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Monday, August 1, 2016

Pay off Student Loans

Here's a trick to causing a little less pain during your student loan repayment years, and also a great way to stack up some savings to boot!
So its been 10 years, and guess what? I finally paid off my student loans-AND it ONLY took 10 years! Ach.

When I initially took out the loan, ten years to repay seemed like forever*; And as I was diligently paying my sum every month, it still seemed like forever...for the first couple years anyway!

However, as soon as I opened a separate checking account for some of my longer term loans (i.e. student, car, etc.); then, set up direct deposits from my paycheck into those accounts; and finally automatic loan payments from those accounts...everything became different.

Once these payments were out of sight-out of mind, these loans felt like they paid themselves off without me having to do a thing! The key was setting up this completely separate account (preferably at a different financial institution). This way, I did not even count this money into my budget every month since it never landed in my primary checking account.

This works for longer term loans (or short term loans), but also for savings. If you set it and forget it, and the money never hits your primary account, it will grow and grow (or pay down and pay down) without you even thinking about it! Before you know it, you will have a nice cushion in your bank account or a loan paid off.

I would definitely recommend at the very least setting up a separate account for your student loan payments. Most of us are on the 10 year repayment plan...and that can get long, so set it and forget it (especially if you have a decent interest rate...remember you want to focus on paying down your high interest debt FIRST; traditionally student loan debt carries lower interest rates).

 Another idea is to go ahead and set up a separate checking account for ALL of your fixed expenses AND savings**; and then set up automated bill payments. You should directly deposit whatever you need into that account every time you get paid and then have the rest go into your variable spending checking account. This way you know your monthly bills are being paid, and paid on-time, and you also know that your savings is on the up and up. Furthermore, you don't have to double check if you'll have enough money to make your car payment every time you want to go out to eat!

How is your student loan repayment going?

*And technically 10 years is a long time, a lot can happen in that time (say--move cross country- twice, get married, have kids, buy 2 cars, buy 2 houses- sell 1, get a cool job, met awesome people, etc etc).
**Only savings for emergencies and short term purchases should be held in a checking or traditional savings account due to lack of interest/ growth; you should consider other savings/ investment vehicles for longer term savings.

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