4-Step Strategy for Paying Down Debt Faster in 2023

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  • I pay off $11,024 in debt by 2022, but 60% of it goes to student loan interest.
  • I’m using a four-step strategy to pay off more than the principal balance on my mortgage by 2023.
  • I plan to refinance my student loans to lower my interest rate to at least 1%.

In 2022, I paid off $11,024 worth of debt between five credit cards and private student loans.

It takes a lot of effort and discipline to reach that milestone. But it was hard for me to celebrate when I found out that $6,430.15 of what I paid — about 58% — went toward student loan interest.

Here’s how much I’m paying monthly and in total for my mortgage in 2022:

For my credit cards, I negotiated payment plans to bring my total monthly minimum payment down to a more manageable amount. This move hurt my credit score, but it allowed me to keep my accounts current while I recovered financially from the pandemic.

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In 2020, I am an essential worker earning minimum wage. I only make $1,500 a month, even though my rent in Los Angeles is $1,100. In 2021, I am getting serious about supplementing my income by starting a freelance writing business. Once my income stabilized, I began to take steps to pay off my debts.

In early 2022, I realized that without the $670 monthly payment I had touched the principal balance on my student loans. I was frustrated by the fact of the student loan interest, but I had no choice but to continue paying because my mom co-signed my student loans. My mom even helped me out by contributing a total of $1,540 for the year on top of the $10,684 I paid myself.

Eventually, I was able to raise my credit score enough to refinance my student loans and lower my interest rate from a peak of 12.5% ​​to 6.1%. After refinancing, I put more of my monthly payment toward the principal balance of the loan, which helps me pay it off faster.

By the end of 2023, I plan to use this four-step strategy to pay off less interest on my student loans.

1. Make additional payments directly to the principal balance of my refinanced student loans

After factoring in inflation, I have no way of budgeting for a loan payment in 2023. In the meantime, I called the servicer for my student loan refinance, MOHELA, to find out how to make additional payments. above my monthly. minimum.

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During that call, I learned that any additional payments above the monthly minimum will not go toward the principal balance of the loan unless you specify it in their online payment system.

I have written specific instructions for making online payments directly to the principal balance of the loan so that I am ready to put any windfalls or side hustle income towards my loan in 2023.

2. Use a secured credit card to continue improving my credit score

Generally, people with higher credit scores qualify for lower interest rates when refinancing their loans. In order to refinance my student loans in 2022, I need to raise my credit score to, at least, the high 600s.

A secured credit card is one of the most effective tools I’ve found to boost my credit score. Secured credit cards work as usual, except you need to put down a security deposit to back up your credit limit.

I chose a secured credit card from Discover with a $200 security deposit, and a 2% cashback bonus on all purchases. I use a secured credit card for my phone and internet bills, and I pay off the balance every month. After six months of regular payments, Discover returned my security deposit in the mail.

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A year after using this strategy and paying off my student loans on time, my credit score is now 759, an increase of 179 points from my 580 credit score in 2020.

3. Refinance my student loans again in September 2023

With an improved credit score and payment history, I hope to be able to refinance my student loans and, hopefully, lower my interest rate by at least 1%.

This may seem like a small change, but here’s how a 1% decrease in my interest rate will change my monthly payment:

4. Keep my monthly payments the same and put more than the principal balance

If I get a 1% reduction in my interest rate in September, I will keep my monthly payment the same and redirect the $191 difference to the principal balance of the loan.

I only paid $606.38 of the principal balance on my private student loans by 2022. But my four-step strategy will help me pay off approximately $2,219.08 of the principal balance on my student loans by 2023.


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