How I Paid Off $45,000 of debt in 16 Months
At 22 years old I graduated from a top university with top levels of debt. In May of 2016 I entered into the corporate world knowing I had this huge burden of debt weighing down on me, but didn’t know what I was going to do about it. I started by searching on Pinterest “debt payoff” and “paying off student loans”, coming across a ton of different answers.
Somewhere along the way I found a blog that mentioned Dave Ramsey. While I don’t follow Dave’s plan now, he was a great resource for a plan and motivation to get out of debt and live below my means. I would spend hours every day listening to his podcast, convincing myself that if the people on his show could do it, why couldn’t I!
In this post I’m going to break down:
My Debt
What I did to pay off $45,000 in 16 months
What I would do differently if I could go back
My Debt
By May of 2016 I had racked up a wide variety of debt:
$28,000 of Federal Student Loans with interest rates from 3.5-8%
$60,000 of Private Student Loans with interest rates from 7-8%
$25,000 car loan with an interest rate of 3.5%
$4,500 of credit card debt
I started working at my first corporate job 2 weeks after I graduated because I knew I couldn’t afford to just be sitting around. In May of 2016 I was worried that I’d even be able to pay the $35 minimum payment on my credit card! I stupidly purchased a brand new car the previous December and had pretty much been living off of my credit card in order to make the car payment. Even prior to discovering Dave Ramsey’s Debt Snowball Method, I knew my first few paychecks needed to be dedicated to paying off the credit card.
I wasn’t stupid. I knew that every day I had the credit card debt the high interest was killing me. So that had to be the first to go. I had 6 months to figure out what my plan would be for the student loans since there was a 6 month grace period before you had to start paying them.
And that’s what I did. From May to July of 2016, every paycheck I received I made a credit card payment. The first week of July of 2016 I made one giant payment of $2,150 to kill that credit card debt.
Between those months, I found Dave Ramsey’s Debt Snowball Method, which was highly talked about on Pinterest. The Snowball Method is when you list out all of your debts from smallest value to largest value and pay them off in that order. With this method, you attack the smallest payment, putting every extra dollar you have towards it while making the minimum payment on the rest of the debts. When you’ve paid off the smallest debt, you move onto the next.
For me, this method would look like this:
Credit card - DONE
Car
Federal Student Loan
Private Student Loan
In my logical brain though, I didn’t think it made sense to pay my car off first because it had such a low interest rate (more on this in the What I would Do Differently section). So I started off with my Federal Student Loan and completed paying it off in September of 2017 while making the minimum payments on my other debts (Private Student loan $550/month, Car $380/month). 16 months after I graduated from college I had paid off $45,000 of debt!
What I did to pay off $45,000 of debt in 16 months
Please keep in mind that these steps were realistic for my life situation and could be considered as a privilege to some. Even if these actions don’t seem relevant to your lifestyle, the main take away I want you to have from this section is that SACRIFCE is needed in order to accomplish any goal you have.
Keep cost of living as low as possible
For me, living with my parents was a valid option for the first couple of years of post grad life. Rent in the Boston area is crazy expensive, and with my high debt I couldn’t justify spending over $1,000/month on rent. So I sucked it up and did the one thing I said I’d never do. Was it a perfect home? No, it was mentally hard to subject myself to a dysfunctional family on a daily basis. But I can honestly say it was worth it.
If living with parents is not an option for you, find a few friends to live with and live somewhere with the cheapest rent possible. Housing is the most expensive budget line item, so if we can keep that low as possible, we’ll have more money to throw at your debt.
Say no to any unnecessary spending
Create a bare bones budget and stick to it. Every dollar you can throw at your debt, the quicker you’ll be out of debt and free to spend as you wish. Does this mean deprive yourself? No! I highly recommend having some sort of value for fun in your budget every month. This doesn’t mean a vacation a month. This is more along the lines of make sure you are able to still have some sort of social life kind if money. A couple days of going out to dinner, budgeting to go to a comedy club, or buying a birthday gift.
During the 16 months I was paying off debt, I abstained from updating my wardrobe every pay check, packed my lunch every day for work, and rarely bought alcohol when I went out to eat. I did however save to go on a small vacation in April of 2017. Its all about priorities and values. The priority was paying off debt. I valued experiences and not things. Keep your debt at the forefront of your mind, but don’t make it the only thing your life revolves around.
Earn as much income as possible
I honestly can’t begin to explain how lucky I was to pick a major at 18 years old that earns a good income right out of college. I feel like it was seriously pure luck, because who at 18 years old really knows what they want to do and the impact that your earning potential has on your life. I started off my career earning $65,000/year. After being a broke college student, this felt like I was hitting the lottery. This salary plus living with my parents was the key to to being able to pay off debt quickly. However, the catch was that I commuted 100 mile a day and usually spend over 3 hours in the car every day. I did this for about a year before I found a company closer to home.
If you’re not satisfied with your salary or think you could earn more, you might want to consider looking for another company that will pay you top dollar during your debt pay off timeline. Or maybe this means getting a part time job on the weekends or nights. Or maybe starting a small business. There are some many ways out there to make money, take advantage of them to help you pay off debt faster!
Don’t wait for the grace period to be over
Start paying off your student loans as soon as makes sense for you. If you have to take advantage of the grace period, jump right in and START!
What I’d do differently now
Avalanche Method instead of Snowball Method
The Avalanche Method is when you line up your debts from highest interest rate to lowest interest rate, and pay off the highest interest rate first. The math just makes sense on this one. In the end you end up paying less money because of interest.
Pay off Federal Student Loans Last
With the ever changing political climate in the past few years, this just makes sense, Because I paid off my Federal Student Loans in 2016, I didn’t get to take advantage of the interest rate freeze and the ability to stop paying during the pandemic that has now last almost 2 years. During that time I could have saved more money for my emergency fund or save for investment properties. And now, student loan cancellation is always being thrown around. If you have federal student loans I would personally hold off on paying them until last if you can.
Invest While Paying off Debt
If your company offers a 401k plan with a company match, contribute up to the match!! This is free money, and the longer your invested, the more your money grows. If your company offers a 4% match, that means you should adjust you 401k contributions for every paycheck to invest 4% of your income. The company will give you and additional 4% on top of that. It’s part of your benefits, take advantage of it!
5 years Later
I graduated from college over 5 and a half years ago now. After I finished paying off that $45,000 of debt quickly, I decided to take a different approach to my personal finances. I refinanced my private student loan to a low interest rate and a shorter term (paying $767/month for 7 years), and started focusing on saving! I knew I would be having a wedding in a few years and wouldn’t have any help paying for it, so that was on the forefront now.
I finished paying my car off a few months ago in August of 2021, and can happily say that I have less that $25,000 of debt left in my name!
You’re allowed to change your approach. Personal Finance is PERSONAL! Do what works for you, evaluate and readjust along the way.
