I'm Paying Off My Student Loans Using the Avalanche Method

I graduated college when I was 22, in 2021. I launched a marketing business right after, freelancing full-time.

My $70,000 debt total didn't scare me that much. In the first year after graduating, I put roughly $15,000 towards paying off these loans. I was left with $50,000 worth of debt.

Both of my private student loans had variable interest rates, and my federal student loans all had fixed interest rates. The interest on my private student loans was initially very low—2.3 percent and 3.2 percent. Over time, they increased to 7.8-8 percent before I paid them off. The interest on my federal student loans range in rate from around 2.5 to 5.5 percent.

I worked 70 hours a week, in the beginning, to get my business up and running, then scaled back to 50-60 hours a week for some time. As a business owner, I could scale my work quickly if I committed to it, which would allow me to pay off my debt within a few years if I kept my expenses low at the same time.

I knew that I would be able to pay all of my debt using the avalanche method.

I put surplus payments on the loan with the highest interest rate, which was one of my private student loans, and then once that loan was paid off, my goal was to take those surplus payments and redirect them to the next highest interest rate loan. I was going to continue doing that until all of my debt was paid off.

Initially, I planned to pay off all of my student debt by the end of 2023. But in July 2023, I changed my mind.

I decided to switch my business over from an LLC to an S Corp. An LLC is a business structure, and if you're a single-member business, you will be taxed as a sole proprietor. An S Corp business allows you to be taxed as a corporation, which gives you the option to put yourself on a payroll.

Essentially, I, as the one employee in my company, give myself a salary. The lower that salary is, the less I pay in taxes. This year, I would be on track to make around $90,000 after taxes, but instead, I'm going to be paying myself around $50,000 pre-tax, and even lower.

There are a lot of reasons why I chose to do this. To pay less taxes is one of them. Also, making myself the only employee in my company is going to give me a lot more consistency in my income because I'll know what type of paycheck I can expect every month.

I'm going to have less to work with for the rest of the year financially, which means that I'm not going to pay off my student debt in the way I initially hoped to. But I'm not mad at this, because I looked at all the interest rates on my federal student loans and some of them are very low, so it wouldn't make sense for me to aggressively pay off my loans by the end of this year.

It would, instead, make a lot more sense for me to direct extra funds to my investments, or to some of the goals I have that I want to accomplish, like moving out of my parent's house.

With debt payoff, there's a lot of pressure, especially in the finance space, to pay off your loans as fast as you can. But when I thought about the reality of it, I began to question: Is that what I want? And if I do that, what am I sacrificing?

I could have directed every single extra dollar toward paying off my student loans, but that would mean giving up all nonessential spending, which I personally believe is not sustainable. Other things like building my emergency fund after graduation wouldn't have happened had I put all that money onto my loans.

My current aim is to pay around $8,000 on my student loans in 2023. Then, I will continue to make monthly payments and put extra cash into them using the avalanche method. But I'm not going to be doing it as aggressively as I did with my private student loans.

Slowing down on my student debt repayment is a good reminder for me to do whatever feels best for me, and what makes sense for my financial situation because ultimately, nobody else is living the life that I'm living. I have to do what makes me feel good and what makes sense for me.

I currently have $27,360 in federal student loans remaining. This year, I'm back to working 30-40 hours a week. I know that if I keep my hustle, and keep my expenses low, I'll still be able to pay off my debt quickly using the avalanche method.

Grace Lemire is a business owner and content creator.

All views expressed in this article are the author's own.

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