No one likes debt. It’s like a gloomy little rain cloud blocking out the sun. My personal gloomy rain cloud is abnormally large. It contained a car loan, undergraduate student loans, and graduate student loans. My goal is to pay off my debt as fast as possible by living minimally.
By living this way, I was able to pay off $15K on a $40K salary last year which included paying off my car!! On a $40K salary, after my health insurance, dental, transportation, retirement deductions, and taxes were taken out, my take home pay was around $26K. Here is how I did it.
Steps I took To Pay Off (Some) of My Debt
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Getting a Better Job
At the end of 2015, I went from a job paying $10.50/hr to one paying a $40K yearly salary. At about this time I found a great budgeting program called You Need a Budget (YNAB). It teaches you how to budget to zero, live off last month’s income (called being buffered), and other tips for savings/debt. I am pretty much “buffered” because by the end of one month I can pay all my bills for the following month. The only thing I can’t pay is my extra debt payments.
In my monthly budget, I have really cut back on my fun money. Check out a free 34-day trial of You Need a Budget. This is how I figured out how to break down my budget. My expense percentages are: 10% fun/savings, 40% living expenses, 50% debt. My
boyfriend finance isn’t always happy about this because I do have to turn down some social events or eating out. However, in the long run, this is beneficial for both of us.
We also live in a paid-off condo (aside from condo fees and property taxes). Rent is only $400/month each and that includes utilities! If we were to move out, the MINIMUM would be around $800/month each PLUS utilities. I can make much better progress with the living situation we are in now. Of course, the downside is that we don’t have a yard and are waiting until we do to get a dog.
To help with my debt payoff process, I found ways to earn some side money. I sold items I no longer used or needed on Craigslist or on Facebook groups and I also joined survey sites like Swagbucks, Paid Viewpoint, and Mintvine. It isn’t a lot of money, but every little bit counts. Sometimes I would use my survey site money as extra fun money for the month. A big help was putting my tax refund and any 3rd monthly paychecks towards my loans.
Payoff Methods: Snowball vs Avalanche
A tip on paying off debt is to choose a payoff method. There are two common methods: snowball or avalanche. In the snowball method, you pick the lowest debt to start with. Focus on that debt by paying the minimum on all other debts and put anything extra to that one debt until it is gone. You then snowball that monthly payment into the next lowest debt. The benefit to this method is that you get small wins by paying off your smaller debts quickly which hopefully inspires you to continue paying off debts aggressively.
The other method is the avalanche. In this method, you pick the highest interest rate debt no matter how large or small it is. The benefit to this method is, that even though it may take longer to pay off a debt, you save in interest in the long run.
Both methods have their merits so choose the one you think will work best for you. For me, I used my own method last year. My car debt was neither my smallest loan nor my highest interest rate loan, however, my student loan payments were to increase this year by the amount of my monthly car payment. If I had not paid off my car loan, my monthly cash flow would have taken a big hit. Without the car loan, I am able to relax a bit more.
My favorite resource for comparing methods and organizing my debt is a free site called Undebt It. It lets you (for FREE) organize all you debt and you can choose different methods to see what saves you the most money or pays off your debt faster!
My goal this year is to work on my two smaller federal loans with the highest interest rates. I recently opened up on my student loan interest. You can read my interview on Free Up Your Money here and my personal blog post here. It was hard to open up but I want to help bring awareness to the pesky student loans and their crazy interest!
I will post next year on my progress.
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Have you paid off a lot of debt recently? What tips do you have?
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