When Ray Laureano and his wife graduated from college, they left school with a staggering amount of student loans. Between the two of them, they were over $200,000 in debt.
“We had a huge amount of student loans,” says Ray. “I started researching how to pay them off quicker so we could get out from this debt.”
After doing his homework, Ray came up with an unconventional approach to debt repayment. Although it goes against what most financial experts preach, it worked for him; Ray and his wife paid off over $70,000 in just one year.
Here’s how they did it and what you need to know before copying Ray’s strategy.
Getting into student loan debt
Ray works as a business analyst and helps companies improve their performance — a field that requires advanced degrees. Both he and his wife went to private colleges rather than public universities, which significantly added to their college costs. However, they saved money where they could.
“I enrolled in an accelerated program [at Robert Morris University-Illinois],” he says. “I did a dual degree, earning a bachelor’s and two master’s degrees in four years.”
Although his unique program was cheaper than it would have been to earn each degree individually, his education costs still added up quickly.
But Ray took on the debt with his eyes wide open. “I knew a ballpark estimate of what to expect for my starting salary in the technology field,” he says. “I knew what I was getting into.”
The parents of both Ray and his wife had also taken out Parent PLUS Loans to help them pay for school, but the couple felt responsible for that debt.
“To me, I felt we morally needed to get them out of debt,” Ray says. “It’s our responsibility, in my mind. We didn’t want to hold our younger siblings back [from going to college] because our parents had to worry about those loans.”
By the time Ray and his wife graduated, their loan balance was more than $200,000. Thankfully, they both relied on federal loans to pay for school, so they had lower interest rates than they would have had if they used private student loans. “Our interest rates ranged from 3.00% to 8.00% on our loans,” he says.
Coming up with a repayment plan
Ray started researching his repayment options and looked for a tool he could use to see all of his family’s loans at once. His search led him to Student Loan Hero’s app, which helped him get started.
The tool let him see all of the couple’s loan balances, interest rates, and monthly payments in one place. With a loan dashboard in place, the couple became focused on paying off their debt as soon as possible. They used the debt avalanche repayment method, where you target the highest-interest debt first.
Ray and his wife have a combined income of $110,000. Although that sounds high, payments on $200,000 in student loans eats up a significant portion of their pay.
To help free up extra money to put toward their loans, the couple lives on a strict budget. That approach allows them to put more than $4,500 per month toward their debt on top of their regular payments.
“We’re being very intentional with our money,” Ray says. “We do a lot of preplanning. If it’s not in the budget, we just don’t spend the money.”
A radical debt repayment strategy
Besides cutting their expenses and sticking to a budget, Ray and his wife decided on a nontraditional plan for debt repayment.
Conventional financial advice says that if you follow the debt avalanche repayment strategy, you make the minimum payments on all of your debt and put any extra money toward the debt with the highest interest rate.
For Ray, that approach didn’t seem effective enough. Instead, he talked to each loan servicer and entered the lower-interest loans into forbearance; in other words, he paused payments on those loans.
With his other debt payments on hold, he put all of his extra money toward just one loan with the highest interest rate. When that loan was fully paid off, he tackled the next highest-interest debt, and so on.
It’s a radical approach that’s not for everyone. When you enter your loans into forbearance or deferment, interest continues to accrue on those loans, so you can end up paying more in interest fees over the length of your loan. But for Ray, seeing the progress they made on each loan was highly motivating.
“Having a high intensity focus on one loan at a time — the highest-interest one — kept us moving forward,” he says.
Next steps for paying back his loans
With this strategy in place, Ray and his wife managed to pay off $70,000 in student loans in just one year. If they maintain this pace, Ray estimates that they will be debt-free by March 2020.
For others who find themselves overwhelmed with debt, Ray advises borrowers to start tracking your expenses and income.
“Many times, people let the huge amount of debt blind them and they get paralyzed by their student loan balance,” he says. “Really, just get on a budget — that’s what is going to get you through.”
As Ray’s experience shows, there’s no one way to pay off your debt. You need to pick a debt repayment strategy that works for you in the long term. Even if your approach is unconventional, if it keeps you motivated and on track to pay off your debt, it might be the perfect plan for you.
If you want to pay off your loans ahead of schedule, check out our ultimate guide to paying off your loans faster.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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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 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% 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 email@example.com, 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
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
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.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 5.87%1||Undergrad & Graduate|
|2.47% – 8.03%4||Undergrad & Graduate|
|2.95% – 6.37%2||Undergrad & Graduate|
|2.48% – 6.25%5||Undergrad & Graduate|
|2.72% – 8.32%6||Undergrad & Graduate|