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Serial refinancing- how I paid off $225k in 3.5 years

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  • Serial refinancing- how I paid off $225k in 3.5 years

    -A guide in loan refinancing and smart tactics to pay off debt-

    About the Author:
    Prior to my graduation from pharmacy school in 2013, I spent months reading up on the many ways people have paid off their student debt. I pieced together what they have all done and applied to my personal debt. Follow me on my detailed journey to my loan repayment and use this to help you get over yours. I paid off $200k student debt (and a new car worth $25.5k) in a little under 3 and ½ years.

    Recommendation to loan repayment 2017:
    -straight to the point-
    If I was a graduate in 2017 with $300k loan, here is what I would do:
    1) Leave the loan with your current lender, don't consolidate yet (you have 6 months grace period). Choose income based repayment.
    2) Work as much as you can, pay all you can towards the highest loan % and make sure to ask that your payments go towards the interest.
    3) Do this until January 2018. When you file your taxes for 2017, you will get form 1098E- which shows interest paid on your student loan.
    4) Since you worked as pharmacist only half of the year, you will qualify to have all your interest payments deducted from your taxes. Your income tax return will be very high. Use it to pay off your loans, don't spend it! **Since you know this in advance, you can set your tax exemptions when you start working so that little tax is withheld. This way, you keep more money per paycheck, and will allow you to make bigger monthly payments towards your loans**
    5) After the 6 months grace period, consider loan consolidation. Either SOFI, DRB, First Republic Bank, CommonBond are good options. Apply for all and go with the best rate. *see below*
    6) In addition to paying the minimum, make sure you send all your “extra” money each month towards your loan. Bring it down for another 5-6 months and refinance again. Apply to all your options and go with the lowest interest rate.
    7) By now, hopefully your rate is around 4.5%. Use your savings from loan-refinancing to pay off your loan faster. Get to where you are at $0 net worth (debt to income ratio is close to 1)
    8) Once your loan is around $100k, apply to First Republic Bank if you are living in the West Coast. If you qualify, you will get a rate of 1.99% for 5 years loan. If you are in the East, look into other banks around your area. Contact them and ask about student loan refinancing. By now, your record of loan payments and credit score are impressive and you should easily qualify.
    9) Don’t believe me? This is too easy to be true? Follow me on my journey to paying off my debt!

    My personal road map:

    My graduation date: May 2013.

    Loan with Great Lakes, amount: $79k grad plus, $123k stafford, grace period of 6 months

    (the charts come out bad, message me if you want a pdf version of this thread)
    Grad Plus- at 7.2% interest rate Stafford- at 6.8%
    $523 monthly minimum payment $863 minimum monthly payment
    Date Amount Owe Payment Balance Owe Amount Owe Payment Balance Owe
    8/23/13 78,933 2,000 76933 122,376 0 122,376

    9/3/13 77,080 2,000 75,080 122,536 0 122,536
    9/13/13 75,242 2,000 73,242 122,712 0 122,712
    9/16/13 73,242 2,000 71,316 122,760 0 122,760
    10/8/13 71,551 2000 **
    11/14/13 70,155.03 2156.03 68,000 123,706
    12/2/13 68,275 2000 66,275 124,110 0 124,110
    1/1/14 66,678 4000 62,678 124,754 0 124,754
    1/8/14 62,247 523 62,247
    1/17/14 62,364 1000 61,364
    2/6/14 61,201 4000 57,201 863 123,960
    3/11/14 56,976 2000 54976 863

    4/6/14 55,276 4000 51,276 124,273
    4/24/14 50,945 6000 44,945 123,809 863
    5/13/14 44,600 2000 42600 123,366 863
    6/4/14 42,796 42,796 123,852 863
    7/9/14 42,068 42,068 122,921
    7/20/14 42,156 2000 40,156 123,141 863
    8/8/14 39,810 39,810 122,741
    8/15/14 39,851 1,500 38351 863
    9/13/14 38,076 863 122,670

    - Notice I had 6 months loan payment deferment- I didn’t have to make payments until 2/6/2014. At which point, my minimum payments were $523 for Grad Plus and $863 for Stafford Loan. Whenever I had extra money, I dumped it into my grad plus.

    Tip:
    1) Pay the most towards your highest interest loan. Most of your money will go to reducing on the interest, in which it will become tax deductible for that year (since you make so little in your first year, this can be deducted.). On 4/6/14 and 4/24/14 I received my tax refunds and applied all ($10k) towards the loan.
    2) Reduce your cost of living! This is the best way to save more money so that you can apply to your loans. An example of my living expenses in 3/1/2015, 10 months after graduation:
    Grad Loan: $523
    Stafford Loan: $863
    Car loan: $828
    House rent: $500
    Family support: $500
    Car Insurance: $144
    Gas: $160
    Food: $600
    Total expenses: $4100
    Net income after taxes: $6000

    -As you can see, I didn’t have to eat beans and rice to make this work. I bought a new car, shared a 3 bedroom apartment with 2 other friends, helped out my family, and still had $2000 a month to dump into the loans. Not to mention, I worked at least 30 hrs overtime/month initially to build up my cash reserve (read more to find out).

    Stable job, stable life:

    At this point in my life, everything seemed financially stable. I wanted to look into ways to pay off my student loans faster. I started to realize the repayment process was too slow due to interest rates being so high. A friend of mine has talked about student loan refinancing upon graduation-but I never really look into it. On 10/16/2014, I did my research and I applied thru SOFI. It was a quick and very simple process, all done online and papers submitted via pdf. I felt like I had enough of my loans paid off to receive good rates. I refinanced $162,565 with interest rate of 5.49% with automatic monthly payments. (DRB was also a good option, read more to find out).

    SOFI -10/16/2014 at 5.49% interest rate for 10 years, minimum monthly payments $1,780.83

    Date Principal Payment Balance
    10/16/2014 162,565 3800 158,765
    10/28/2014 158,091
    11/6/2014 158,305
    11/7/2014 1780 156,547
    11/21/2014 156,877 1300 155,577
    12/5/2014 155,905 300 155,605
    12/6/2014 1780
    12/18/2014 154,125 1500 152,625
    1/6/2015 1780
    1/15/2015 151,485 2000 149,485
    2/13/2015 148,355 2780 147,355
    3/11/2015 1780 146,149
    3/12/2015 146,171 1800 144,371
    4/6/2015 1780 143,198
    5/8/2015 1780 142,041

    Tip: After you refinance away from the government lender into a private lender, the biggest risk is that you no longer have the option to request payment deferment due to difficulties or hardships that prevent you from making minimum monthly payments. To deal with this, you should save up an emergency fund of about 6 months cost of living. This is in case you lose your job or you get injured or sick and you cannot work, you have at least this time to recoup. The more time you may need, the more months of savings you should have. I personally had $10k in emergency fund at all times.

    My next biggest move:
    After being with SOFI for a period of time, I felt like I have built enough of a credit history to request a better rate. I could’ve stayed with SOFI and refinanced thru them but I decided to switch to DRB since they offered me a better rate at the time. DRB (aka Laurel Road) offered competitive rates and the application process was as simple as SOFI’s- both were very great and reliable companies. It took less than a month from start of refinance application to getting the loans funded.

    DRB bank refinancing- 6/23/2015 at 4.5% rate for 10 years, minimum monthly payments of $1,472

    Date Payment Balance
    6/23/2015 142,000
    8/10/2015 2500 139,038
    8/18/2015 2000 137,038
    8/20/2015 2000 136,075
    9/7/2015 1,472 135,115
    9/28/2015 12500 123,496
    9/29/2015 3000 120,496
    10/6/2015 7000 113,496
    10/9/2015 1472 112,024
    10/15/2015 3000 109,024
    11/28/2015 5472 102,671
    12/7/2015 1472 101,693
    1/16/2016 100,384
    1/20/2016 4000 96,384
    2/11/2016 95,296.30
    3/30/2016 2000 86,879
    5/2/2016 84,750

    Tip: Don’t settle for minimum payments- I rarely did. Since the rates were so high, I wanted to reduce my principal as fast as I could so that I can reapply for refinancing and get a more competitive rate, at which point I would pay the minimum and save my money for future investments.

    My biggest achievement:
    After a year with DRB, I recognized that I have built myself a very good credit history. Furthermore, my debt burden is equal to my current assets – my net worth is essentially $0. Although this sounds sad, it actually is something to brag about. From this point on, I will build my wealth, paycheck to paycheck. I will be of financial worth! This was a big achievement, and I wanted to be rewarded somehow. That's when I found First Republic Bank. This company was strict in which it accepts its applicants: 1) only lend to folks who live near their branches- in California, New York City, Boston, Greenwich CT, Portland OR, and Palm Beach FL 2) must not have too much debt burden compared to income, 3) good credit score, 4) good payment history. I have achieved all these, and I was qualified!

    First Republic Bank refinancing in 5/5/2016 at 1.99% for 5 years, $1,470 monthly minimum
    Date Balance
    5/5/2016 84,000
    5/17/2016 84000
    6/13/2016 82,666
    6/28/2016 82,666
    7/7/2016 81,329
    8/4/2016 79,991
    9/20/2016 78,650
    10/9/2016 77,308
    10/26/2016 77,308
    11/26/2016 75,963
    12/27/2016 74,160
    1/9/2016 73,267
    2/3/2017 73,267
    4/9/2017 69,000
    5/12/2017 67,848
    ... ...

    Debt Free, Financial Freedom:
    If you notice, I am still paying my student loan. So how can I say I have no debt when I am still paying my student loan? Because ever since I was with First Republic, I paid the monthly minimum and have been saving- I did not make extra payments. Why? Because at 1.99%, the rate is so low that I am better off doing something else with my money. I have some in the stock market, and the rest in a 1.2% savings account. Therefore, as of 1/9/2017, I am debt free- I have enough money to pay off my loan but instead wish not to pay it off. I am saving for my next adventure, owning a home.

    Fin:
    If there is anything I can shed light on, dont hesitate to ask. I am here to make your loan repayment as painless as possible. I’ve been thru this, and I know you can too!
    Look into other loan options. Use these links to get a $300 referral bonus. Message me if using first republic bank for referral.
    1) SOFI - www.sofi.com/share/425509
    2) DRB (aka Laurel Road)- http://sl.laurelroad.com/referrals/ryan-nguyen-199
    3) First Republic Bank- https://www.firstrepublic.com/student-loan-refinancing?gnav=globalheader;personal-student-loan-refinancing
    4) CommonBond-
    https://commonbond.co/?referrer=7f9c50745e39baee9321165bafa7744d&referre d

  • #2
    Well, you're not really debt free.

    You still have debt, you're just in a position to not have to pay it off so quickly. I have a loan with FRB too - remember that you get back most of the interest if you pay it back early.

    Depending on specialty, most docs will still be over the student loan deduction limit the year they graduate. I was paid on the low end for derm and "only" worked for 4 months as attng that year and was still over limit.

    Comment


    • #3
      What are the catches for such a good rate at FRB?  Do we need a bank account with them, or monthly account minimal balances?

      Comment


      • #4




        What are the catches for such a good rate at FRB?  Do we need a bank account with them, or monthly account minimal balances?
        Click to expand...


        You must live within 20 miles from a physical branch, have 3500 min balance and use them for primary checking account (direct deposit).

        The service is great - you get a personal banker that you can email and call. All atm fees refunded too.

        They also require a certain amount of cash in ur checking to qualify based on ur loan debt. I got 2.25% fixed x 5 yrs they just lowered the 5 yr rate to 1.99% - if you repay the loan early (term depends on ur original term) you get most of the interest refunded. It also becomes a private loan and not forgiven at death or total disability.

        Comment


        • #5
          TL;DR for crying out loud, its a comment section not book self publishing submission. A link to your blog post maybe better suited. Also, having read the last line, thats like 90% the point of this whole blog, book and forums. Welcome to the choir.

          Comment


          • #6
            I don't want to take anything away from your accomplishment - congratulations, that's awesome - but refi to the lowest possible rate for shortest possible term and put any money you can toward paying it (or into a "debt payment fund" brokerage account) is bread-and-butter.

            Your point about student loan interest deduction is partially false - you can only deduct $2,500, which in that bracket will probably be worth $625.

            Your point about staying in income-driven repayment can also be partially false since the effective rate with RePAYE with the interest subsidy can still possibly be more than what you might get with a private refi, esp with FRB.

            Your rates were bloody awful, 5.49% and 4.5%. Guess they are all you had available. That's unfortunate. A good-paying contract in hand, with a non-abysmal credit history, should get you into the 2s variable or 3s fixed.

            That, and you're not really "debt free," but like you said, you could have mitigated the interest build-up from the beginning with a better refi and invested the money...with what the market's done over the past 2.5 years, you'd be way better off than 4-5% of simple amortizing debt. Once you've appropriately structured your debt (i.e. low-rate, short-term), your money is *probably* better off in tax-advantaged accounts. Hindsight...

            Also good effort with your referral kickback links. You get back $300 with WCI...

            ...but yes, great job on taking control of your finances and addressing your debt. While some of the minutiae you presented are incorrect or imperfect, the overall premise of identifying ways to limit waste and doing your best to earn more while spending less is absolutely commendable.

            Comment


            • #7
              Thank you for your comment.  I wanted my experience to be an example so that a new graduate can visualize the $ involved in the whole repayment process.  There are many guides to loan-refinancing but nobody has provided their personal raw data.  That said, I did not want to over-complicate this thread, so I did leave some details out, details that you may think is "false" or is "bloody awful."  That is why the comments section is utilized- to further scrutinize this article

              Comment


              • #8




                Thank you for your comment.  I wanted my experience to be an example so that a new graduate can visualize the $ involved in the whole repayment process.  There are many guides to loan-refinancing but nobody has provided their personal raw data.  That said, I did not want to over-complicate this thread, so I did leave some details out, details that you may think is “false” or is “bloody awful.”  That is why the comments section is utilized- to further scrutinize this article ????
                Click to expand...


                There are threads on here many pages long describing such experiences, as well as several similar ones. This feels purely promotional and trying for referral bonuses.

                Comment


                • #9


                  4) Since you worked as pharmacist only half of the year, you will qualify to have all your interest payments deducted from your taxes. Your income tax return will be very high. Use it to pay off your loans, don’t spend it!
                  Click to expand...


                  Is this true?

                  I'm pretty sure they cap your student loan interest deduction at 2500?

                   

                  Comment

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