In 2016, I paid off $12,824 in debt.
I'm not making a six-figure salary, rolling in money or anything of the sort. I had some savings, set some goals and worked hard. I'd love to show you how I paid off as much debt as I did in one year — maybe it'll help influence your goals for debt repayment too!
Here's where things stood at the beginning and end of the year:
Total Debt: $21,265
Loan Balance: $8265, 3.5% interest rate
Loan Balance: $13,000
- Loan A: $1,578.68, 6.55% interest rate
- Loan C: $1,050.52, 4.25%
- Loan D: $4,794.98, 3.15%
- Loan F: $5,574.54, 6.55%
Minimum Monthly Payments
- Car: $166
- Student loan: $200
Total Debt: $8,441
Paid off April 2016
Loan Balance: $8,441
- Loan A: Paid off September 2016
- Loan C: $880, 4.25%
- Loan D: $4,001, 3.15%
- Loan F: $3,560, 6.55%
Minimum Monthly Payments
- Car: $0
- Student loan: $169
Total Debt Paid Off in 2016: $12,824
What I Did
In January 2016, I read a blog post from a personal finance blogger* about how having lots of money in savings (which I had) was really doing me no good if I had loads of debt (which I did). It talked about how I’d be better off using that money to knock out my debt faster.
Related: Perks of Paying Off Debt Fast
Oy. I never thought of that.
For a year, I had saved up probably $4200 to pay cash for a new (used) car. I was diligent in putting that money into savings, but when the time came to buy my car, I decided I could handle a $166/month car loan instead. Which I could, financially. But mentally, I hated it.
So I did some math and decided to make a change.
Like, a big change. I took $5300 out of savings, leaving me with a $2000 balance. I didn’t love the idea of such a small emergency fund, but I told myself I’d build that back up, once my car loan was paid off.
Note: Some folks say it’s fine to keep your emergency fund at $1000, then pay off your debt. Well, that’s up to you. For me: no way, José. That’s not enough savings for me to sleep well at night.
* I tried super hard to find the original blog post to link back to, but alas, my internet detective skills have failed me (which is rare).
Phase 1: Snowball Debt Repayment
I decided to pay off a huge chunk of my car loan. It had the lowest balance, therefore it’d be the easiest to pay off. The sooner I paid it off, the sooner I could snowball those regular monthly payments toward my student loans.
I went to the bank. I wrote the teller a $5300 check. I told her to put it toward my loan. (I really could have used someone holding my hand at that point, btw, but I knew it’d be worth the leap.)
Between that HUGE check and my regular monthly payment for January, my car loan was down to $2800.
Over the course of four months, I worked, hustled, went cash-only and put my tax return toward the balance, too.
I knocked that sucker out. I paid off my car loan on April 4.
I wrote the teller my final check for $582 and it was the least exciting experience of my life. (But seriously, exams in college have been more thrilling.)
As eager as I was to pay it off, the real world just functioned as normal — no fanfare, no confetti, no balloons. The teller did say something nice, but I forgot it. I was expecting something more. But whatever.
I texted my best friends the good news when I got back to my car. It takes a village.
May was the last month I worked my weekly shift at a local coffee shop (Yes, I only worked there for four months). I went back to using my credit card (and paid off the balance each month, per usual) and bumped my spending budget back up to what it had been before January.
It was worth temporarily cutting back my budget and working a second job to pay off my car, but I needed the normalcy back. Balance, y'all.
Related: Find Out Where Your Money Is Going (+ self-assessment workbook)
I spent May and June building up my savings, and then — then! — I rolled my efforts into tackling my only remaining debt: student loans.
Guys, this is when things got exciting.
I started putting more and more toward my student loans each month:
- Minimum student loan payment
- Extra payments
- $166 — what what was my car payment
- Side hustle — coaching, babysitting, etc.
Phase 2: Avalanche Debt Repayment
In order to save the most on interest over time, I decided that anything extra toward my student loans would go toward my highest interest rate loans first.
I started with Loan A, the highest interest/lowest balance. Then, once that was paid off, I put extra payments toward Loan F.
Helpful Tip: Once I paid off Loan A, I asked Nelnet (my loan servicer) to put the minimum monthly payment from Loan A directly toward Loan F automatically. (I also saved the online chat conversation, just in case. Then I checked in the following month to make sure it went according to plan!)
Here’s what I paid in toward my student loans each month:
In short, here’s what I did:
Phase 2A: Snowball Debt Repayment
Paid extra toward car first: lowest balance, regardless of interest rate
Paid off car, then rolled payments into student loans
Phase 2B: Avalanche Debt Repayment
- Paid extra toward student loans, putting extra monthly payments toward the highest interest/lowest balance (Loan A), then the loan with the next-highest interest rate (Loan F)
- Once I paid off one student loan, I asked Nelnet to put the minimum monthly payment from Loan A directly toward Loan F automatically
How I Did It
I set goals.
My goal was to put at least $450 a month toward my debt.
I write out my goals, especially financial ones. It helps put my daily spending in perspective. If I have a goal of cutting out $100/month to put toward loans, it makes it “easier” not to spend money on random crap at Target. I can walk away knowing that I’m achieving some larger goal with my money.
It’s delayed gratification, since I won’t be debt free for over a year, but I’m shooting for long-term goals, which are affected by short-term spending decisions.
I cut back on spending.
From January through April, I cut out probably $100 a month from my regular budget and put that toward my loan payments.
After that, I went back to my normal budget. Debt repayment can be hard, so you can’t push too hard for too long or you’ll lose your mind (oy, another story for another time).
I side hustled.
I worked worked worked.
I have a full-time salary position, but in addition to that, I picked up a side gig working at a coffee shop one night a week. I earned anywhere from $150-$200 a month.
I babysat. I house sat. I cat sat.
It was all temporary and short-term, but it helped me reach my goals in less time.
I went cash-only.
To limit my spending, I went cash-only from January through April.
Now, I went all “extreme” with how much money I allowed myself to spend during this season, and I wouldn’t recommend cutting your spending back as much as I did. Honestly, it hurt my social life — and it was already winter, so the blues were out to get me.
I withdrew $60/week in cash: $25 for groceries, $35 for everything else.
If I didn’t have the money, I said “no” and went without.
I was disciplined.
I made sure to go in and make extra payments on my loans at least once a month. Once the minimum monthly payment for my student loans was withdrawn automatically (it’d show up on my Mint account), I’d go in and make my extra loan payment. Seeing the automatic payment in Mint was my “trigger” reminder to pay the extra amount each month, so I didn’t forget.
Every time I got a paycheck from the coffee shop, I immediately made a payment toward my car loan. That’s the reason I picked up the side job, so that’s where that money would go.
My Goals for Paying Off My Debt
My method of paying down my student loans may not work for you, but it’s surely working for me. I plan to be debt-free by May 2018.
With a goal to put $500-550 toward my student loans each month — including any income from side hustle, tax refunds and cash-back on my credit card — I should get there.
My advice: make a plan, set a number and stick with it.
Do you have a game plan for paying down your debt? What are some tips/tricks/methods you use to stay on track?
If you’re lost and need someone to help you determine your goals and make a plan, I’d be happy to help.
Related: Perks of Paying Off Debt Fast