While you may think you have to make huge payments toward your student loans each month, that’s not necessarily true. Yes, you could, theoretically, pay them off faster, but it’s more important to make any payment versus no payment. Thirty-four-year-old Jessica Stewart, founder of the Colorado Home Collective, a boutique property management company in Denver, ended up using both payment methods to pay off her $70,000+ in student loan debt. However, initially repaying them did not come easy.
Hailing from Chicago, she decided to go to an out-of-state university in Colorado and received no financial assistance. She majored in accounting, and by the time she graduated, she had more than $70,000 in loans. Approximately $60,000 was through private lenders with high interest rates and the remainder were federally funded loans. “I was so sloppy with my payments right out of college, I was consistently paying 60-90 days late,” Stewart tells Pillar. “Every single one of these late payments were reflecting negatively on my credit score.” A year out of college, Stewart was laid off from her first job, so could not afford her student loan payments. She deferred them, although interest still accrued. But, during this time, she decided to do all she could to improve her credit score.
Increasing Her Credit Score & Putting Every Extra Cent Toward Student Loan Payments
“My initial credit score was around 650 because I had this huge amount of debt, carried a balance on my credit card, had a car loan, and had virtually no ‘good’ credit,” she says. She considered the various aspects that make up your credit score — such as payment history and types of credit used — and decided to be proactive in raising it. For instance, Stewart owed $5,000 on her credit card — with 20% interest. She borrowed from her 401(k) to pay off the credit card completely, then later repaid her 401(k). “It was a small sacrifice for a bigger win,” she says. “From the day I paid off my credit card debt, I have always paid off my credit card in full. Paying off your card in full in each month means you don’t have to ever pay interest on the credit used.” Plus, about every six months, she continues to ask her credit card companies for credit line increases. “Having a higher credit line available to me does not mean I spend more — it just allows me to have a better debt-to-income ratio, something that improves your credit score greatly,” says Stewart.
In addition to building her credit score — which would eventually help reduce her student loan payments — Stewart was also making $300 payments on her car loan. “But when the car loan term ended (it was a three-year loan), I had an extra $300 in my pocket each month,” she says. Denver-based Stewart also decided to live frugally in other areas of her life. “I got rid of cable TV, found a small apartment that was $400 in rent (compared to my prior rent of $750), and held onto my Honda Civic to avoid car payments,” she says. “I was saving an additional $750 per month just by making a few frugal decisions.” At the time, Stewart also had a full-time job making $45K per year. “Any performance bonus that was offered, I worked my butt off to make sure I earned it,” she says. “I asked for raises, and almost always got them. In two years, I increased my salary from $45K to $60K.” She also paid attention to any surplus money she had. “Any time I came into extra money — a tax refund, work bonus, gifts, or rental income — I contributed 100% of it to my student loan payments,” she says. “And, as soon as I made the decision to pay off my loans as quickly as possible, the first (and easiest) change I made was making every payment on time.”
Acquiring A Rental Property
A few years later and about six years into her student loans, when she was 28, Stewart got married. “We were very fortunate that my husband had no debt,” she says. Stewart said goodbye to her $400 a month apartment and her and her husband purchased a home for $295K with a 3.5% down payment, which they had saved for from prior bonuses and salary increases. “After living there for one year, we were able to save enough for another 3.5% down payment on a home,” she says. “When we moved out of our first home, we chose to keep the property and see if we could rent it out. We were able to get $2150 rent, on a mortgage of around $1700, which meant we instantly increased our monthly income by $450.”
Refinancing Her Student Loans
Stewart says the next major step she took was to refinance and consolidate her private student loans through SOFI, which brought the interest down from 8% to 5.5% due to her improved credit score. “By the time I refinanced, my score was around 720,” she says. “With the minimum payment due lowered, from $800 to $550, I was making payments four times the minimum payment each month. Meanwhile, I continued to pay the minimum payment on the low-interest federal loans.” The minimum payments for the latter were $100, so this enabled Stewart to save money also.
Overall, Stewart says acquiring the rental property enabled her to expedite her loan payoff time. “It took a lot of grit to pay off my 30-year loans in less than 10 years, just prior to the 10 year anniversary,” she says. “And I became accustomed to the monthly expense so much that when they were paid off, it was like giving myself a huge raise,” she says. Stewart adds that both she and her husband had salary during that time, too. “So it’s fair to say that improving our situation did make it easier to pay off the loans sooner,” she says.
Continuing To Earn Supplemental Income
Now that Stewart no longer has that debt hanging over her head, she says she’s been able to purchase another two rental units, which has only increased her monthly income more. “My credit score is now over 800, and I have not stopped asking for credit line increases,” she says. “I also invest and save for my two daughters so they will not have any student loan debt by the time they are in college.” Stewart adds that paying off her student loans allowed her to think more freely, as well. “I started my own property management business in Denver with a mission to empower aspiring investors in realizing their potential to earn income through real estate,” she says.
Stewart also has advice for others who are still struggling to pay off their student loans. “Take a step back and come up with a plan,” she says. “It does not need to be one silver bullet, but just continue making any change you can.” She says when it comes to compounding interest of student loans, no change is too small. “Rental properties were certainly a tool that helped me improve my financial situation, but it’s not a one-size-fits-all solution,” she says. “I encourage anyone drowning in debt to focus on what changes they can make right away, and implement them right away.” Then, she says to move on to the next thing you can do: get a side hustle, purchase a rental property, and/or ask for a raise. “The more you do now, the easier it will be to pay off your loans sooner,” says Stewart. We couldn’t agree more.