any immediate indulgence.”
In the moments when you’re choosing to go out with your friends for the third time in a month, you’ll remember your goal and make the better financial decision.
2. Track your spending and cut your costs
After clarifying your goal, you’ll need to start understanding where your money is going to make any adjustments. Do you need cable? Can you stop your gym membership? Can you cook at home more? See where you’re spending unnecessarily, cut those costs, and put the money toward your goal.
“Check in with your spending habits daily,” says McGhee. “With each purchase or payment, ask yourself if it helps or hurts your goal. This isn’t the most fun, but it’s effective. And you don’t have to sacrifice your entire lifestyle either.”
McGhee wanted to live in a swanky apartment. So, rather than moving out of her residence, she got a roommate to cut the cost. “I didn’t want to feel like I wasn’t living my life the way I wanted, which is why I decided to stay in my apartment,” she says. “Instead, I started to think of ways to subsidize my rent. Getting a roommate saved me about $600 a month.”
3. Adopt a debt payoff method
A popular strategy to pay off loans is the debt avalanche method, which entails paying off the balance with the highest interest rate first while making minimum payments on the rest each month. Once that loan is paid off, use the monthly payment money toward paying down the loan with the next highest interest, and so on. This tactic helps reduce the overall interest you’ll pay for the time you’re in debt.
“You bought your education with the principal, not the interest,” says McGhee. “So, it just feels like money you’re giving away. Instead, give less away and keep more for yourself.”
Another popular debt payoff strategy is the debt snowball method, which has you focus on paying off the smallest loan first while paying the minimum amounts on other loans. Once that loan paid off, you put that payment money to tackle the next smallest one.
Some people like the emotional boost from the quick wins of paying off smaller loans, while others prefer to keep the overall interest charges down to save money. It’s important to research both methods to decide which one works best for you.
4. Consolidate your debt
If you have high-interest loans, see if you can consolidate your debt with a lower-interest loan. This could help not only to reduce your monthly payments but also to keep down the total amount you’ll pay. It also could help streamline your payments into a single one per month, so you’re not overwhelmed by paying multiple bills.
McGhee’s best opportunity to consolidate her debt was to use a home equity line of credit (HELOC). “I was able to get a lower interest rate with my HELOC, and the interest was tax-deductible,” she says. “This helped me pay off my loans much faster and save the money. It’s always good to keep an eye out for opportunities like this to consolidate your debt, minimize your cost, and increase your savings.”
Live your life and pay off your debt
You might have heard stories about people who slept on a couch and ate ramen noodles for years to get out of debt. While that method can indeed be effective, it doesn’t have to be the only way.
McGhee was able to live the lifestyle she wanted, accomplish major life goals, and still become debt-free. She proved that the strategy doesn’t have to be all or nothing. Be clear about what you want and make a plan of how to get there, and you could “have it all,” too.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
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|2.47% – 6.23%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|