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Originally published Nov. 23, 2018
While Jon Barker was thrilled to earn his MBA at the prestigious MIT Sloan School of Management, he wasn’t prepared for the massive amount of student loans that came with it: $130,000 between his graduate and undergraduate studies.
Despite this overwhelming sum, Barker was able to come up with an aggressive repayment strategy that would get him debt-free just five years after finishing school. Here are some strategies Barker used to conquer his six figures of MIT loans in such a relatively short time span:
- Spending less to make extra payments on his MIT loans
- Refinancing for lower interest rates
- Building an emergency fund as a financial buffer
- Staying focused on the goal of a debt-free life
- Setting a deadline for paying off your student loans
After years of studying all aspects of building and selling software, Barker moved into a position as a solution specialist with Microsoft. But even after he began pulling in a decent salary, he didn’t increase his spending. Instead, Barker kept expenses low, so he could have more money to throw at his student loans.
“I lived in a tiny, less than 300-square-foot (no exaggeration) multi-family dwelling with mostly local university students while making $78,000 in one of the highest cost-of-living cities in the U.S. [San Francisco] in order to learn the software business,” said Barker.
He also commuted to work to avoid the high rent that comes with living in the city center. And he was careful not to spend much on restaurants, travel or entertainment.
“The only real restaurant allowed was occasional pizza,” Barker said. “No real vacations or travel to speak of either. Instead of various cash-guzzling hobbies, I went to the local library, where entertainment is free.”
Barker said it also helped that his wife was on board with his highly regulated spending habits.
“In my case, one immense benefit was to have a massively supportive and frugal wife who encouraged budgeting and making the hard choices,” said Barker.
Because he kept his spending so low, Barker was able to make extra payments on his debt and pay down his balance faster. Although living on such a strict budget had its challenges, Barker was committed to getting out of debt as soon as possible.
If you’ve got a huge amount of student debt as Barker did, you know that keeping up with interest can be half the battle. To cut his interest payments, Barker refinanced his student loans for lower rates.
“I was on a five-year repayment plan, and I refinanced around a year into repayment, extending the repayment plan by a year to get a better rate,” he said.
Even though he added a year to the life of his loan, Barker saved enough on interest to make the trade-off worth it. His initial loans came with 6.8% interest rates, but he was able to snag a 3.5% by refinancing with SoFi.
Cutting his interest rate almost in half helped Barker save big on his loans. Consider $130,000 in student loans at his original 6.8% rate: After five years, he would have paid $23,714 in interest. But five years at a 3.5% would accrue just $11,896.
Refinancing can be a wise strategy for borrowers looking to pay off their debt quickly since it can get you a lower interest rate on your debt. Plus, you can choose new terms, often between five and 20 years, depending on your goals.
In Barker’s case, he was committed to conquering his debt as soon as possible, so he chose the shortest term available for his loans.
Because Barker paid as much as he could toward his student loans each month, he sometimes found himself out of money by the end of the month.
“The biggest real setback was going to almost zero balance a few times in the primary checking account,” said Barker.
Not wanting to overdraw on his account, Barker realized the importance of building an emergency fund.
“A good emergency fund is crucial to avoid this, so I built this up over time to have a buffer, reducing the occurrence of the ‘zero balance’ panic situation,” said Barker.
To grow his emergency fund, Barker automated a proportion of his paycheck into savings each month.
“Automating the savings rate at 30% made it possible to ‘not miss the money,’” said Barker.
Although not everyone will be able to stash away a third of their paycheck each month, automating a certain amount will help you grow your savings little by little. You might also look into a high-yield savings account to earn better interest on your money.
This rainy day fund could be substantially helpful in the event you run into an unexpected expense or lose your income.
Although Barker kept his eyes squarely on paying off his MIT loans, he admits that the sacrifices he made along the way weren’t easy.
“It was, on occasion, incredibly demoralizing to see that my rent check was literally smaller than my student loan payment every month,” said Barker.
He also said it was tough to stick to his plan, especially when he had the option to refinance again for a longer repayment plan and lower monthly payments.
Ultimately, what kept him on track was the promise of a debt-free life. “The payoff on the horizon of being free of debt … is priceless,” said Barker.
Not only was Barker eager to say goodbye to his monthly student loan bills, but he aimed to build wealth through investing.
“Every penny repaid on student loans is necessarily a penny not plowed into the market for the long-term accumulation of net worth,” said Barker.
Because he wanted to free up cash flow and ultimately grow wealth through investing, Barker stayed committed to his goal of eliminating debt from his life.
If you’re aiming to pay off debt quickly, there are some tried-and-true strategies to help you get there. The first is to make extra payments toward your loans.
To accomplish this, you’ll need to find ways to make more and spend less. You could transition into a higher-paying job, for instance, or supplement your income with a side hustle.
And to free up more of your budget, you could track your spending and reduce your living expenses, as Barker did by living with roommates and cooking at home.
If you get a windfall, such as a tax refund or bonus at work, consider throwing that at your debt. And if you don’t need federal protections such as access to income-driven repayment, look into refinancing your student loans with a private lender for lower interest rates.
Barker took all these steps, and they helped put him on track to repay $130,000 just five years after graduating. But all these steps required lifestyle sacrifices, and Barker said it helps to have a deadline for your debt.
“Plan on a specific time frame to pay back,” Barker said. “The road to the payoff date is long, but it is longer if you don’t have an end date in mind.”
By seeing the light at the end of the tunnel, you can stay motivated about your debt payoff goals.
Interested in refinancing student loans?Here are the top 6 lenders of 2021!
|Lender||Variable APR||Eligible Degrees|
|1.89% – 5.99%1||Undergrad & Graduate|
|1.99% – 5.64%2||Undergrad & Graduate|
|1.99% – 6.84%3||Undergrad & Graduate|
|1.91% – 5.25%4||Undergrad & Graduate|
|2.25% – 6.53%5||Undergrad & Graduate|
|2.17% – 4.47%6||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews! |
1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of Feburary 1, 2021.
2 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 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% 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 October 26, 2020, 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 10/26/2020. 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 protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.
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.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.
5 Important Disclosures for SoFi.
6 Important Disclosures for PenFed.
Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.99%-5.15% APR and Variable Rates range from 2.17%-4.47% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.