In May 2015, financial advisor Brian Cocos, CFP®, and his wife, Lindsay, made their final payment on their student loans. It took them less than 4.5 years to eliminate more than $124,000 in debt—a significantly shorter period than the 30 years it takes the average American to pay off a similar student loan. All while getting married, having children, and staying on track for retirement.
When Brian and his wife graduated from college, they sat down to make a game plan for their student loan debt. They quickly realized they needed more information on who owned their loans. As time went on, loans were sold and transferred from Company A to Company B. This can make it extremely hard to get exact numbers. Instead of getting discouraged, the couple pulled their credit report to understand who owned the debt and what was actually owed—determined to pay it off within 5 years.
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How They Saved
Brian started by creating spreadsheets categorizing loans by principal balance, interest, and minimum monthly payments. This gave them a starting point of paying the loans down. Next for Brian and Lindsay, it was about cutting expenses, such as going out to eat and a car payment. “We even cut out avocados. It seems kind of silly to think of avocados as something you would cut out. But at the time when you’re making a minimum wage job and have a payment of $1,000 going out to loans—you cut even the smallest items.”
The couple opted to hack traveling by getting deals and traveling during non-peak times. While paying off the loans, they went on a cruise, did a few road trips, and visited Israel and Taiwan.
They also kept driving their 18-year-old Jeep to avoid a car payment.
Brian created a budget and kept living expenses as low as possible, “including putting any birthday cash away towards making payments.” His advice is to create a specific set of goals and follow your budget while repaying student loan debt.
Of course, not every borrower is able to pay down a six-figure debt in that short of time. How quickly you pay off your student loans depends on your income and your monthly cost of living. You need to find a balance as to what is important to you. To speed up the process, you can find ways to increase your income – apply for higher paying jobs, sell unwanted items, or get a part-time job. Cut spending wherever you can and manage your cash flow.
Paying off Their Loan While Investing for Retirement
Should you pay off student loans or invest? How about both? As Brian and Lindsay moved up in their careers, the extra money went to investments. They kept their lifestyle the same. With the extra equity they could put it towards a new home, a rental property, and eventually a new car. All while staying on track to pay off the loans and save for retirement. Once the loans were paid off, they decided to continue avoiding the lifestyle inflation and focus the old loan payments to a new goal to retire in 10 years. They rolled the money they were paying into the loan and into their investment accounts such as 401k, IRA, and taxable brokerage “We have become so used to this frugal lifestyle that continuing hasn’t been a problem.” They are five years away from meeting their retirement goal.
Common Mistakes When Paying Off Loans
Looking back, Brian realizes paying off the loans quickly may have been a mistake. The extra funds they sent to the loans could have been invested and may have grown significantly over the 5 years.
Dollar-cost averaging is one strategy that can help develop investing discipline. This means that you will invest the same amount of money at regular intervals, such as each pay period, usually via an automatic investing plan. Doing this reduces the risk of buying securities at or near market peaks. Instead, your investments are spread out evenly over time, which could result in buying more shares at lower prices and fewer shares at higher prices. Also, we are creatures of habit, so something that is easy and automated will likely continue without contest, helping grow your balances.
His advice is to have a positive mindset while repaying your student loans and to be realistic. “What worked for me might not work for everyone. Know what you can and can’t live without. Debt repayment isn’t everything.”
How We Can Help
Personal Capital offers a wide range of financial tools that can help you track your goals and net worth. These include a dashboard that makes it easy for you to manage all aspects of your financial life; a Retirement Planner that helps you build, forecast and manage your retirement finances; and an Investment Checkup that lets you monitor the performance of your investments in real time.
In addition, our investment advisors can provide guided expertise to help you devise a plan that leads you to financial independence. This includes personalized portfolio management, full financial planning and fiduciary advice with transparency.
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