Adulting Finances

How We Paid Off $60,000 in Debt in 5 Years

August 5, 2017

Get Debt Free

Debt can be crippling, especially student loans. It takes what should be a time of enlightenment and freedom, and instead shackles you. And yet most of us consider it as a necessary step to adulthood.

I hope this post inspires you to throw everything you got towards getting free from student loans.

What’s wrong with just paying the minimum repayment? YOLO

The worst part about loans is not only do you have to pay back the amount you borrowed but even a small percentage of interest can do double the damage over time.

If you don’t care that lenders and the government are stealing thousands of dollars from you in interest, then this post isn’t for you.

However, if the numbers below make your blood boil, continue reading and I’ll share several actionable steps you can take to stop money leaks and pay down debt faster.

Student Loans - how much interest will I pay if I just pay the minimum payment

That’s right, if you had followed the normal repayment plan you would eventually pay over half of what you owe also in interest.  How depressing is that…

So, are you ready to save thousands of dollars in interest and get your freedom back?

The above snapshots in this section are from unbury.me. It’s a free tool and will help you better understand your situation and how to tackle your loans. Take 5 minutes and fill it out right now (trust me, you need to do this in order to grasp your situation).

Paying off debt isn’t glamourous. And there is no easy way out.

The government is not coming to ‘forgive’ your loans anytime soon.

You want to know the secret of paying off your student loans? Hard work, persistence and placing all extra money towards debt.

Ha! What extra money?!

The extra money you spent buying a beer with friends. The extra money you spent on that small getaway trip. The extra money you spent eating out or buying your morning Starbucks or your favorite athlete’s sports jersey. Yes, I’m talking about all those tiny amounts of money wasted on things that aren’t necessary for you to survive.

That’s what we did. We found where the ‘money leaks’ were and instead we channeled it towards debt. That meant no cable, no going to movies, no vacations (unless paid for). If the money wasn’t going to a necessity, we cut it. (Keep in mind, I felt like this was much harder for Dwayne than me. I’ve always lived with a no-need-no-buy unspoken life rule. To make this easier for Dwayne, he would reward himself sometimes with a small splurge so he wouldn’t go absolutely insane. It can be hard to cut off spending cold-turkey so you may need someone to help you work through what’s a necessity and what’s not.)

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The Best Way to Pay Off Debt Fast

For these examples, I used similar numbers to what we had for loans, interest rates and min. monthly payments.

Loan Examples

(Quick disclaimer: Please keep in mind these numbers are estimates. Also, I’m not a financial counselor so please use this info with common sense and at your own risk.)

There are two main strategies to pay off student loans.

1) Avalanche: This repayment strategy will save you the most on interest. Unbury.me allows you to organize your loans by high to low interest rates. After you’ve made the min. down payment on all your loans, take all your extra money and put it towards the principal of the loan with the highest interest rate.

For those new to the world of finance, principal is just the loan amount that you took out. So when you have extra money to put down after you’ve made your monthly payment (which includes principal and interest), you’ll want to make sure you choose the option to just pay off your principal.

The best way to pay off student loans is the avalanche method seen here

2) Snowball: The second debt repayment strategy is where you pay off the smallest loans first. This works well if you need some small wins for encouragement as you tackle your debt. Unbury.me also allows you to organize your loans with this method so you can see how much you would save (or not save).

If all your loans have similar interest rates, like most student loans do, you may want to do a mixture of the two strategies like we did. We tackled a few of the really small loans first in order to get us motivated to do more. After that, we chose the small loans with the highest interest rate and went with the avalanche method for the most part from there.

Snowball method is the other way to pay off debt

Stop Living Paycheck to Paycheck

There are two basic formulas for good money management:

1) Spend less than you earn.
2) Use the extra money to pay off debt or build wealth through investing.

Here are five steps to stop living paycheck to paycheck so you have extra money to pay off debt.

Step #1

Find out where your money is going now.

You can do this first step in a few different ways. Using Mint’s free budget tool would be easiest (though not always accurate). Or you could go the physical route, print out your bank statements and highlight every expense that was a need (you absolutely had to pay it in order to survive). If you can, break out your needs into categories (food, transportation, rent/home, work etc). Then calculate the average for each category to get a good idea of the minimum amount you’ll need to spend each month.

Ideally, your needs should only take up about 50% of your paycheck (this does not include debt payments). However, when we first got out of college needs accounted for about 70-80%. Most jobs increase in pay over time so you should eventually get to that 50% mark within two to three years. (If not, you could get a second job (which is what we did) or have less needs 😊)

Step #2

Create a budget based off of your findings in step 1.

We have an excel doc with all our needs listed with the monthly cost we are allowed to spend on each. (Mint comes in handy for tracking those categories.) If you go with Dave Ramsey’s method, you can get cash out each month and place the amount you can spend in labelled envelopes for that area and then only spend that money. Once it’s gone, it’s gone. Here are the areas we have on our budget:

  • Mortgage/Rent
  • Electric Utilities
  • Internet
  • Water
  • Food (around $300 a month)
  • Entertainment (only $50 and sometimes didn’t even spend it!)
  • Insurance
  • Tithes (10% of take-home pay)
  • Cellphones
  • Transportation/Gas
  • Home/Toiletries

We made sure our monthly costs (the list above) is half of our net income. The first few months of marriage, we only paid the minimum debt until we had $2,000 saved for our emergency fund.

After that, all extra income went to debt (except for when we had to buy a used car-paid in full with cash-and a few months leading up to buying a home so that we could put 10% down).

Step #3

Earn extra money. I mentioned this in previous steps but it’s so important.

Right out of college, since we couldn’t find full-time jobs we got several part-time jobs. And then when we did get full-time positions we continued some gigs to keep extra money flowing in.

Find a way to earn extra money. It does make a difference.

You may not feel like you have the time or energy to take on more but it’s amazing what you can do when you push yourself! Plus, let’s be honest, what are you doing during the 5 hours after work before you go to bed….watching tv? Please, do yourself a favor, get off the couch, and do something. The Internet allows you to market pretty much any skill or hobby so you can even have some fun with your after-work job.

For my side job, I’m a child entertainer for kids’ parties and my husband sells workout and nutrition plans.

You can find something.

Step #4

Check your bank account every week to keep on track. Once a month, determine how much leftover money you have to put towards debt and then make the payment for paying off additional principal right away so you’re not tempted to spend it elsewhere.

Remember, you should always have at least $2,000 in your account for emergencies only. And a good shoe sale does not count as an emergency.

Resist the urge to spend money on things you don’t need. Keep in mind, this is only temporary. Soon you’ll be able to afford that pair of shoes and buy them without the guilt of knowing that money should have gone to paying off student debt.

Dwayne and I didn’t stay consistent in the amount we put towards debt each month. Some months we just had a lot more extra money left due to random reasons (like our electric bill was lower that month, one of us got a bonus at work or we just cooked cheaper food that month). Those months, we would pay $2K-$3K towards debt. Other times, we only would pay around $500 extra towards principal if other needs (like car repairs) came up.

We also weren’t perfect in our spending habits. There were times we spent on wants. We just did it in short bursts and we always make sure at the very minimum we were able to put several hundred extra towards principal of debt.

Next up, my full guide on organizing your finances!
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Should I Consolidate My Debt?

Debt consolidation is when you take out a large loan to pay off all of your other debts so you only have one monthly payment from the large loan. There are several ways to do this and most likely it won’t save you any money. But if you are struggling to pay your debt on time and keep track of which payments you paid that month then debt consolidation might be helpful to you.

We never consolidated Dwayne’s student loans. By the time we considered it we were on such a roll with paying them off it wouldn’t have been worth it.

If you have a pretty solid credit score and you own a home, then you could take out a HELOC (home equity line of credit) to consolidate, which may give you a lower interest rate but should not stop you from still progressively paying off your debt. There are also other loan types you could get to consolidate but the HELOC may be the only one that could save you on interest. However, if you aren’t reliable paying off debt than don’t do the HELOC because a default on your payments gives the bank (or whoever you have the HELOC with) the position to take your home. So there is a risk in debt consolidation with a HELOC.

Should I Save for Retirement or Pay Off Student Loans?

It’s great that you’re thinking so far ahead financially.

On the surface level, you may think that it would be worth it to only pay the minimum on student loans since it has a lower interest rate than what you could possibly earn through a retirement account.

Before I dig into the math behind this, let me ask you a question. Is $20,000 a big deal to you? If so, than this scenario is most likely going to change your view about which is actually best to do.

In this make-believe, very rough draft scenario, I’ve created some generalizations for us to see if you should place your money in retirement vs paying off debt faster. Either way, in this scenario you will have over $1 million in your retirement account by age 60.

Let’s say you start out at age 22 making $30,000 annually (fairly achievable) and for simplification let’s assume that’s after tax. Each year you get a 3% raise (most likely you’ll get more than this but we’ll just ‘play it safe’).

For this scenario, you decide to only use 30% of your income (it’s not as extreme as our 50% but at least it does give us enough to play with).

In terms of student loans, I’ve kept it at $60,000 with a $429 monthly minimum payment and a 5.42% interest rate (this is pretty much the averages my husband had). Since unbury.me doesn’t allow incremental payment adjustments I also had to do some estimates on monthly payments.

In essence, you are paying the exact same amount of money.

retirement vs debt chart

Ok so it looks like pretty much the same trajectory but in the end you actually get $20,000 more in retirement if you pay off debt first before investing in retirement. Plus, be honest with yourself, are you really going to place that extra money in retirement in your early twenties? Probably not. So you’ll just end up paying more in interest, which doesn’t benefit you.

Additional Things You Should Know About Student Loans

There are a few more thoughts I’d like to suggest but they didn’t necessarily belong in any of the above sections.

1) Don’t forget to deduct interest on your taxes from student loans. You only get $2,500 (may change year-to-year) worth of interest you can deduct. But if you consolidate using a HELOC, you can deduct all interest on your taxes (as long as the loan is below $100,000 for married, filing together).

2) If you have kids or are the main income earner in your family, consider taking out a life insurance policy that will pay off your student loans if anything should ever happen to you. This may or may not be a good deal but it’s something you should still look into. Do the math and see if what you pay monthly would give you peace of mind without totally emptying your pockets and stealing from the amount that should actually be going towards paying off that debt.

3) There is no shame in getting help from family. If your parents are willing to pay off a chunk and then you pay them back, interest free, over a set period of time, then take it (as long as that won’t spoil your relationship with them). Keep in mind, you need to stick to a payment plan to pay them off. Just because they are family doesn’t mean you can get lax about paying off that debt…it’s still debt. And you especially don’t want to ruin your relationship with a family member.

Finally, check out, pin, and share this awesome infographic about paying off debt by PSECU, a Pennsylvania credit union.

Best way to pay off student loans fast

Don’t be fooled into thinking that your student loans aren’t stealing from you. Get a budget together. Stop money leaks. And pay off those student loans!

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