How The Debt Started:
When my husband and I graduated in 2012 we were recently engaged, planning a wedding, and looking at our lives post graduation without a clue as to how we were going to pull it together and start “adulting.” For being newly graduated we actually thought we had it pretty put together. He had a job in software engineering which pays well and I had a job teaching. We really did think having good jobs would be enough to establish ourselves and leave us some room to plan a wedding, save for a house, and take care of those student loan debts that we admittedly hadn’t really looked during our undergrad. What we hadn’t realized is how much student loan debt we had accrued to get that diploma.
When We Realized It Was Time To Eliminate the Debt:
It wasn’t long after graduation that we realized we had a serious problem on our hands. We were trying to plan a wedding that we were expected to pay for ourselves. One night we sat down, opened the laptop, and mapped everything out in a spreadsheet and the numbers were alarming: we owed $100,000 in student loan debt. What’s more? Once the 6 month grace period was over (the time after graduation when you don’t need to make payments on loans) we were going to have minimum monthly payments of $1,000. I’m not going to lie to you, I cried hard that night.
How We Tackled The Debt/Advice For Others:
The first step to tackling any plan is to know what exactly you’re up against. When it comes to debts, you need to look at the hard numbers. Start by either writing it down on paper or typing it up on a spreadsheet but it’s important to do the following:
- Write down each debt you have. This includes all your student loan debt, credit card debt, car payments, personal loans, phone financing plans you might be on, and anything you have that needs to be paid off. No matter how small it is you need to get it down.
- Calculate the total debt you have. It might not be pretty, but you need to see what it is and let it sink in.
- Determine the interest. You should know what your interest rates are on each loan you have. Even if it’s 0% interest make a note of it, especially if it is a 0% interest for a limited amount of time. Note the interest rates on every loan you have and start to consider which debt is hurting you the most financially.
- Determine monthly payments. It helps to get a sense of which debts are costing you the most on a monthly basis. Once you know what each monthly loan payment is, calculate the sum total of monthly loan payments.
In the interest of full disclosure, I have our honest numbers listed in the table below. This can help you get an idea of what it means to map out your own debt as well.
The Debt Table:
|Loan Type||Principle||Interest Rate||Monthly Payments|
This is what my husband and I were up against when we were first engaged and newly graduated. We were entering the workforce with a debt that we were responsible for and if there was any hope of rising above this, we were going to need a game plan.
The Game Plan
First let me say that, more often than not, you are capable of paying off your debts. I realize there are some out there who are sincerely at the point of needing additional resources or financial support. However, most of us out there really can pay this off with disciple and the right plan. As overwhelmed as you may feel by your debt, whatever the sum total, know that you’re not the only person struggling with debt. It’s not something we ordinarily talk about so it can feel isolating. You’re not alone; trust me. You can do this; trust me.
Now that you know how far in debt you are, you need to map out a payment schedule. This is going to involve some math with ballpark figures. Let’s take my debt for example. With $100,031 total debt, to pay that off in roughly 5 years, we need to be making monthly payments of approximately $1,667.18 per month compared to the $1,071.50 minimum payment. To pay off our debt in 5 years, we needed to pay an additional $595.68 more than the minimum payments.
$100,031 Total Debt / 5 Years = $20,006.20 Debt Per Year
$20,006.20 Debt per Year / 12 Months Per Year =$1,667.18 Debt Per Month
$1,667.18 Debt Per Month – $1,071.50 Monthly Minimum Payment = $595.68 Additional Payment
Figure out what your numbers look like. How much are your monthly debt payments and when would you ideally like to be debt free? How much more money do you need to sink into your loans each month to be debt free?
Now the more complicated question: what does it take to get there? How can you create enough room in your budget to pay off your debts in your time frame? The hard truth of it is that there are two ways to create room in the budget: cut expenses and increase income. How to do that requires discipline and creativity.
Cut back your expenses
My husband and I really worked hard to live on a shoestring budget and it does mean getting comfortable saying “no” to people: No, we can’t go on a trip with you this year; No, I’m sorry, I can’t go to a concert this weekend; No, I’m happy ordering an appetizer and I don’t plan to order any drinks. Small “no”-s really do add up. And what I’ve learned is that by opening up with my friends about what I can and cannot afford to do really helped them pull back their own budgets as well. We learned to hang out more at our apartments rather than going out to a restaurant. Here is a list of some things my husband and I did to cut back on other expenses as well:
- Cancel cable and any unused streaming services (Netflix, Hulu, etc.)
- Cut memberships (gym)
- Take in a roommate (yes, we really did this as a newly engaged and married couple. Roommates half the cost of rent)
- Sell a car and learn to take public transportation (my husband and I got by on one car for years)
- Shop used (goodwill, consignment sales, facebook marketplace)
- Trim your internet package
- Trim your phone plan
Whatever you do, make sure it works for you. It takes a lot of discipline to cut back on expenses. Especially when you’ve become comfortable to living a certain way, pulling back can seem impossible. Keep in mind what is necessary and what is extra then go from there.
This is where I made the most impact when paying down debts. Finding a side hustle or temp job is a great way to make some extra money that is specifically set aside to pay off debts. Some side hustles to consider:
- Food delivery
- Online surveys
- Write product reviews
Whatever side hustle you choose to do, make an effort to put 100% of those earnings towards paying down your debts. What works for you as a side job really is up to you and whatever skillset you want to utilize. Once you’re debt free, you can choose to continue to work side jobs for extra money or not and enjoy your free time.
Life After Debt
It’s been a year since my husband and I paid off our student loan debt and the amount of freedom we have with our finances is worth all the sacrifice. We now have room in the budget to build a savings, to pay for things we enjoy, and really move forward to being financially successful. I’m not going to lie, those 5 years of hemorrhaging money at our debts was hard, but the payoff is liberating.
We’ve since added some “luxury” back into the budget: a gym membership, a second car, and upgraded our phone plan. We are also planning on taking some trips in the near future and importantly saving for it. There is no way we want to end up in credit card debt just after getting out of student loan debt. Learning good spending habits really has become a skill set because our perspective on money has changed for the better.