This is a guest post from Syed from The Broke Professional! He runs an up and coming personal finance site for working professionals. Thanks for the article, Syed!
I’m an optometrist. Like many jobs in medicine, it has a strong starting income and potential, especially if you become a successful business owner. As much as I love my job, there is one thing I hated about the process of becoming an eye doctor: student loan debt.
We graduated with a lot of it – about $150,000 in total. Worse? I have colleagues who were in over $200,000 in debt. The story is similar for graduates of medical, dental, pharmacy, and law schools. According to a report by the American Association of Medical Colleges, the median level of debt for graduates in 2013 was $175,000!
The main problem is of course continuously rising tuition prices that probably won’t be decreasing any time soon. There’s just too much money to be made for higher education and the big banks. Just to get a glimpse on the current status of medical school tuition, here is a US News report on the 10 most expensive medical schools. Students can routinely graduate with well over $200,000 in debt!
Rising tuition rates are a highly charged political issue which probably won’t be resolved anytime soon. But there is something we can control, and that is how we decide to attack our student loans. Most lenders put you in 25-year-payoff plans, which is a ludicrously long time that leads to hundreds of thousands of dollars in interest.
Here are 5 quick and painless ways to cut your expenses and attack your student loans. These methods have personally helped me to attack my student loan debt and greatly reduce my lifetime interest:
1. Ditch The Gym Membership
Like most people, I thought getting a gym membership was the responsible and healthy thing to do. With rows and rows of treadmills and dumbbells, getting in shape was an inevitability. After a while, I was no longer enjoying the workouts, and made up any and all excuses not to go to the gym. There was the whole process of getting ready, driving to the gym, finding a parking spot, and searching for the least sweaty machine to use. This was going on for a few months until I decided to sit down and evaluate my gym membership. I realized the workout I enjoyed doing at the gym the most was playing basketball. I cancelled the membership and focused on playing outdoor basketball and running outside, two almost-free activities that I actually have fun doing.
2. Look At Your Wireless Plan
I’ve been with Verizon Wireless for a while now and I’m happy with their service. Calls are rarely dropped and their customer service is pretty good. When they changed to their limited data program, I was defaulted into the 4 GB data tier, mainly because it didn’t really change my wireless bill. After a few months I decided to check how much data we were using, and it was well under half a GB! I get a WiFi connection both at home and work, so I’m not really using cellular data much. I switched us into the lowest, 1GB-tier plan and haven’t felt a data pinch since. It can pay to check the current status of your wireless plan, and make adjustments accordingly.
3. Run That Car Into The Ground
For most Americans, getting a new car every 3-5 years is normal. It’s almost a rite of passage. Ironically, it’s also one of the worst financial decisions you can make. A car is not an investment, yet people are content with paying tens of thousands of dollars and/or getting a high interest loan that will guarantee a negative return. There are alternatives to driving, such as public transportation, carpools, and biking to work.
Savings: At least $200/month
4. Shop Around For Auto Insurance
The only thing good about auto insurance companies is their commercials. Most of the auto insurance companies are pretty much the same when it comes to customer service. If you look at reviews online, pretty much all the companies have as many decent reviews as bad ones. Reviews may vary, but generally, customer service is pretty much the same across the board. This means that price is the overriding factor in choosing auto insurance, and in my experience it really is worth it to shop around.
I was with Nationwide for around 4 years. I originally signed up with them because a family friend worked for them. I accepted their rate (a little over $200/month) and was relatively happy with their service (except for the fact they charged a fee to pay by credit card). In any case, I didn’t think much about switching until a few months ago, when I decided to get a quote from GEICO. It was $120 less per month than my current rate. That’s over 50%! It seemed too good to be true, so I got quotes from other companies and was consistently getting much lower rates than my current. I needed to switch and after all the numbers were crunched, I ended up saving a little over $100/month.
5. Get A Credit Card That Pays
Optimizing credit card use is a mini-obsession of mine. I enjoy finding ways of getting credit card rewards on stuff I already spend my money on. The most rudimentary rewards cards give 1% cash back, which is $10 back on $1000 worth of purchases. The key is finding cards with higher rates for certain categories like groceries or gas stations and cards with sign up bonuses for certain levels of spending. The Barclaycard Arrival World Mastercard offers 2% cash back on all purchases and a $400 bonus. This can easily get you a few $100 a month here and there. Plus, it’s nice to get something from the big banks. You do need to be careful not to increase your spending just to get some rewards, as this would wipe out any benefit from the card.
These 5 easy savings tips produced over $400 in monthly savings. Applying that directly to your highest interest rate student loans can make a world of difference. For example, a student loan balance of $30,000 with a 6% interest rate and $200 monthly payment would take 23 years to pay off with just the minimum payment. Applying that $400 on top of the minimum payment, the loan would now take just 5 years to pay off! Truly astounding numbers and proof that making extra payments can drastically reduce the length of the loan and interest paid.