January 3, 2021

How I'm Paying Off My Law School Debt Year 3

Law School Student Loan Debt Repayment Plan Timeline | brazenandbrunette.com

 New year, new law school debt goals! For a quick update, I graduated law school with $145,000 of student loans, and worked really hard to get my loans down to $130,000 in a year. And that brings us here, to year 3 and how much I currently owe...

I can't tell you how happy and proud seeing that number dwindle! It's still a lot of debt, but slowly but surely I'm eating into that. This year I was super jealous of everyone who still had federal students loans and didn't have any interest payments. It sucks that when I refinanced my loans I considered all of the benefits of a federal loan that I would be giving up, but never did a global pandemic come to mind. Unfortunately, my refinanced loans are all private loans and the company I currently have my loan with opted not to stop interest payments on their loans. 

Luckily, our firm wasn't really hit by COVID and I was fully able to keep my job and not have to take a pay cut. Because I knew I was pretty financially stable and interest rates just kept dropping, I looked in to refinancing my loans again to try to shave about 1% off of my current rate. I went through Credible again and found a new loan that was calculated to save me about $10,000 over the course of my loan and selected this new loan. I went through the whole loan process, even taking a small hit to my credit score when they did a hard credit pull, and right at the end I noticed all of the disclosures. One of the disclosures included all of the loan fees associated with my new loan-- which would be over $12,000! Refinancing this loan would have actually cost me $2,000 which is why you always read the T's & C's my friends. So, I'm currently still with the same loan provider that I switched to last year, and I'm going to try again to find another lower interest rate. 

But even with my current interest rate, I want to stress that my loans ARE manageable. I get a lot of worried comments from prospective and current law students worried that their massive student loan debts will completely take over their lives. I truly don't think student loans are to be too feared. This year, Ryan and I were able to buy a house and I'm still able to keep paying my loans (but also, thank you COVID stimulus!) 

My #1 tip for paying down your law school debt is DO NOT pay just the minimum, if you can help it.  Paying just the minimum allows your interest to grow and grow your debt, which is how you hear stories of people graduating with $X in debt, paying the minimums consistently for years, and having $1.5X in debt after all that time. With each pay check, try to pay 75% of you minimum, so you end up paying a little each month (so , if you owe $1,000 a month make 2 $750 payments each month, paying an extra $500 without really feeling it). This will help you tackle your interest better and more of each payment will go to lowering your principal, which will lower your interest for next month. I love playing around with this calculator to play around with different amounts of extra payments and how they help me reach my goal faster (it only works on a laptop/desktop and won't show you all of the charts on mobile).

When it was right around the time we were getting our house, I slowed down the extra payments a little so that we could have a little extra for our closing and moving costs. I still paid more than just the minimum, so I didn't feel too guilty. This is another good example of why I believe that when you refinance, you shouldn't choose the highest minimum available. Because if you choose a mid-level minimum, you can always pay extra, but if an unexpected cost shows up in your life, you can easily go down to the minimum without defaulting on your loans.

I will be honest here and admit that I was planning on chilling at a little over the minimum for a while as we got our house in order and had a lot of expenses (so many Home Depot trips!). I was a little wary because I didn't want to get used to spending this kind of money frequently and never getting back the discipline to pay extra on my student loans. Originally I had planned to cut down on loan payments just for 6 months and then get back on track, but thankfully, I received a raise soon after our offer was accepted so I was able to continue paying extra on my loans while still saving for new windows and being able to buy a new hose for our yard worry free.

That's probably the best thing about being a baby lawyer is that there's still room to grow in your income. Ryan and I were very proud about getting a house that was only 3x our combined income (the suggestion is 4x) because we both knew that we were just starting off in our careers and eventually our house would become even more affordable for us as we grew in our jobs and received raises. Now my debt is super high with student loans + a mortgage, but tackling these two debts is a priority to Ryan and I so that is where we are focusing our money.

I currently spend over 1 full paycheck each month just on these 2 loans alone. We got a great rate on our mortgage, so I'm not really concerned about payments on that loan. What's nice about my student loan is thinking about how I'll get such a big "raise" once it is paid off because I'll get so much of my paychecks back and will have more money to spend on other things. I originally was calculated to pay off my loan in 10 years graduation date, but with the way things are going it's looking like I'll actually have them paid off in around 5 years from my graduation date. 

Ryan and I are getting married this spring, so I'm also saving some money to help pay for little wedding expenses and our honeymoon. And I'm sure in a year or so we'll be ready to start a family. But again, with strategic planning I'm able to save for a honeymoon or expect a baby, and not be terrified about money because of my student debt. Instead, I paid off as much as I could before I had a mortgage, and as much as I could before I needed to pay for wedding stuff, and am paying off as much as I can before we start a family. Then, if later on I need to slow down payments, my principal is already lower and I'm already ahead on my payment plan.

I feel in control of my student debt because I'm still using the budget I learned from IWT. Each paycheck, I put a little money in my 401(k), a little in a Roth IRA, a little towards my mortgage, a little towards my student loans, a little in savings, and a little on bills. Then, any leftover money I can spend guilt-free knowing that I've taken care of all of my payments for the month. I treat my credit cards like a debit card and pay them off immediately with each paycheck because I'm trying to get out of debt, not into it-- and this method has helped us rack up massive credit card points to help pay for a lot of wedding expenses. And the day before payday, any leftover money in my account goes to a little extra payment on my student loans because every little bit helps. 

And that's a wrap on my 2020 debt progress. I paid a little more off in 2020 than I did in 2019, and I'm hoping that's a trend that continues. As an update on my 2019 goals, I am very happy to announce that I now make more than I currently owe. Which again, I think law school debt is okay when you weigh what it gets you! My other 2019 debt was to get my loans under $100k, which was apparently a little too aggressive for me last year, so I'm going to re-up that as my 2021 goal! Here's to being in control of our debt, rather than our debt being in control of us :) 

Oh and PS- if you like my letter board from Instagram where I keep track of my debt, here's the link. I like to keep it viewable from the front window of our house so hopefully any would-be robber will see it and have pity on me and not break in and steal anything lol! But if that doesn't work, I do recommend getting a Ring security system as the first purchase for your new house.