There comes a time in many borrowers’ lives when they realize what making minimum payments on their debt does to their balance. Or, more accurately, what it doesn’t do.
That’s what happened to Kyle of Dollar Diligence. After six years of making automatic minimum payments on his student loans, it hit him: he had made almost no progress on paying off his loans.
When he first realized what happened, he was angry with himself. He thought he should have done something sooner. Then he decided to act and kick his student loan repayment into high gear.
Here’s how one man woke up from the hibernation of automatic minimum payments and destroyed his student loans in less than two years.
Paying the minimum and going nowhere
When Kyle graduated from college he had more pressing concerns than paying off his student loans right away. He went to graduate school, became a teacher, went out with friends, and enjoyed life.
For years he kept up with his minimum student loan payments, never knowing they weren’t helping him get anywhere close to paying off his debt.
Kyle figured that doing his part and making his payments – even automating them so he’d never miss one – would eventually lead him to debt payoff. Eventually being the operative word.
That’s why he felt so much anger the day he realized that he’d made almost no progress on his overall payoff. Where had all those payments been going? And when would he actually be debt-free?
The anger and frustration that ensued were all Kyle needed to make his student loan repayment a top priority.
Approaching debt payoff with ‘gazelle intensity’
First Kyle started following Dave Ramsey’s advice on debt repayment strategies. Then he sent extra money from side gigs, such as teaching driver’s education, straight to his loans.
Kyle even whittled his food budget down to $100 per month, and lived in his sister’s basement and with roommates for awhile. All to attack his student loan payments with “gazelle intensity.”
Gazelle intensity is a phrase coined by Ramsey:
So the way you get out of debt is you run like you are a gazelle with a cheetah chasing you. […] When you do that and you have that kind of intensity in getting out of debt, you can break the gravitational pull of stupid and move yourself in a better direction.
The good news is gazelle intensity doesn’t always have to be forever. You could try it for a few months to boost your payoff or during your full repayment time to get to the end as quickly as possible.
For Kyle, it was all gazelle intensity until that debt amount hit zero. And it worked.
The combined effort of cutting expenses and earning extra money enabled Kyle to pay an extra $1,000 to $1,500 per month on his student loans. That’s how Kyle paid off his remaining debt – a whopping $33,000 – in only 18 months.
But the key for Kyle was getting organized and understanding where his money was going so he could find new ways to cut back.
Think you couldn’t possibly cut back more? Take another look at your spending from the past few months. It might surprise you when you learn where some of your money is going.
After conquering debt, you can do anything
Since he hit that magical number zero, Kyle’s been busy.
“I’ve saved a full six-month emergency fund, saved up to pay cash for a used car, saved for a wedding and honeymoon,” Kyle says. “My next large purchase will likely be a home, so I have a lot of saving to do.”
Now that Kyle is completely debt-free, he feels like he can accomplish pretty much whatever he wants.
“With the habits I developed during my debt payoff, truly no financial goal is too large in my opinion,” Kyle explains. “It’s amazing what you can do if you have a goal and a plan.”
And that’s what can happen when you knock out a goal that feels insurmountable at times. All it takes is a few changes, some momentum, and then the sky is the limit.
Wake up and fight back against minimum payments
Minimum payments are set up to keep us in debt for as long as possible. After all, the longer we’re in debt, the more interest lenders make.
Perhaps you can only afford to pay minimum payments so you can make ends meet. But if you can find a way to cut back or earn extra money and apply that to your payments you can shave months or even years off your debt payoff.
If you think that sounds crazy, check out our prepayment calculator below to see what paying a little more can do.
Sometimes all we need is extra focus and a push out of our comfort zones to achieve our goals. Look what it did for Kyle! Living with gazelle intensity took him from another few years of debt repayment down to no debt in just 18 months. That’s less than two years of hard work for Kyle to now wake up every day and think, “I’m debt-free.”
Are you ready to do what it takes to be able to say the same thing?
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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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 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% 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 firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 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.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
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.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). 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 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.57% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|