Pay loans off aggressively with your income
It might sound like a radical idea, but why not cut back on lifestyle and use your new earning power to aggressively pay off your student loans in 2-3 years?
Seem impossible? The average starting salary for new graduate PAs is $90,930 (as of 2012 data, so it is higher than that by now). For the sake of argument, let’s be conservative and say you start at $80K in your first PA job. That puts you in a 25% tax bracket. After taxes, that leaves you with a take home pay of $60,000, or $5000/month.
Can you live off of $5000/month and still pay off student loans? I am going to guess that you lived off a lot less than that in PA school. If your monthly expenses run you $2000 and you use all of your extra money to pay down the loans, a $100,000 student loan is gone in 2 years and 9 months.
There is certainly room for variation with lower or higher expenses monthly or a higher income (it should not be lower), but the point is that this is doable in a short period of time. It will take planning and sacrifice, so let’s explore the key points.
Do you sense a theme this month? Creating a budget is absolutely essential to having control over your income. You will only meet your financial goals if you have a plan. Hope is not a plan, neither is denial.
Make a detailed budget every month with a plan of how your income that month will pay for your expenses. This is a budget of essentials and needs, not wants. Wants will have to wait.
You will feel like you got an immediate raise once you are controlling where your money goes. With a budget that is scaled back to the essentials, you will have money left over to start aggressively paying down the debt.
Check out EveryDollar.com when you are ready to make a detailed budget. Use the free budgeting template above to help you get started with your first budget.
Add no additional debt
If you are serious about paying off your student loans, you first have to stop the bleeding. That means not financing a new car, holding off on buying a house, not buying things on 0% interest and not using credit cards.
There is no point in paying off your student loans if you are just going to add more debt elsewhere. If you are committed to this principle, it is time to make your debt payoff plan.
Map out a plan
First, add up all of your student loans and see how much total debt you actually have. Then, determine what your budget shows you have to put towards debt on an average month. You will then be able to project how long it will take you to pay off your debt. This should help you get motivated.
If you need more help with motivation, check out the amortization tables for your loans. These tables show how monthly payments are applied to principal and interest over time, with the majority of your payment going towards interest at the beginning of the loan repayment.
You can see how little of your money is being use to pay down the total loan balance, and how much extra you will be paying in interest over the life of the loan. Once you are thoroughly disgusted, check out my favorite debt-payoff resource, daveramsey.com to help you get started with your plan.
Refinance, but only if it makes sense
Yes, I am the idiot who once consolidated my federal student loans to a higher interest rate than each one was originally, but I have learned from my errors. When you are planning on paying off student loans in 2-3 years, consolidating to a lower interest rate is often not worth the effort because it will save you very little money in that short time frame.
If you have variable rate private loans and the available fixed interest rate is low, it may make sense to refinance to a fixed rate. I kept my private loans on the variable rate and paid them off quickly.
Variable rates were staying low and were lower than the available fixed rates at the time, and I projected that particular loan to be paid off in 10 months, so interest rate was not a major issue.
Do the calculations to see what is right for you, keeping in mind that your potential saving on interest is only on a 2-3 year scale if you are paying off debt quickly.
Start your debt payoff
Pay minimum payments on all balances except the one with the lowest balance. Then, aggressively use all available money from your budget to pay off the loan with the smallest balance. (Known as the “debt snowball”.)
Once you pay off the smallest loan, all effort is then focused on the second smallest loan, and so on.
But what about interest rate? Many financial advisers recommend paying the smallest balance first because it provides a sense of an early “win” and keeps you motivated. I believe this works for most people, and if you are paying all of your debt off in 2-3 years, paying off your highest interest loans first will not save you much in total interest.
However, if you cannot get past the reasoning for this, then pay off the highest interest loan first. Just start somewhere to get things rolling.
Make sure extra payments are applied to loan principal
Many times, lenders will apply extra payments towards the following month’s interest/payment rather than the loan principal. You do not want to prepay payments, you want to pay down the loan principal.
Be sure to include that your extra payment is for “principal” in the appropriate field for an online payment or on your physical check. Verify that this was done properly after the payment is processed, and contact the lender if they did not process the principal payment correctly.
Check this every month, you will likely find an error along the way that needs correcting that will save you money.
A major key to keeping on track with your plan is finding contentment. Your classmates and colleagues are going to buy cool things and go to great places after graduation.
It will be hard to sit back and keep yourself from doing the same. After all, you just sacrificed the same amount of time and effort they did to get through school, so why shouldn’t you get what they get?
Resist the urge to compare yourself to others. Better yet, stop caring what anyone else thinks and the pressure to compete will go away. Coming out of PA school, you have likely lived a college kid life for 7-8 years now, 2-3 more won’t kill you.
Make more money
If you want to get out of debt even faster, find ways to make extra money. This may sound obvious, but it can be hard to get motivated to do even more after finally starting the career you have been working towards for many years.
Overtime or extra shifts at work, if available, is the fastest and most lucrative way for you to earn extra income. A part time job can take a while to get off the ground with licensing and credentialing, but this is what I did when paying off my student loans.
If extra PA work is not an option for you, do what others have done to make extra cash like driving for Uber or flipping furniture on Craigslist. But you’re a PA, why would you do that? See “Be content” above.
Debt payoff goes fastest when all of your efforts are poured into knocking out your loans. This means sacrificing in ways that may be uncomfortable, but this is only for a short period of time.
Your friends and family may think you are weird, and may even try to thwart your efforts thinking they are encouraging you to “enjoy” your money.
But remember, it is not really your money. You already spent it going to school and promised to pay it back. No one forced you to take out the loans, and if you are a PA, you got exactly what you expected and agreed to pay for. Now it is time to get about the business of paying what you owe in short order so that your income and your future are yours.
Federal Student Aid, US Department of Education. https://studentloans.gov/myDirectLoan/index.action
National Health Service Corps. US Department of Health & Human Services. http://www.nhsc.hrsa.gov/
Physician Assistant Education Association, By the Numbers: Matriculating Students 2015, Washington, D.C.: PAEA, 2016. doi: 10.17538/MSS2015.003