I. AM. DEBT. FREE!
At long last! In my last update in April, I had paid off $30K in student debt out of $35K. That means, in just two months, I managed to save up the final $5K. My total repayment period? Just under three years; from July 2014 to June 2017. This puts me a little ahead of my planned date of August 1st, 2017, which I am just thrilled about.
It’s been a long road, but thankfully, due to early financial education from my parents and so much of their support, it hasn’t been a bumpy one. I didn’t pay off this student debt all that fast; plenty of rockstars out there have knocked down larger balances in less time. By paying off $35K in 2 years and 11 months, I averaged roughly $1,000 a month in repayment.
So, how did I manage to jumpstart these last two months, when I should still be short by a couple thousand? Well, I decided to take a combined $2,200 from my wedding and emergency fund accounts. I recently realized that I don’t need to have so much in my emergency fund at this time, and it definitely doesn’t make sense for me to be saving for something as silly as a wedding when I don’t even have my student debt paid off. Plus, I still have $1,000 in my emergency fund, as recommended by Dave Ramsey. I’ll be able to replenish those accounts back to their previous levels in just two short months, with significantly less stress than if I had stretched out this debt any further.
This blog was born the week I went from a $15K balance to a $10K balance, and it’s come a long way since then. There are a few things which have helped keep me doggedly on this goal:
Schedule auto-deposits on payday
By allocating money for student debt as soon as my paycheck hits my account, I’m never tempted to overspend. Even though I have a negative cash flow most months (which I’m working to improve), I’d rather overreach in my savings goals rather than save less than I possibly could. Money that stays in my checking account gets spent.
Adjust payment amounts alongside salary increases
As my salary grew, I made sure to increase my auto-deposit amounts, too. Why does this make such a big difference? If you can negotiate significant increases in salary, this will have a large effect on debt repayment. As a bonus, it will also decrease lifestyle creep. There are two ways to save more money: lower expenses, or increase salary. In my case, increasing salary was the easiest route. From the day I first started tackling this debt to today, I’ve seen a 50% increase in salary. It’s really a huge difference in terms of savings ability.
Increasing salary is great; lowering expenses is even better
I just said that increasing salary was the easiest for me. Imagine a 50% increase in pay, while also reducing monthly expenditures. Nice, right? A few of my salary increases at first were really small. I’m talking maybe an additional $50 a month. That’s great and all, but it didn’t help pay off thousands of dollars very fast. Instead, I realized early on that it was also beneficial for me to focus on cutting out a few hundred dollars from my standard expenses every month. Clothes shopping and eating out really added up when I was still living at home. The shift was tough, but it enabled me to increase my payments from $300 a paycheck to $400 and eventually $600 in that first year.
Break down large goals into smaller ones
The idea of paying off $35K was just too daunting to me at first, which is why I focused on $5K increments. A goal that is only a few months ahead is far easier to aim for than one that is years ahead. The number and size of the smaller goals don’t make a huge difference; everyone has a limit that they’re comfortable with. Now that this debt is out of the way, I’ll be treating my savings goals in a similar fashion.
Throw any unexpected windfalls at your debt
The most relevant example is your tax refund. During this time period, I had two tax refunds that were greater than $1K; all of which were redirected towards paying off student debt. If I had extra income from side hustles (which I assuredly do not), trust me, they would’ve been thrown at the balance, too.
Above all, don’t get discouraged. There are so many people who treat student debt as good debt; don’t get caught in that. Imagine not having any financial obligation to anyone… there’s no better feeling than being debt free. I’m so happy to have this huge financial hurdle out of the way, so I can focus on more important goals like becoming financially independent.