How I Paid Off $55,000 in Debt in Just 3 Years
I know, I know - you’re probably thinking that this is just another crazy-sounding claim from someone who took out way too much in student loan debt while in college. Despite the outrageous title, I actually did pay off debt nearly equal to my annual salary over the course of just two years. I did it while working full time at a non-profit where I traveled all the time, did not earn overtime, and lived in a state that is notorious for its high cost-of-living.
It sounds a lot harder than it was! If you’re deep into student loans and want a way out - fast - keep reading.
My student loan strategy, like most, is fairly simple:
Put a plan on paper
Decrease expenses
Increase income
Put the money where the math says to
It took me a while to understand my finances. I didn’t even attempt to budget until I was in my senior year of college, and even then, I was terrified of spending money. I had no idea what it would be like to have a salary, work 40 hours a week, or try and make money on the side until I tried it for myself. If that’s where you are, don’t be too hard on yourself - everyone starts somewhere.
Step Zero: Accept the Reality of Your Debt
It hurts sometimes to wonder what my life might have looked like if I’d chosen a cheaper school, or worked more during my four years of college. One of the most important steps in my debt journey has actually been to forgive myself for making choices that - in hindsight - feel like they’ve crippled my wealth-building opportunities.
As it turns out, money is not the most important thing in the world. There are good reasons I chose a private college and good reasons that I chose to work for a nonprofit, even though I could have made much more in a for-profit industry. It’s okay if you’ve made choices you regret. And, it’s never too late to turn your finances around. As long as you understand your past mistakes, you never have to make them again!
Step One: Put Your Student Loan Strategy on Paper
I highly recommend learning how to build a solid spreadsheet, but pen-and-paper is a great place to start.
It’s important to take your exit package (if your school offers such a thing) and read through every page. If you don’t have an exit package, you’ll need to do some digging on your own to figure out exactly how much you owe and to whom. Most likely, you’ll have a mix of federal loans (both subsidized and unsubsidized) and private loans.
Chart out each loan amount as well as current interest rates - make notes of any that are variable rates. Depending on the economy and how low those rates are, you may want to prioritize those variable loans, because the rates could increase. My very first private loan had a variable interest rate, and it rose from 2% to about 8% in the four years I was in school - I refinanced that one with SoFi and got it down to just over 3% annual interest, with a $300 bonus for using someone’s referral link. You can get that extra $300 too, if you refinance a loan of at least $5,000!
Outside of just tracking, these numbers can help you identify which loans to pay off first. Of course, it’s critical to continue paying your minimums on all of them, but if you have extra money to put towards debt repayment, you can generally do that without penalty on student loans. There are two main methods - the Snowball Method and the Avalanche Method - and you can read more about those in Step Four below.
I generally check in on my spreadsheets every month to update the balances, but you can set any cadence that works for you. Monthly is nice because I can pay all my bills and loans at the same time I write in the balance for the month, and there’s no need to check everything again at another time.
Step Two: Decrease Your Expenses
This was easily the most critical step I took to make sure I could actually pay back my loans as aggressively as I did, and it all happened before I got into the part where I started making payments on my loans.
I committed to living way below my (humble) means so that I could prioritize getting out from under my crushing debt. I didn’t necessarily have a ton of advantages in this, but I did have the privilege of time - my new boss was very lenient on timelines so I could take my time finding a cheaper place to live.
Some people recommend a 50-30-20 budget, where half of your money each month goes to expenses, 30% is spent on wants, and only 20% goes towards financial goals like retirement and debt repayment.
This is not the right budget for anyone coming out of college with a degree and student loan debt!
In my humble opinion, anyway. This works for a lot of people because it’s so simple. The problem? This is how you live if you want to pay loans for the full 10-year term (unless you make an absurdly high starting salary).
That wouldn’t work for me. I wanted to get on with my life and start investing in things like a home and retirement. I didn’t want to live with roommates forever, either.
Hang on to your broke-college-student mindset for a little longer; you’ll be glad you did. Push the limits of your budget, and use every advantage you have to knock out your debt. Every small bit you do now will pay off down the road.
Here’s what I did right out of the gate:
Housing - I found roommates. My housing expenses were under 16% of my monthly income, roughly half of what most Americans pay.
Food - I was very careful to avoid food waste, took advantage of the snacks my office provided, and maintained a mostly vegetarian diet. I was spending less than $150 on food each month - mostly because I only went out to eat when I got paid to do so.
Paying Before the End of the Deferment Period - I was able to knock out a couple of smaller loans (roughly $1500) before they even started accumulating interest at six months after graduation.
Furniture - All I purchased in the first six months or so was a mattress and a thrifted $5 bedside table. I had moved across the country with everything I needed in my little hatchback, then embraced minimalism. I owned very, very little - in part because my roommates already had things like dishes and vacuums that I could borrow.
This is probably going to be a painful step if you’ve been living an inflated lifestyle for any amount of time. What I’ve found most helpful is to reset your routine entirely - rather than cutting things from your life slowly, go cold turkey. Cancel all of your non-essential subscriptions. Do a no-spend weekend (or week, or month). At the end of it, start your budget from scratch.
Add things back in slowly, and only if you feel like they improve your life. Experiment with flexible expenses like groceries and household shopping. See what it is that you actually missed during your no-spend challenge, and what actually didn’t matter much at all.
Building your budget from zero helps you to identify what you value most. Be sure to set your target number ahead of time and negotiate expenses until you’re firmly under that number.
I remember feeling pretty lost when I was planning my budgets in the beginning, not knowing what to expect. Here’s my actual spending on average during my first year out of college, on a salary just under $50,000. All percentages are calculated for post-tax income, so retirement and taxes aren’t factored in here:
As you can see, more than half of my income went towards student loans and after that, my car and rent expenses took out another third. That left only about $8,000 for everything else - including gas, groceries, and any emergency expenses that came up.
Obviously, I had a lot of advantages that made all of this possible. First, I was lucky enough to have health insurance fully paid by my employer, and it had fantastic coverage. Also, since I traveled for work monthly, I saved up tons of miles that I used to go to Portugal with a friend - it only cost me about $500 for that entire vacation. Otherwise, I wouldn’t have been able to travel at all. On that same note, I was gone about 25% of the year, so my grocery expenses were much lower than average.
Lastly, my rent was exceptionally low for the area where I lived because I had three roommates, and was lucky enough to like them. I didn’t have pets, a spouse, or children to take care of, making it much easier to control my expenses carefully.
All in all, this was what my life looked like for about two years. It’s important to note that I was extremely enthusiastic about making this work, so I didn’t feel particularly deprived of much. I spent a lot of time working on my side hustles and when I wanted something extra, I found ways to cover it with writing gigs or secret shopping.
That leads us to the next step.
Step Three: Increase Your Income
Intuitively, the less you spend, the less you have to make. This is hands-down the fastest way to increase your capacity to save money and see results. Even so, that isn’t always enough - and if you don’t have the advantages I did, cutting expenses alone most likely won’t get you as far.
Depending on your situation, you may even be paid too little to afford your bills. This is especially true if you are single and renting alone, have children you provide for, or live in an area with a high cost-of-living. On my entry-level salary, I couldn’t afford a studio apartment in California and the minimum payments on my car and student loans. At least, not without sacrificing retirement contributions andl emergency savings.
I cut my expenses as much as I could, but I knew that it would still take 3 to 4 years to pay off my loans at that rate. So, my next goal was to increase my income, starting with freelance writing.
Since then, I’ve tried out different side hustles with mixed results. Freelance writing, for example, can be seriously profitable - but not the way I was doing it at the beginning. I was barely making minimum wage on a lot of the jobs I did, and I knew people were making much more off of my work than I was.
I’ve had to learn how to pick the right jobs for me, and to be stubborn about my rates. I’ve also had to build credibility to get the kinds of rates that are worth my time.
If you’re just getting started, give the gig economy a try. Apps like DoorDash and Upwork are fairly quick to start, and you can get your first direct deposit in a matter of weeks. You can also give secret shopping a try - it’s not hugely profitable, but the small amounts for each job can add up quickly. You can also lower your expenses quite a bit if you take advantage of the free food! I got down to $40 for a month once, between paid travel, snacks at the office, and free meals from secret shopping.
Another Option?
I’ve learned a lot since I paid off my student loans. I spun my wheels for those two years, burning myself out and working constantly. It was never about the stuff - I lived without much excess and that was fine. But - I had no time. I felt lost and stressed, and I still wasn’t making the kind of money I had hoped for because everytime I took a day off, the money stopped coming in.
Starting a business would have been the smarter long-term move. It might have taken me longer to pay off this debt, but the magic of passive income has changed my life for the better since then! I have a how-to guide here, if you’re ready to turn your expertise into a profitable business.
Step Four: Put the Money Where the Math Says
Having all of your debts and options in front of you will be key to success here. To pay off your debts in the most efficient way possible, you’ll want to have the interest rate, amount, any minimum payments owed, and who/where the money is paid to.
There are a lot of materials out there on the snowball method and the avalanche method. In the snowball method - infamously preferred by Dave Ramsey - you pay all of your minimums and throw anything extra at the smallest debt. In the avalanche method, you prioritize the debts that have the highest interest rates.
With the snowball method, you start with the smallest loan - regardless of its interest rate. Supposedly, this makes it easier to stay focused and motivated because you’ll start seeing progress very quickly. Alternately, with the avalanche method, you start with the loan that has the highest interest rate.
I chose the Avalanche method for myself. A majority of my loans had the same interest rate, and I knew that I would save more money in the long run if I paid off loans with high interest rates first. Other big finance bloggers like Dave Ramsey will say to start with the smallest debt and work your way up, but the truth is, you will save money by prioritizing high-interest loans - this is especially true if you have credit card debt in the mix. You just have to stick with it, even when it doesn’t feel like you’re making quick progress.
You may want to just start with the loan that is nagging at you the most. I had one particularly large debt that was dreading - so I decided to pay it off first. I gave myself one year to pay off that $17,000 loan, and I managed my spending and income accordingly.
It was so satisfying to pay that one loan off so quickly, and it made me feel like the rest was a downhill battle. Sure I could have distributed it differently, but then I might have been tempted to change the goal or settle for a lower number overall. For me, this worked best.
Once you have all of your loans and expenses laid out, it should be pretty clear where you want to start. Begin with whatever costs you the most - this will most likely be credit card debt or variable-rate loans. If most of your loans have a similar interest rate, you can start with the smallest and build up to the bigger ones as your side hustles and income grow. Alternately, if you're extremely motivated, you can aggressively pay off a larger sum so that the worst is over.
In the end, it's up to you. If you’re still having trouble figuring out where to start, let us know where you are in the comment section and I’ll see if I can help!
x Rin
