5 Steps I Followed to Conquer $107,000 in Student Loan Debt


Image courtesy of Student Loan Hero

The road to repaying my student loans has been difficult. I even defaulted on two of them – and by the time my student loan debt peaked, I owed over $107,000.

Few things are as demoralizing as missing your student loans. To this day, I still remember how frustrated I was when I found out that two of my loans were in default. But that wasn’t the end of the road for me – and it doesn’t have to be for you either.

This is the story of how I overcame student loan default, a 470 credit score, and six-figure debt. If you’re facing any of these difficulties, I hope the lessons I’ve learned along the way can be helpful to you.

1. I rehabilitated my student loans in default

First of all, if you are facing a default on your student loan, know that you are not alone. In 2016, defaults on federal student loans increased by 14%, according to the Consumers Federation of America.

When I went into default, I didn’t even know it at first. It was 2013 and I moved to Asia for work. I had a detailed spreadsheet to track all of my federal and private student loans. One day I was contacted by a debt collector and discovered that I had two federal loans in default.

Because I kept such detailed records of my student loans, I thought it was a scam. The two student loans in question were not on my credit report and I had no record of them. But after several phone calls and inquiries, I realized their claims were true. I couldn’t believe how much I had lost track of my student loans.

After a brief period of sulking, I entered the delinquent loans into the federal student loan rehabilitation program. The rules for rehabilitating student loans vary, but generally you need to make nine payments within 10 months to get back into good standing.

During the rehab process, I was able to enroll in an income-driven repayment plan. This made the payments more manageable since they were now capped at a percentage of my income.

2. I focused on increasing my income

This step may seem obvious, but some extreme budgets focus so much on cost reduction that the benefit of increasing revenue doesn’t always get the attention it deserves.

As the founder of a start-up, I couldn’t go to my boss and ask him for a raise. After all, I was my own boss. And I had to make choices that were good for the business, like accepting a lower salary so I could spend more of the company’s revenue on growth.

But when we finally increased the company’s income and I was able to increase my income, I allocated most of my salary increase to my student loans. I haven’t had a nicer apartment or improved my lifestyle in any way. Instead, I took the opportunity to aggressively pay down my debt.

If you are able to ask for a raise or increase your income through side gigs, it might be tempting to improve your lifestyle. But imagine how much better your lifestyle will be when you no longer have to pay off your student loan. It will be like getting another one salary increase.

3. I worked on rebuilding my credit

With my student loans rehabilitated, it was time to work on rebuilding my credit.

Since I couldn’t qualify for a traditional credit card, I signed up for a CapitalOne Secured Credit Card. Secure cards are a little easier to qualify when your credit score is low. Rather than borrowing on a revolving line of credit, you “secure” your credit limit in advance with a deposit. Then you borrow against your deposit and pay the balance each month as you would with a regular credit card.

I was able to put down a $2,300 deposit for my secured card, which instantly increased my total available credit. Plus, by making all my payments on time, I’ve built a positive credit history.

Finally, I worked with a reputable credit repair company to have the negative entries removed from my credit report. Admittedly, it was an expensive move. But it was also effective and helped boost my credit even further.

4. I refinanced at a lower interest rate

Eventually I was able to raise my credit score enough to qualify for student loan refinance. My credit score still wasn’t perfect, but I was allowed to refinance $33,000 of my student loans with Serious. I also reduced my interest rate from 6.8% to 5.9%, resulting in lower monthly payments and interest savings.

Lowering my interest rate wasn’t the only benefit of refinancing my student loans. It also allowed me to choose a new loan servicer – and find one that provided a great customer experience.

Some might worry that refinancing student loans might hurt their credit score, but that was not the case for me. In fact, refinancing my loans freed up extra cash to help me pay off my debt faster, which boosted my credit rating.

One thing to be wary of is that refinancing federal student loans means giving up access to income-driven repayment plans and federal deferment or forbearance. If your employment situation is unpredictable or unstable, you may want to skip refinancing until you can expect your income to increase or at least stay constant.

5. I moved across the country

This step may be drastic for some, but my final step to student loan freedom was moving across the country in 2015. It saved me about $9,000 in income taxes, reduced my cost of living by about 18%, and paid off my student loans a year ahead of my goal.

I understand few people can just get up and move to another state. I was just tired of paying the high cost of living in New York and wanted a more relaxed pace of life. Moving to Austin, Texas has benefited me both financially and personally.

But if you love where you live or just can’t move, consider other changes you could make to your cost of living. You might be able to take on a roommate, downgrade your apartment, or even change neighborhoods.

Take control of your future

With a frugal life and stubborn discipline, I finally paid off my student loans in August 2016, almost 7 years after graduating from college.

I know it’s not easy dealing with student loan default or ridiculous monthly payments, but a few small actions can really make a big difference.

Refinancing your student loans at a lower interest rate, focusing on increasing your income, and looking for ways to reduce your living expenses can be the perfect combination to help you gain momentum and pay off your debt. I hope you can learn from my story and take advantage of some of the strategies that helped me get to the finish line.

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