You’ve heard the success stories of people who pay off most of their debt, earning anywhere from $ 30 to several thousand dollars a year. Are you wondering if they can do it, why can’t I?
What’s the secret?
As a school counselor who took a student loan of over $ 42,000 and paid it back in 34 months, earning less than that amount per year, here are the steps that worked for us.
These inspiring debt-repaying success stories have things in common, and here are proven debt-repayment strategies (even if you’re earning a modest teacher’s salary).
1. UNDERSTAND HOW MUCH DEBT YOU HAVE
If you want to get out of debt, you know where you want to go. But before you can get there, you need to understand where you are on the money card right now.
As soon as I saw the options for repaying the loan and the total amount I would pay with interest if I had stuck to the standard plan, I was overwhelmed. I will pay for this degree for decades and it will cost me almost $ 100,000! Once I wiped away my tears and decided it wasn’t an option, I was ready to act and create a debt relief plan.
Writing down the following details helped me understand my financial situation and will also help you get started:
- Debt name: Who do you owe on each loan?
- Debt amount: What is the total loan amount?
- Interest: What is the interest rate?
- Minimum payment: What is the minimum amount to be paid each month?
Whether you’re using a notebook, spreadsheet, or printable debt repayment spreadsheet, gathering this basic information to understand your current debt situation is an important first step.
2. CHOOSE ONE DEBT TO PAY FIRST.
Instead of trying to pay off all my debts in one go, or trying to invest while paying off my debts at the same time, I have achieved great results by focusing on one goal, one loan at a time.
You may be familiar with the debt snowball and debt avalanche methods. I went with the debt avalanche method, but I know many others who have successfully used the snowball method. Both will lead you to the same debt-free place.
Whether you choose the smallest loan amount first (snowball) or go for the highest interest rate first (avalanche), the general idea here is to pay off the minimum amount owed on all your loans. except one! Set aside additional payments on this loan until it disappears and then move on to the next one.
After you choose a debt repayment method, change the list of debts in the order in which you want to repay them. This is your plan of attack to pay off your debt.
Then you need to find extra money to pay off that first debt.
3. CREATE A BUDGET FOR EVERY MONTH
Okay, I know budget is a word that people love to hate. But for someone who didn’t make a lot of money, a monthly zero-base budget was a critical piece of the puzzle. We couldn’t have “found” more than $ 42,000 plus interest in less than 3 years if our money hadn’t been carefully checked every month.
Once I saw the budget categories my money was spent on, I was able to find places to save money. Like most people, housing and food made up a significant portion of our monthly income.
To reduce our monthly expenses, we did the following:
- I bought a small old house to pay off my mortgage less than 25% of my salary.
- Used a meal planning worksheet to plan our meals
- Took the leftovers to work for lunch
- Used money back apps that pay you money like Ebates or Mr. Rebates
- Traveled in old cars, so we had no payment for the car
- Carpooled work with colleagues
- Traded with a satellite TV provider every time they raise rates
If you take a close look at how much money you make and where it goes, you will likely find places where you can cut too. This can actually speed up your goal of debt repayment.
4. SET A LOFT REALISTIC GOAL
Then you are ready to set a goal to pay off the debt. This may change over time, but that’s okay.
When I got to this part of the process, my consolidated student loans were with a 20 year repayment plan. From my first budget, I thought that the fastest I can pay them off is 8 years, taking into account my income. It looked realistic on paper, but it felt sublime.
Best financial goals:
- Specific enough so you know exactly when you will reach it
- Realistic based on your current income and circumstances
- Based on a deadline so you know when you are trying to reach a goal by
I ended up paying off my debt 5 years faster than I originally thought it was possible … so the debt solution doesn’t end there. If you really want to pay off debt quickly, there is more you can do.
5. START AN INCIDENTAL FATE TO INCREASE YOUR INCOME.
Budgeting can show you where you can save, such as monthly subscriptions, meals away from home, overdraft fees, or cable TV bills. The other half of the equation is to increase your income so you have even more options to pay off your debt.
Since our teachers’ income was in line with the established pay schedule, negotiating a pay increase was not an option for us, although it could be for others. I was teaching at a summer school one summer, but I didn’t do anything else as a part-time job. Knowing what I know now, I would like to.
Even though I am a full-time housewife with two toddlers, I continually find ways to make money from home to increase our family’s income and avoid paycheck to paycheck living. Most of my income came from:
I wish I knew then about all the possibilities of the side hustle and bustle even before I had children … when I had MUCH more time! Just think how much you could increase your debt repayment if you earned several hundred or several thousand dollars a month.
6. FIND YOUR UNIVERSAL MONEY SUPPORT.
Another key to success was building a community of people who were open to talking about money and in a financial position that I respected. During this time, I also found the Dave Ramsey Show podcast.
While I disagree with everything Dave Ramsey advises on getting out of debt, his advice prompted me to pursue our debt even more diligently. To paraphrase Dave’s quotes that really stuck in my mind at the time were:
- Live like no one else so you can later live (and give) like no one else
- If you don’t tell your money where to go, you wonder where it all went.
- The normal one broke. Be weird.
After I started listening to his show, my husband eventually joined the win. Our trips to work went from talking about music and sports to financial advice and debt-free shouts. Just after listening to his show, we started to make a zero-base budget, found more ways to save money, and began to believe that we could pay off debt even faster (despite our modest income).
7. AUTOMATE BUT FOLLOW PROGRESS
The last piece of the puzzle was automation, but still validation.
Automating your monthly payment ensures you don’t forget to pay your bill and pay the fine. However, no hands at all may not be the best option.
I tried to automate the additional main payment, which I decided to pay every month to achieve my goal. However, they could never get the right payment. They will take the wrong amount. They took it out with a delay of several days or weeks. After long tedious hours of talking on the phone, I finally canceled my automatic payments entirely.
I refused to let their glitches interfere with my goal. Thus, I manually made the recurring payment and the additional payment every month.
This glitch may have really helped, because the percentages I was seeing piled up whenever I logged into my account made me nauseous. It hurt so much … that I kept digging through our budget to find more ways to save money, pay off debt, and finally cancel those terrible student loans.
8. FIND EVEN MORE MONEY FOR ADDITIONAL PAYMENTS
You may be wondering how I went from 8 years old to 34 months. No, I did not win the lottery or receive a large inheritance. For us, the big difference came when we moved from “sort of budgeting” to having my husband and my husband have a real zero-base budget meeting before the start of each month. Together, we had to think about the costs ahead and set goals for our money before it went into our account. This has helped us become more proactive and even more focused on how we spend our money.
It was a revelation for me when I was actually digging through our credit card charges. We paid them in full every month, but instead of just putting a one-off $ 500 credit card amount into my budget, I actually broke it up to see exactly where all that credit card money was going. This realization made me and my husband think twice before swiping, and our credit card bills began to dwindle.
We also started using cash gifts on birthday or Christmas to pay off debt. Tax returns went to pay off the debt. We got so stressed that even though our friends made fun of us for not having smartphones, we stuck to our dumb phones and even gave up texting on our plan.
A little here and a little there – that’s a significant savings over a few years. By paying additional principal payments of $ 100–1,000 per month, we quickly reduced the principal instead of just paying interest and barely touching the principal.
DEBT DISTRIBUTION ADVERTISING
We haven’t stopped wasting money entirely. We still had our wedding by destination and took a wedding anniversary vacation at this time, but we made them small and inexpensive. We didn’t live in our parents’ basement or anything like that. But finding a place in our monthly budget for loan copayments ultimately came down to a deliberately simple lifestyle.
We learned a lot about our loans, interest and general financial position. We no longer borrowed and avoided the temptation to buy a big house, a house full of new furniture or the latest technology. And by creating a zero-base budget, we planned ahead of time how we wanted to spend our money, instead of just analyzing how we spent it after the fact, hoping it would go where we wanted it.
In the end, we paid over $ 42,000 in college debt in just 34 months. We saved about $ 27,000 in interest – almost as much as a new teacher makes in a year of employment!
Our next step is to ensure that our kids don’t end up in the same financial mess we had after college. Therefore, follow these steps if you are truly willing to pay off your debt, even if you have a modest income. The taste of freedom that comes with not being in debt to anyone is worth it.