Goodbye Debt

I graduated college with a couple of loans and no job to go to. Lucky for me, my parents let me move back in with them for a few months until I found my first real job and moved out on my own. To make the move, though, I had to borrow more money (that whole spend money to make money thing, right?).  I was fortunate that I had a month of work before my student loans opened up for repayment, but with no car, no furniture, and plenty of bills to pay, I wasn’t really excited about paying off my loans any faster than necessary. 

I knew I would be hurting more in the long run if I didn’t come up with a strategy for paying off my debt. I figured, now that I’m debt free, I’d share some of my tips and my struggles. I do recognize that everyone’s situation is different, but maybe my story can inspire a new idea for someone else. 

Since I started my career with negative dollars, setting up a budget for the necessities was imperative. I set up a monthly budget based on two paychecks a month. I started by factoring in only the essentials (i.e. rent, bills, food). Once those costs were written down and subtracted from the monthly total, transportation came next. I didn’t have a car, and I knew I wouldn’t be able to finance buying or leasing one right away. I ended up relying on the bus for several months, which wasn’t easy but also not impossible in sprawling southern Arizona. The price of a monthly bus pass was factored into my budget for transportation.

I wanted to make it okay to spend money on the things I enjoyed and on furnishing my place, but I also wanted to make sure I had enough for paying a good amount off of my loans each month and building a savings. I took the amount left after subtracting the necessities and transportation and worked with that number to find a compromise between savings, loans, and fun money.

The budget I started out with didn’t stay the same for long. Adjustments were made over time to add in the eventual car payments or reduce the amount spent in a particular category to align with my needs and spending habits. While I could have easily fudged my budget to keep taking away from the “important stuff” and add to the “fun stuff” (which I was guilty of at least a couple times), having my budget written out and tracking my spending was very important to keeping me (mostly) on track.

Lots of people will moan and groan when thy are told they need to do the math on their loan repayment, but it really is super duper important. I didn’t really break the numbers down for myself until a few months in to repayment, and once I did, I realized my strategy for repayment was all wrong. 

I had two student loans to pay off, each with a different interest rate. The higher rate loan was a lot smaller, and I figured I’d be fine paying off both loans equally (percentage wise). Once I did the math, I realized how wrong I was. I saved a pretty penny in interest by changing my strategy and paying off the higher rate loan first while only making minimum payments on the other. I also did the math on the frequency of repayment, and what I could save by making a couple of adjustments led to a whole new payment schedule.

If you are interested in crunching your own numbers, here are a few links that might help:

• Simple Interest Calculator  
• How Much Interest Will You Pay? Calculator   
• Loan Repayment Calculator

My loan repayment was due once a month, and I had the option, if I paid more than the minimum, to apply the balance to future payments. I didn’t take that option. It was nice (retroactively, mind you) to get a monthly reminder in my inbox telling my to take action on my loans.

I started out paying the amount I set in my budget on the same day each month. That is, until I crunched the numbers and realized a small change could save me another pretty penny. Since I was getting a paycheck every two weeks, I decided to make my loan repayments every other paycheck. Remembering payday was a lot easier than remembering a specific day of the month, and it reduced the time between payments to a set 28 days, instead of 30 or 31. Those few days of collecting interest on a higher balance do make difference.

While I didn’t figure this out right away, the best thing I did was set up a second checking account, and adjust my direct deposit to automatically split between two checking accounts and a savings account. The budget for my savings went straight into my savings account, my “fun money” went into one checking account, and the balance went into the other. 

It takes a lot more awareness to move money from one account to another to use it than to mentally move it from one budget to another. Keeping the money for bills and loan payments separate from the money used to by movie tickets makes it a lot easier to keep on target. I was able to set it up automatically with my company, but if there isn’t the option to do it directly with your paycheck, most banks will let you set up reoccuring automatic transfers between accounts.

The other rule I have had for most of my life is that once money goes into my savings account it becomes untouchable. I used my savings growing up to help fund college. The only thing I would dip into my savings for now are emergencies, and expensive plane tickets across the world (but that is part of the budget, so it’s okay!).

The last thing I had to do was give up on some stuff, at least temporarily, or delay acquiring things in order to keep on track.  I started the repayment process with quite a few restrictions, and they lessened as I got more established in my job and at home.

I mentioned before that I didn’t have a car or any furniture when I started my first job. To combat a not having a car I rode the bus. It was hot and smelly and I spent half of my free time getting around. I picked my first apartment, which wasn’t the nicest place, because it was the best option on my bus route to work. It was wonderful moving on from there, but it was affordable and met my needs starting out.

Because I didn’t have a car at first, the money I would have had to spend on car payments and gas allowed me a little extra to spend on furniture. That being said, I didn’t have a couch for 5 months and ate off a folding table for over a year. I bought the important things, like a bed, first, and did my best to stay within my budget.

In the end, these small hardships led to a great appreciation for what I had once things got better. When I could afford to buy my car and I didn’t have to ride the bus any more, I was all the more thankful for having it.

It feels pretty amazing to know I no longer owe anyone money. I managed to get everything paid off just two years after I graduated, and everything I did helped me get there. Had I been less stringent about making my payments, and paying more than I needed to, even if I had to say no to more exciting purchases, I would still be making payments now.

I also learned, over the course of the last two years, the importance of keeping track of your spending and assessing what you buy. Now that I’m debt free, most of the money that was going towards my loans is going straight into my savings account. Let’s face it, I did bump up my “fun stuff” budget just a bit, but the more important thing for me now is staying debt free.

Are you currently trying to pay off student loans or another kind of debt? Have you successfully paid off your loans? If so, what helped you get there?