David Sidoni, the How to Buy a Home Guy, is back with part 5 of the series on how to financially prepare to buy your first home, a full financial guide for first time home buyers. This episode tackles the big question – how do my student loans affect my ability to buy my first house? This also addresses other concerns such as – will these huge student loans hinder me from ever buying my first home, or will I ever get out from under this gigantic debt? Don’t miss this episode for answers to these questions. Settle in and get ready to break down the numbers, and David’s answers might surprise you in a good way.
How To Financially Prepare To Buy Your First Home – Part V
The Big Question – Can I Buy A House When I Have Student Loans?
Welcome into the never-ending multi-part series of How to Financially Prepare to Buy Your First Home. I’m here to bring a voice out into the ether and let you guys know someone is here and looking to make sure that you are taking care of all over America and North America. I’ve even got readers in other parts of the globe. I don’t know if our laws are the same, but I hope this stuff works for you. This is part five. I sat up late at night crafting this one for you. I thought I was going to wrap things up, but this topic got so intense, so deep that I was not able to contain this single step, step eighteen into a part of another. Part five is just going to be one step which is step eighteen.
Step 18: Student Loans
When it’s all said and done, you’re going to take all twenty steps and you’re going to have everything you need to know to get started with the most important aspect of buying your first home. That is the money stuff. Step eighteen is a hot topic. It’s student loans. This one is so big. No recap and no introduction. You’re on episode 23. If you’re lost, go back to episode nineteen. If you’re in order, here we go. Step eighteen is student loans.
This is a big one for many of you. Here’s what we’re going to be talking about. I’m going to be going over six main steps. One, is this a crisis? Two, how did we get here in the first place? Three, how do I avoid being a statistic of this potential crisis? Step four, the one we all want to know about, how can I buy a house with this giant loan hanging over my head? Perhaps a refinance is part of your financial future. Step five, is forgiveness of the loan an option for me? Is uncle Bernie going to come and save me with a plan? Finally, step six is once we know all this, how do you make your short-term or long-term plan to decrease your loan and then live your best life? We’ll ask an expert and get the best hacks to the system.
Step 18 – 1: Is It A Crisis?
This is step one of step eighteen. Am I confusing you? It’s simple math. Stay with it. Step one, is it a crisis? For everyone, is that a crisis? Maybe. It could be. The jury still out. Things are going okay for now, but we’ll see where it goes. For you individually, I’m sure it feels like a crisis. This is a big one for many of you and it’s like a dragon. It’s scary if it’s real, but is it real? If we’re going to keep going with that metaphor, most dragons can be slain. You need the right sword. Student loans are not the unbeatable foe that is going to keep you from your castle and I know a lot of you think it is. I don’t want you to think that I’m all rainbows, ice cream and sugar cones about all this. I know it looks like it feels like a dragon. In the interest of getting the whole picture and being totally unbiased, I’m going to give you both sides, not just the potential solutions.
First, we’re going to discuss all the facts that are being reported because it’s scary. Those facts being reported, many of them are correct. If they scare the pants off you, they probably should because they’re right and they’re scary. There is indeed a dragon out there, but we have hacks to help you slay them. We have the facts that are going to help you slay that dragon and we’re going to show you that those facts, those scary realities, they don’t always keep you from buying a house. Remember, these facts, they’re real. They’re legit. Real and scary. If you hear about it a lot, it’s because that regality of that fear, that’s what sells. That’s sales articles and blogs and those things that we used to have called newspapers.
[bctt tweet=”The current student loan debt crisis is due to a few factors with tuition being the number one cause.” username=””]
It gets you to click, it gets you to read the article and then someone can sell advertising space there. It makes a great headline. It’s even good clickbait because it’s relatable to so many of you, 44 million of you at this point right now and it has some merit. After we understand all the facts completely, you’ll see that there’s going to be hope beyond those scary headlines. Let’s look at these hacks that have helped in 2018, 1.76 million first time home buyers with an average age of 32. I’m pretty sure some of them had a college degree and possibly some student loans. The answer to the question, is it a crisis? Yes, it is. Breathe and relax. Remember, I told you I’m going to give you the facts first and then the hacks. I don’t want any skeptics out there thinking that I don’t get it and I’m trying to blindly sell you some Pollyanna BS. It’s real you but when you see all of your own individual math, you might discover that not only is it possible for you to buy a home while you still are paying off your student loan, but it might be financially prudent.
That was me. I’ve said prudent. Deal with it. If your parents attended college, they probably did not graduate with a ton of debt, if any. As of now, 70% of college graduates have some student loan debt and the average debt is about $38,000. I know a lot of you out there have student loans that are way bigger than that. I’m telling you what the average is. Here are the stats that got us there. In 2004, the total outstanding student loan debt was $200 billion. Not that much. In 2014, it was up to $1.2 trillion. That’s with a T. Are you ready for this? From 2014 to 2019, we jumped from $1.2 trillion to $1.6 trillion. That’s up $400 billion in just five years. That’s an increase over five years of two times the entire total debt that was owed by everybody several years ago. There’s some math for you. It’s not increasing a little bit. This is a freaking tsunami.
Step 18 – 2: How Did We Get Here?
Number two, how the “F” did we get here? The current student loan debt crisis is due to a few factors. Number one, tuitions have blown up. Do you know what would suck? If the price of a new car had increased at the same rate that college tuition has increased over the past 30 years. If that was the case, a new car now, an average starter car would be about $80,000. How come our dorm rooms still feel like a Kia and not a Bentley if we’re paying $80,000? What changed? Some experts have pinpointed that in 1970, that was the beginning of this so-called crisis. We have some crazy times back then. We had double-digit inflation and oil crisis and incomes that went down in a crashing economy.
At the same time, the public investment into colleges, the donations that went into higher education started to drop. As a result, colleges increased the cost of tuition. At that point, families were forced to borrow money and finance. Government financial assistance for students actually decreased as well. What we called legislative appropriations or government money for college students, even though that’s ten times higher now than it was in 1960, enrollment is up way more than that. The numbers just cannot keep up with the increase. In the ten years from 1997 to 2007, college enrollment increased 100% and you don’t even want to know the numbers since 2007. Let’s say that it’s still going up.
What else happened? Congress changed the rules. Before 1976, a student loan could be discharged in your bankruptcy. Starting in ‘77 and ‘78, Congress started to change the bankruptcy laws. By the time we got to 1984, it was practically impossible to have your student loans written off under a bankruptcy. What happened? The colleges then realize that students are going to be forced to pay back the loans no matter what in almost every circumstance. What did the lenders do? They started loosening up big time and passing out student loans like free breadsticks at Olive Garden. They’re giving them away because they know they’re going to get their money back no matter what. You can’t do a bankruptcy. They gave it away. They knew they wouldn’t get shafted. They knew you couldn’t wipe it out. It’s with you forever. It’s like luggage.
Does this sound familiar to any of you? Probably not because you probably weren’t paying attention during the housing crisis in 2008. If you were, then this should sound familiar because the years leading up to the housing crash, the mortgage lenders, like the college lenders, realized they could give money away to everybody and they wouldn’t have any ramifications. They started giving it to anybody with a pulse. As a result, the housing bubble burst and then that resulted in our 2008 recession. There’s more to it than that, but for now it’s a decent analogy for what we’re talking about. Some economists speculate that all these student loans are going to affect the economy sooner or later down the line and we’re going to have another bubble burst, just like we did with the housing crash. I don’t know if that’s true, but we’ll find out.
Step 18 – 3: How Do I Avoid Being A Statistic Of This Potential Crisis?
Step three is how do I avoid being a bad statistic of this potential crisis? Anytime there’s a bubble coming, it’s pretty simple. I’ve been painfully, brutally honest depicting our dragon to you and told you all about it. I know that this prediction of a student loan bubble is out there. I’m not sure if it’s correct. I never would say that I have the crystal ball to know that. The only thing I do know is that the only way to avoid any economic bubble bursting, it doesn’t matter what it is, is to lower your own debt and increase your own worth. Let’s see how to do that with these hacks.
Step 18 – 4: Can I Buy A House With This Giant Loan Hanging Over Me?
Step four, can I buy a house with this giant loan hanging over me? It’s a weird transition from step three but think about it, that home is actually the best thing to build your worth. This is the big question. The reason why you’re reading this. Can you buy the home with a giant student loan? Buying a home versus renting is perhaps the best and easiest way to increase your own worth. You’re already paying something on the first of the month, you might as well pay yourself. Let’s start with the good news. We’ll start with the financial worth. You can still get home even if you are carrying a student loan. Your home will then increase in value, give you tax breaks and all the great things that we’ve already talked about before and that will increase your net worth. The stats say that a homeowner is 45 times wealthier than a renter. That to me sounds like you are definitely improving your net worth.
[bctt tweet=”Buying a home versus renting is the best and easiest way to increase your own worth.” username=””]
The question is, does a fat student loan dragon looming over you lower your chances of getting your castle? Not necessarily and you need to stop thinking gross to get this concept. Loans and debts are all about one thing when you’re buying a house, the monthly payment, not the total, the gross. Don’t let the giant number of the total amount owed be a deterrent. Don’t let it scare you. Don’t let it be a gross thought in your head. That’s your gross debt and trust me, it is gross. Each of you has to do your own individual math, but the banks want to see if you can make a monthly house payment with all of the regular monthly payments that you owe, not all your gross stuff. They’re generally not concerned with that giant gross total. They want to know your monthly payments.
To get what we call your debt to income ratio from your monthly money, you just figured out what your monthly in and monthly money out is. That’s it. Not your total gross debt. If you’ve got $100,000 loan that costs you $400 a month, the banks think that’s $400 a month. When I talk to buyers, I don’t care if they owe $10,000, $100,000 or $200,000. All I want to know is the terms and the rates of the loan and the monthly payment. Here’s a trick to help you see that perhaps you don’t have to slay the entire dragon in one fell swoop to get your castle. Sometimes you have to cut off a few claws. I’ve had first-time buyers that have a fat $600 payment for their sweet ride. Their killer whip with fat rims. That’s a car. They owe $10,000 on their car and they have let’s say a year and a half left to pay it off.
Now, they’ve got $10,000 they’ve just picked up from a big fat tax refund and they’re thinking, “I can pay off the car and eliminated that $600. That’s awesome. I won’t have that big hit on my monthly number. I listened to you, Dave, you told me the monthly number.” That’s what’s important, but here’s the thing. We talked about it and instead of paying off and using that full $10,000, we strategize and we refinance the car payments over the next five years. Now, we refinance down to only $200 a month. I’m pretty sure you can do the math on that. Did we eliminate the debt completely? No, but we freed up $400 a month, and most importantly, we kept $10,000 in the bank, which could be very important when you’re trying to buy a house.
That’s a huge chunk of money if you only need $15,000, $21,000 or $28,000 to buy your first home. $10,000 is a big chunk. That sucks if all you care about is upgrading your ride over a couple of years so you can look fresh for all the honeys. When we did the math for this particular first-time buyer, we found out it was better to have the extra $10,000 for the home purchase. By refinancing and saving $400 a month in the monthly payment in those monthly obligations, the banks saw the debt to income ratio as $400 less each month. That means they’re willing to loan you an extra $75,000 in house payments. Let that sink in. That’s for real. Monthly obligations are what matters, not your gross total debt.
Let’s translate that to student loans. In the long run, absolutely. It’s incredibly important to pay off your debt, but some student loans have pretty low-interest rates and your payment might not be so much that you can’t get a home loan for your first starter house. You might be able to get your home loan in 2019, these incredibly low rates, while you still have a student loan at incredibly low rates and pay them both off and increase your net worth. For now, your payment might just be a part of the monthly money that you owe. Once you follow all the other steps to get financially ready, you could still be approved for a home loan with your current student loan that sits on your ledger as another monthly debt, like a credit card or a car loan.
Don’t let that dragon scare you. I’m not letting it die, folks. I’m working the dragon metaphor forever. Forget the gross number. Don’t think that sitting back and tackling that monster first before you even consider talking to someone about buying a home is the right financial move for you. There are so many factors. There are so many variables in this equation and it’s your equation. If you think that you have to pay off your entire loan before you even broached the idea of buying a house, you could be incorrect. Think of this. On average, the same principles apply to renting versus buying, even if you have large gross student debt. What are those basic principles? It’s pretty simple. We talked about them a lot before. Your largest monthly payment every single month is housing.
As a renter, it has no bearing on your future at all. Every first of the month, it’s your biggest bill and that’s gone. Owning means that you’re paying yourself and you’re growing your own future, not your landlord’s. What are the other pieces of the puzzle? Tax benefits and deductions. We haven’t even got to that yet. Trust me, it’s huge. You also have your equity growth and then we have our entire mission statement. Every single one of my first-time buyers as of right now, we’re at 81 of them. Every single one of them realizes that they could have done it earlier, but because they waited and didn’t ask the questions, they wasted rent for one, two or three years. Multiply your rent by one, two or three years and see how much money you’re throwing down the drain. All of those basic principles, they still apply.
All you need to do now is add your student loan monthly, not gross, into your own personal equation. Stop looking at the dragons. Stop freaking out about that because the bank is looking at that one little paw, one little claw, one little dragon foot or whatever they call it. The point is don’t let this stop you from asking questions and finding a unicorn realtor that can help you and start a plan now. What’s the worst thing that could happen? You could ask them questions. You could find out that you’re screwed just like you already think that you are or maybe you could get a sword and you could figure out how to slay that dragon. Maybe we’ll even get a catapult that shoots fireballs and you can kill that dragon super quickly. Most of my first-time buyers added those monthly payments into their monthly debt. If there’s not a lot of other payments they have to make each month, they found a way to pull it off and you can too.
[bctt tweet=”Owning means that you’re paying yourself and you’re growing your own future, not your landlord’s.” username=””]
For most home loans, most mortgage banks will look at it in one or two ways. They’re going to look at these two items. They’re either going to be looking at 1% of the outstanding balance of your loan or they’re going to look at your monthly payment, as we discussed, reported on your credit report. Some loans are actually going to look at the original payment schedule, so if you’ve changed your program, in other words, if you’re in a deferment, a forbearance, a reduced payment program, an income-based or income-contingent program, then you might have to look at some other options. Similar to the refinancing sample for the $600 guy with a car that we talked about. By the way, if all those words sounded like another language to you, no stress, then this is not your problem. If you’re still in school and you’ve never heard them before, remember those terms and after you graduate, go back and read this. If you’re on some of those programs, your equation gets a little bit more complicated. Once again, you need a pro, you need a guide. It’s time to find that unicorn realtor. Contact me and we’ll see if we can find you one in your area. Our network is growing and our success stories are piling up. You don’t know what you don’t know.
People who have contacted me and I’ve been able to help them out and help them find a pro, have been able to see the entire big picture. Together with that unicorn agent, someone who cares about you, the first-time buyer, you can run your numbers. You might qualify even with your whole dragon payment or perhaps you’ll figure out that a refinance is the best thing for you to do. Understanding that a refinance is going to extend your loan, just like the car example that I gave you. If you’ve got that expert advice on how to live a balanced life and slay the dragon slowly, then perhaps those options are best for you and you can refinance, push the dragon away and start building your wealth all at the same time. We’ve had tons of folks with good jobs. Doctors, nurses, lawyers, even some software studs who have killer jobs.
After they took a look at their student loan numbers and they ran the numbers with a solid realtor and a lender team, they figured out that the refinance programs, similar to the car guy that we talked about, that was the best thing for them. It’s the simplest and most efficient way and it helps you to figure out that maybe you can slay your dragon in another way. Remember, if you haven’t talked to someone yet, reach out. You don’t know what you don’t know. I’m just an email or a text away to help you be part of the revolution. All these first-time buyers all over the country being treated like the kings and queens that you are. We want to make sure that you avoid that peasant treatment the real estate industry loves to give all you first-time buyers. Reach out and let’s get you started. These answers can only help you.
There’s no trick for everyone. You’re going to have to run your own numbers and decide what your priority is. You’ve got to figure out what makes sense for you. If you need some help, go to my website DavidSidoni.com to get your local bad-ass agent who could hook you up with a solid financial pro. I’ve mentioned before, this is my labor of love and my passion project. I have people in your area who are starting to hear my message. In 2019, I’m a lone voice screening in the internet ethers, but my voice is getting louder and I’m finding a nationwide network of unicorn realtors out there who understand your pain. Student loans are scary, but I’ve got some dragon slayers on my network. Hit me up. I stay up late to write these thoughts out for you. This was supposed to be a three-part series and it’s turning into five. By the time I’m finished, it’s going to be a seven-part epic mini-series.
Step 18 – 5: Is Forgiveness Of The Loan An Option?
Once you run the numbers, if a home fits your best equation, you still have to slay the rest of the dragon eventually. By that, I mean eliminate the rest of the student loan. Let’s go to step five. You’re throwing a Hail Mary here, “Help me out. Is forgiveness of the loan an option?” I keep hearing about forgiveness. People keep saying that in the news. Will uncle Bernie make a plan and save me? Let’s talk about the potentials of student loan forgiveness. There are so many myths with so much misinformation on this topic, I can’t even broach it. I can’t even go into it all and I can’t even believe I just said broach it. Perhaps you’ve heard of some of these options. There’s Public Service Loan Forgiveness and they actually call that PSLF. They include your income-based repayment, the pays you earn repayment, the revised pay as you earn or income-contingent plans.
They also have graduate repayment plans, occupation specific student loan forgiveness programs, student loan forgiveness programs for teachers and nurses and people like that. Finally, my favorite, the Federal Perkins Loans Cancellation and Discharge Program. These programs exist. They’re real, but will they work? I don’t have a clue and nobody really does. The rules are changing daily and I am certainly not the expert. I can tell you this. I know that when people say something that’s difficult, they use the term jumping through the hoops. Everyone I’ve talked to about this, when you’re trying to figure out your eligibility and then apply for one of these loans, they are insanely complicated. You’re not jumping through hoops. You are jumping through hoops on fire while you’re naked, trying to climb Mount Everest with a Yeti chasing you and someone shooting laser beams to your head at the same time.
Sure, it’s worth it for you to go out and research them, just don’t count on it. The word on the street is these things are tough, so check it out. Maybe you can get forgiven but in the meantime, start your own plan and remember, any of these forgiveness programs have tax implications. Make sure that you talk to your tax pro about that. Have I bumped you out completely? Maybe you’re so freaked out, you’re like, “Screw it. I’m going to consolidate everything.” Be careful with this one too. Unless a pro looks at all of your options, consolidating everything and then compares it to other potential refinances, you could end up paying a lot more. In fact, for sure, when you consolidate your federal student loans under a direct loan consolidation, you do not lower your interest rates. Check these options out. Look into forgiveness.
I don’t recommend consolidation, but check it out if you want to and most importantly, don’t sit around waiting for a forgiveness fairy godmother. They’re out there and they’re like a fairy godmother. Good luck if you can find one. A PS on step five, if you’re thinking about forgiveness, you might be thinking about bailing on this whole thing altogether because it’s such an overbearing burden. Do not stop paying. If you stopped paying on your student loan because you’re so freaked out and stressed out about this whole thing, you take away all of your options. You can get sued, your credit will get totally jacked up and your debt is likely to increase. If you’re reading this and you’re freaking out, call. Reach out. Contact me. Let’s get you in touch with a local pro in your area. Remember, I said it before, you don’t know what you don’t know. You might be able to just refinance it.
[bctt tweet=”Pay off the smallest balances first, and attack each one individually.” username=””]
Number six. “David, I’ve read this and I pretty much want to put a gun to my head.” This should be encouraging. Information is knowledge. This is important. Step six is once you know all this, how do you make the short-term or long-term plan to decrease your loan and live your best life? That balance we talked about. Maybe refinance the dragon while you build your wealth with a house. Let’s ask the expert and get the absolute best hacks known to man to help you beat the student loan system. A few years ago I found this guy. His name is Adam Carroll. Nobody knows student loans more than him. He is the guru. This is absolutely his thing. He even did a documentary about it called Broke, Busted and Disgusted. It was all about college student debt. He travels the country every year talking to 20,000 or 30,000 different college kids on college campuses and helps them prep for handling their student loans. He’s serious about this. He’s the man. He cares.
Step 18 – 6: How Do I Make Short-Term Or Long-Term Plan To Decrease My Loan And Live My Best Life?
I’ve consumed so much of his information that I’m going to consolidate it all and pass it on to you. He’s got a podcast called THE MA$TERY Podcast. It’s a great money master resource and his other podcast, Build a Bigger Life. His Build A Bigger Life Blueprint, both those share how to build a bigger life, not a bigger lifestyle. A lot of people build a big lifestyle and they monetize that by using credit so they can feel like they’re balling, but they’re always living big by living in debt. They ended up with this killer lifestyle, but truly no life because you always have to work to pay to keep up the lifestyle. It’s like a work smarter, not harder on steroids. The blueprint will help you figure that out. It comes from a guy with an earnest heart help you enjoy your years on this planet. I’ve got to tell you, I’m going to give you his hacks and they’re awesome, but some of his stuff is pretty intense. It’s conservative. Your inner FOMO is going to cringe when you hear some of the stuff he says and it freaks me out a little bit too.
If you’re playing a long game, you learn how to sacrifice a bit now. You find your own personal financial and life balance, then you’re soon going to live this super rad balanced life. Most importantly, you’re going to have life’s two most precious commodities, time and a lack of stress. You won’t wake up one day ten years from now running around in the rat race, realizing that either you’re broke because you spent all your money out there thinking you’re living your best life or realize that ten years from now you’re working a 60-hour work week so you can be a baller for one night of the week. This dude is so money teaching all of these great principles to you that I bought his books on Money Matters for kids, for my kids and we read them together. If you’re trying to figure out why else I might like this guy, how about this? Even though he’s a little bit more conservative than I would be most of the time, he changed his business when he saw a new generation that was being held back by the system. He really cares about the problem facing our nation of younger people growing up.
Adam Carroll’s Hacks To Help You Pay Off Your Student Loan Fast
He sounds a little familiar, doesn’t it? I’m not sure I can put my finger on it though. You get to decide to buy a home with your loan as is or refinance and buy a home. If the numbers don’t work and you just decided, “I’m going to stay renting and I’m going to tackle the loan first,” cool. Whatever it is, that’s your call. After you’ve talked to a pro and you’ve got all your numbers, not because you’re scared of the dragon and you didn’t ask anybody and you’re hiding under your bed. Once you figured out which one of those paths you’re going to go on, he has the best systems to help you beat the dragon because the dragon is still there no matter which path you take. He’s not selling anything except the promise of hope and giving some people a guide along the way. He’s got seven hacks to help you get your student loan paid fast. Let’s take a look at them.
Hack #1: Make Advanced Payments To Principal
If you follow these hacks, then you can follow one of his favorite methods which comes from this great quote. “If you do for two years, what most people won’t do, then you can do for the rest of your life what most people can’t do.” I love that one. Think about that. For two years, suck it up. Have a goal, live with the rents, drive your beater you’ve had since you were sixteen. When you’re going out with your friends, you can do that, but first, fill up on food and cheap wine at the house and then when you go out, just get an appetizer and sit there and be tipsy and have fun. Balance is your key. Hack number one from the man Adam Carroll. Make advanced student loan payments to principal and each one of these facts has a cool thing. I’m going to call him a big fact. Interest is front-loaded and accrues daily.
Don’t you know what that means? I don’t have time to explain. Research it on your own. Making your advanced payments, most student loans don’t realize it, but as soon as the money you’ve borrowed is there, the interest begins accruing. That’s why the amount you owe is so much more significant than you remember what you borrowed in the first place. It includes all the interest from the very beginning, even while you were in school and that’s on multiple student loans. Most folks have anywhere from eight to ten student loans. Are you ready for a fact that’s going to want to make you punch somebody right in the face? Less than half of your student loan payments for the first few years go to your principal. The rest goes to pay your interest.
Because that interest accrues daily, lowering your principle balance, that’s the key to shortening not only the length of the time that you pay your loan, but the actual full amount that you pay. If you’re in a position to send additional payments with your loan payment, you can not only pay off your loan faster, but you’ll actually lower the total amount that you would pay over the lifetime of the loan. Be sure that you follow these two rules if you’re going to pay extra and try to take a bite out of that principal. Rule one, make certain that the advanced payments are being applied to the principal of your loans and not applied to a future loan payment. If you’re trusting your student loan servicer to act in your best interest, you are absolutely going to get screwed. If you send in an extra $100 per month and you let the servicer disburse it, they’re really going to put it towards next month’s payment or they’re going to spread it out over your eight or ten loans in little chunks that will do very little damage to your overall goal of eliminating your debt.
They’re going to use the money for their best interest. If you’re paying more than the minimum and you don’t tell the lender exactly where you want the money applied, the lender will decide for you. Remember, they’re in the business of making money on your loans. They don’t want to help. Call the servicer and tell them to apply it to principal reduction. Step two, if you’re sending an additional payment, you tell them to either put it on the loan with a high interest rate or on the loan with the smallest loan balance. When you apply it to the high interest rate, then you know you’re automatically going to be charged less due to the way they calculate the loan. If you’re choosing the smallest one, that’s another hack.
[bctt tweet=”Going to college has its benefits that go beyond the financial.” username=””]
Hack number two, refinance and pay less for the same amount of debt. The big fact here is to pay down speed is highly dependent on your interest rates. The student loan guru says that refinancing is the quickest way to pay less interest and reduce your student loan balance. He recommends sites like Earnest and CommonBond who can show you how to dramatically reduce your rate. It’s a good place to start and it just takes a few minutes. Hit me up. Find a unicorn agent in your area, get in touch with the lender and get all your options so you can get your castle and slay the dragon. I’m going to keep beating this metaphor until you hate Game of Thrones.
Hack #2: Refinance
Hack number three, pay off the smallest balances first and attack each one individually. The big fact here, consolidation might not always be your greatest option. You can consolidate your loan and put it all into one. Consolidation is an excellent way to lower your interest rate and that is a good thing. However, as the name suggests, when you consolidate, you’re taking multiple loans and you’re putting them together in one big loan and that big loan can never be adjusted again. That could mean that you are locked in and you’re screwed in the future. What if you got a promotion, a bonus or a big money chunk? You lose all your options. By not consolidating, you have extra cash. You can direct additional loan payments to one loan at a time. Remember when we talked about you can do the highest interest or the smallest balance first?
Hack #3: Pay Off The Smallest Balances First
This is the smallest balance first. This is known as the snowball method. This is a method made famous here in America by Dave Ramsey. Adam actually said that John Cummuta traded the snowball method in a book called Debt-FREE and Prosperous Living. If you want more details on how to do the whole snowball effect, you can look up Adam Carroll, Dave Ramsey and other sources online. Here are the basics of how it works. You’ve got a student loan with eight or ten loans. If you have an extra $200 a month, instead of throwing that in there and letting them spread it out or instead of knocking out the high interest loan because you read hack one and you called in, you could start with the smallest loan. At $200 a month, you might be able to knock that thing out in just a few months because normally they’d only pay let’s say $15 a month on it and that could take you years to get rid of it.
At $200 a month, in three, four or five months, that thing’s gone. You take that $200 a month plus your $15 and you create the snowball rolling down the hill and put that to your next smallest loan. It doesn’t seem a lot, but as that snowball rolls, it just keeps grabbing snow and getting bigger and bigger. It’s a great technique. If you want to know more, check out Dave Ramsey or Adam Carroll. Adam says about the snowball concept, “Would you rather toast a piece of bread with a flashlight or a laser beam?” When you blast away one debt at a time, you are a laser beam operator. Pay the minimums on every other loan except the one you have your laser set on. Here’s the bonus. You get that super rad feeling when you blast one off your list of three, four, five months from now. You could cross one off your list. I love crossing things off. How cool is that? Adam says if you follow his blueprint that you can get rid of your entire student debt in two or three years.
Hack #4: Use Real Estate
Hack number four. This is another reason why Adam Carroll and I so agree on so many things. He’s the guru in how to get rid of your student loan. His hack four uses real estate to wipe away debts in your mid-twenties. I swear to God he said that. I’m reading it straight from our article. This is not me. Here’s a big fact. 17% of student loan borrowers are still paying back their loans in their 50s. Let’s see if we can get rid of that by getting into real estate. If buying a home is in your future anywhere, consider a strategy that will help you build cashflow, equity and the bonus, knock out your student debt. Here’s how you do it. We’ve talked about buying a duplex in our house hacks. Get a duplex and then you’re there as your primary residence and you only have to put 3.5% down. Find a unicorn agent, get out there, get your duplex, live in one side, rent the other side, do a little home improvement, gain some equity, get some cashflow.
By renting one side of the duplex, you’re going to have that cashflow and you’re going to be able to pay down your debt and that is not all. Here’s a little trick for you. Assuming that you do get lucky and you buy the place and you build equity. After a few years of the purchase, maybe you could do a cash out and refinance, take money out of the property and pay off your student loan with it. That loan has lower payments and the interest on that loan is tax deductible. That sounds super rad. Giant disclaimer. Everyone just thinks that’s the greatest thing in the world to do, this is a warning. Home equity lines have big risks. Do not go out and follow this path and do it on your own and say, “Sidoni told me to do that.” It’s like a super weapon in the hands of a super villain. It’s a cool thing but in the wrong hands, it can cause mass destruction.
Be super careful if you’re even thinking about that. The first part of it, I highly recommend it. Get a place, get some cashflow and knock down your student debt while you build equity. It’s a great plan. Adam’s hack five, I don’t even want to talk to you about because it’s a tricky way to pull money out using cash advances and then use those cash advances to pay off your student loan because student loans cannot go under bankruptcy. Take the cash advances on those credit cards and claim bankruptcy on all those. This is not recommended by David Sidoni. If you want to figure out how to beat the system like a super villain, go ahead, research it, but I don’t recommend it. There are way better ways to do it.
Hack #6 And #7: Get A Side Hustle And Save Automatically
Hack six and hack seven. They’re going to sound familiar. Hack six is getting a side hustle. Hack seven saves automatically. I’ve heard that before. If you haven’t heard it before, head back to episode nineteen. That’s part one of this series. This is a part five on How to Financially Prepare to Buy Your Home. I’m doing it because you asked for it. Give the people what they want. I have one more big thought on student loans. If you’ve got questions about this stuff, good. You should. Email me those questions directly. That’s at www.DavidSidoni.com. You can look for The Simple Dollar, Money Under 30, Dave Ramsey, USAA, Adam Carroll, the Adam Carroll THE MA$TERY Podcast, NerdWallet, TheBalance.com and Listen Money Matters and Joel and Matt from the How to Money podcast.
It might not be the exact correct information for you, but information is better than ignorance. If you’d like more insights from me, if you want to get deeper into the house shopping stuff, if your finances are in order and you want more than just the money stuff, check me out on the Instagram. Also, there are bonus videos there, as well as the YouTube page, David Sidoni and the Facebook page, How To Buy A Home. I’ve got some new folks on the Facebook page. Thanks for joining. They came to us straight from the podcast. Here’s the final thought on student loans. Student loans seems big. It seems overwhelming. It seems like, dare I say, “A big scary dragon.”
The question is, was this whole thing worth it? Yes. I know it feels like you’re drowning in student debt and it seems like maybe the college degree wasn’t worth it. In many ways, step back, enjoy what you have in your life and realize in many ways it really was. Maybe all the facts and specific details, things that you learned in college are not going to be stuff that you use actually in your real occupation. The things that you’re going to be moving forward in your life. The principles, the disciplines, the workplace tools that you gained by having to do whatever it took to get that degree, that is where you get most of your value from college. I know that the average college graduate, they ended up making a million dollars more over the course of their career than someone with just a high school diploma. Forget those dollar stacks. There’s so much more that you got from your degree.
Furthermore, going to college has its benefits that they go beyond the financial. Money’s just money. Those principles and those lessons, they’re great. You can also think about lifelong friends. Maybe even career connections. It’s who you know. Maybe some even met your spouse there or if you didn’t meet your spouse, you met that one random person that’s going to be the greatest story of your life that you tell around the campfire until you’re 150. For some of you, maybe it was a great social experiment. Maybe you finally figured out a way to come out of your shell before you were 22 years old. The truth is a lot of you had a blast. Think of it that way every time you’re writing that check. Think of it that way every time you’re pissed off because your student loan is holding you back. I’m not telling you this because I’m an advocate for college. I’m starting to rethink the whole thing.
I’m telling you this so that you have the correct mindset moving forward for your own financial future. That was a place where you got to meet new people and embrace new ideas. No dollar figure can ever replace that. Regrets about the money you spent is only going to hold you back in your future. Let them go and think about all the positives that you got. I hope that I helped you slay your own metaphorical dragon. I promise to keep giving you the roadmap to be a dragon slayer. I promise that I’m going to keep giving you guidance that you want to help you figure out your own path. I probably should promise not to ever use the dragon metaphor again. I’m going to keep staying up late. I’m going to keep writing these things for you. My dog loves it. He sits next to me and says, “Dad, why are we yelling into a microphone at 3:00 in the morning for the people?”
If you got any value out of this, I ask you, please just take three minutes and write a review. Not for me, but for the other people out there that need to hear this message. Someone out there needs a guide and they have not found this because they’re not as cool as you. Let’s be honest. You researched, you searched, so feel good about yourself, but help them out by writing a review. The more reviews we get, the more people will find us. There’s another easy way. Share this. Share this with people you like. If you found value, share that value with someone else. You can be the hero to them and help them realize that they, like you, have the power to make this happen. If you’re a couple of years out or even three years out, reach out to me. I’ll help you find a great unicorn team that can help you.
I know the real estate industry. I know this, you don’t know this yet, but I know that they don’t want to help you until you’re ready to buy their product. Here we are building this revolutionary network of people and unicorn agents. We’re going to bring them together in this community. Let’s see if we can hook you up and start you on your own personal journey. Reach out to me because I believe in you and I know we can find someone in your area to help you. Maybe I can answer a few questions for you. I’ve been doing it for folks all over the country and you know what I say to them? I’m pretty sure you do, “You can do this.”
- Episode Nineteen – Past episode
- Broke, Busted and Disgusted
- THE MA$TERY Podcast
- Build a Bigger Life
- Build A Bigger Life Blueprint
- Debt-FREE and Prosperous Living
- The Simple Dollar
- Money Under 30
- Dave Ramsey
- Adam Carroll
- Listen Money Matters
- How to Money
- Instagram – David Sidoni
- YouTube – David Sidoni
- How To Buy A Home – Facebook
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!
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