#24 – Michael Joseph – 4 Steps to Pay Off Your Student Loans in Under 5 Years.

Find yourself 2 years into paying off your loans from College, and no progress has been made?

I found myself in the same situation.  After 2 years, I couldn’t believe that my 375$ per month payment wasn’t making a bigger dent.  At that time, I was letting the Student Loan Company pull $375 each month to pay of my total balance of 35k.  But after two years of making what felt like zero progress, I did a little digging.  I realized there was a far more efficient way to pay my loans down.  So, I made major life changes.  I moved from Seattle to Austin Texas to lower my cost of living, I built savings, got organized and payed off my student loans in under 2 years.  Looking back, it was not terribly difficult.  I just got organized, created a plan and executed that plan.  

Here are my 4 steps for paying off your student loans in under 5 years:  

Lower Your Cost of Living:

“As long as you are in debt, none of your money is actually yours” – My Mantra 

in order to pay your loans off more quickly, you need more income.  Student loan debt is “dead debt”.  This debt will benefit you in no way financially in the future.  It is best to pay off this debt as quickly as possible to save yourself money on future interest.  So how do you do that? 

By increasing your relative income!

This happens by lowering your cost of living as much as possible.  People have this assumption that they need to make a ton of money to get out of debt and live their ideal life.  Not True!  It’s about living within your means or below your means while in debt to increase your income. 

What can I do to lower my cost of living? 

You can do this by cutting your rent down, selling you expensive car and buying a cheaper on with cash, stop eating out/ cook from home, and don’t but anything nonessential.  You can also pick up a Side Hustle! While in Austin, I drove for Lyft, Uber and Fasten for over a year to make a little extra cash! 

Remember, this change does not happen overnight, but It’s arguably the most important step.  If you’ve just recently graduated college or have the flexibility, it makes a huge difference in getting a leg up towards eliminating debt.  

Build Savings

Shoot for 6 months income or expenses (your choice)

This is why step one is so important! You cannot pay your loans faster if you don’t have savings.  It’s really hard to allocate extra money when you are barley getting by. 

Once you have your new system (lower cost of living) set up, it’s important to prioritize saving money while continuing to make the minimum payment on your loans.   Your goal should be 3-6 months of expenses.  If you are living small, this should not be too difficult.  You want this safety net in case of emergency.  Once you have your desired savings, now the pressure is off.  If you lose your job or something unexpected life event happens, you are covered.  

Now you can allocate the money you were putting into savings towards your loans. 

Lower the Overall Interest.

Now that you have lower cost of living and savings built up, it’s important to start paying more than the minimum payment.  You want to do this lower your overall interest.  If you are someone who took out at least 4 individual loans in college, there is a good chance, they have all been collecting interest since you borrowed each loan. That means that each loan will have a significant amount of interest on top of the amount owed.  Together the overall interest is the biggest challenge to paying off debt.  When I began paying my Student loans, my interest was about $150 per month.  Meaning of my $375 payment, only about $56 was going to each loan per month.  That’s less than 700 per year per loan…. 

The more you pay early on, the faster the interest will drop, meaning more of your payment will actually go towards the principal of your debt and not interest. 

Make Bigger Payments on Higher Interest loans

This final step elaborates more on the previous step.  All of your loans are different amounts and have different interest rates.  Meaning they charge you different amount of interest based on that amount and interest rate.   

Most loan companies want you to set up a reoccurring payment and apply that payment across all of your loans.  


The Loan companies want you to set it up that way so they can collect as much interest as possible.  It is far more efficient to pay significantly more on your highest interest loan and double the interest amount or more on your other loans.  

For Ex.  These are your loans out of college

Loan 1: $8000 – 6.3% – $42 per month

Loan 2: $7000 – 6.3% – $36.75 per month

Loan 3: $5000 – 3.6% – $15 per month

Loan 4: $4000 – 3.6% – $12.60 per month 

Total Debt: $24,000

Total interest per month $106.35

By paying equally across all loans, your payment per loan is much smaller.  Meaning the interest rate reduces at a much slower rate.   Here is what this example looks like after paying a $400 minimum payment across 4 loans per month for 6 months.

After 6 months:  

Loan 1: $7592.99 – 6.3% – $39.86 per month

Loan 2: $6614.43 – 6.3% – $34.73 per month

Loan 3: $4485.39 – 3.6% – $13.45 per month

Loan 4: $3,468.61– 3.6% – $10.40 per month 

Total Debt: $22,161.42

Total interest per month $98.44

Here is an example paying $500 but focusing $300 on the high interest loan and 100 on the other high interest loan and 50 on each of the other small interest loans 

After 6 Months:

Loan 1: $6394.68 – 6.3% – $33.57 per month

Loan 2: $ 6614.43– 6.3% – $34.73 per month

Loan 3: $4787.49 – 3.6% – $14.36 per month

Loan 4: $3770.97 – 3.6% – $11.31 per month 

Total Debt: $21,567.57

Total interest per month $93.97 

By using this method of paying 100$ more, I was able to lower the interest rate faster and pay off almost 600$ more in principal. Not only did almost all the extra money go towards principal, but the interest is 4-5$ lower per month. The more you can pay on the higher interest loans, faster your debt will vanish! 


Remember to do what you can with what you have. If you can only pay the minimum for the first 3 years, that’s ok.  Everyone’s journey is different.

This system worked well for me with a little organization and accountability.  Before I knew it, I paid almost $20,000 in two years.  

Good luck on your journey! 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: