How We Paid Off More Than $100K in Student Loans in 4 Years

I often read stories of people reaching amazing goals and sharing their inspirational stories. I enjoy reading them because they often give me an emotional lift to keep me going on my own journey. Sometimes it’s people losing significant weight and keeping it off, quitting smoking or overcoming an illness such as cancer or diabetes. One common thread I have seen among these stories is there is typically a turning point that changes their perspective from one of inconvenience to absolute obsession.
Sometimes they hit rock bottom and sometimes it’s an inspirational moment convincing them that their current circumstances are no longer acceptable. Whatever it is, they make a decision that ‘enough is enough’ and come hell or high water, with a passion and obsession these circumstances must change immediately.
For myself, that day came in June 2011 when I received the notice of the full amount of my graduate student loans. I was very financially conscious prior to going to graduate school, so I knew what I was getting into, but something about seeing the final bill after graduation really hit home for me. I had six-figure debt for the first time, I was recently engaged and nearing my 30th birthday and I didn’t even own a home. I always thought of myself as pretty financially savvy. As a teenager, my father had me read personal finance books for my allowance. Books like ‘Rich Dad, Poor Dad’, ‘The Millionaire Next Door’, ‘The Total Money Makeover’ and ‘The Road to Wealth’ shaped how I viewed money in my high school and undergraduate years before I received my first full-time paycheck.
With that perspective, I was very well aware how holding that much debt could impact my future, just as much as someone who is significantly obese realizes how the weight can shorten their lifespan and make life much more difficult. In my eyes, debt (especially at higher interest rates) meant that today’s earned dollars were going to pay for purchases made in the past. The more debt one has, the less one is able to put a financial focus on the present, much less on the future. Add to that the idea of enriching someone else through interest payments (read: Your financial institution of choice) at the expense of enriching yourself.

Can you imagine if exercising today was only burning off calories from a burger you ate 10 years ago?

People have different theories and feelings on debt; how there’s good debt and bad debt and you can use other people’s money to leverage. It all boils down to your comfort with risk. For myself, I’m more risk-averse. I desperately wanted to leave the past in the past and focus my dollars on the present and even more on the future. Living without debt for me means freedom, flexibility, ownership, and choice. There’s an assumption of risk when you take on debt that there will be steady income to service that debt and the market will continue to rise. As we learned in 2009, those assumptions can have devastating implications.

If You Fail to Plan, You Plan to Fail

He-who-fails-to-plan-is-1For the first time in my life, I looked at my own personal balance sheet, added up my assets (i.e cash, investments, property), subtracted my liabilities (debt) and I was deeply in the red and I was embarrassed. Bringing this much debt into a marriage seemed unfair. Having children and buying a house seemed so elusive financially with that debt burden. That same day, I sat down with my fiancée and told her about my plan to pay off all debt in 5 years. It was not an easy conversation as I knew it would require sacrifices for both of us, but she fully supported me and we negotiated the sacrifices.
One of those sacrifices was our living expenses. My fiancee moved back to her parents’ home for a full year after we graduated to save money to pay cash for our wedding. We did not elope, we did not starve our guests, we simply agreed on a total cost upfront (including a honeymoon) and planned it far enough in advance that we could save for it all while still maintaining our debt pay down goals. So the first and most important aspect of our pay down program was planning. One of my personal favorite sayings is ‘If you fail to plan, you plan to fail.’

Money has a strange attribute in that it will wander off and disappear like a toddler unless you watch and monitor it carefully.

If you’ve ever had the experience of taking $100 out of an ATM to find that you only have $10 the next day and can’t explain exactly where the $90 went, you can probably relate.
Planning our finances in advance allowed us to live dramatically below our means. We were living comfortably on less than 40% of our combined monthly income. It’s amazing how much money we spend when we aren’t paying attention. One idea that I read from Dave Ramsey that resonated with me is that our monthly bank statement should reflect our personal values. If you were to print out your bank statement and organize the categories, are you spending the most money on the categories you value the most? Do you value eating out more than giving to charity? Bars/Clubs more than savings? These are the types of choices one should make before opening their wallet.

It’s a Journey Not a Sprint

With any new habit or regimen, you have to be patient and understand that success will not happen overnight. Planning can help you avoid failure, but adaptability, patience, and routine practice are what help you to succeed. The first time you create a budget, you’ll likely forget expenses that come up quarterly or annually. You’ll likely way overspend for Christmas shopping or completely under-budget for a vacation, some may even fall victim to retail therapy after a bad day. The important part about the process is that you’re playing the long game. We judge ourselves very harshly when we lose a small battle, but don’t lose perspective on the larger goal. Repetition, consistency, and resiliency are key. Notice the most serious runners run outside regardless of the weather conditions. I’ve always admired that level of consistency and dedication, but for them, it’s as routine as brushing their teeth. Build routines that last the test of time.
For us, it was sitting down together at the end of each month to budget and plan for the following month. We started slow and small. First by building a firewall. We agreed that during the process we would under no circumstances add additional debt. That firewall was an emergency fund, so whether we got sick, lost a job, or in our case Hurricane Sandy damaged our car beyond repair, we would not add any additional debt to the liability side of the balance sheet. Once we fully funded six months of expenses, we felt comfortable going full throttle on the debt.
Month after month of practicing to control your money, instead of having your money control you, creates a sense of discipline. You start to notice when you’re overcharged for small items, or you actually look at your cell phone bill detail when it’s a few dollars higher than it normally is. When you really start paying attention, that attention pays you back! Instead of becoming a chore (another budgeting meeting…), it becomes a challenge and fun (how much did I come in under budget this month?). You also have to celebrate the small wins. Paying off individual loans, coming in under budget for the month or making more income than you planned. It’s the small victories that keep you motivated throughout the journey.
I also don’t want to imply that it’s always fun and there are no roadblocks. We faced several roadblocks from the cost of living in Manhattan to Hurricane Sandy to job instability to intra-state and international moves. We also had our first child during this time and while I certainly wouldn’t consider him to be a roadblock, there are definitely costs associated with a child that weren’t factored into the original five-year plan. We paused on paying down debt to bolster our financial situation in preparation for his arrival and got back on track once we were satisfied.

Run Your Own Race

Compare-quote-200x300Finally, it’s important to note that in this time of social media and sharing information publicly, it becomes very easy to fall into the comparison trap. Prior to social media, television and magazines would model women and men whose body types, associated with less than 1% of the population, as the standard in order to push product. These days, with the prominence social media, it’s not only media and advertising companies, but the general public displaying their ‘highlight reel’ in vivid detail and portraying it as their everyday lives. It is particularly important to be aware of this for two reasons.
First, advertising is designed to engender an emotional reaction (i.e. You have a problem) and position its product as the solution. The more you recognize this, the more money you’ll save. Secondly, people have varying levels of income, expenses, debt, goals, and values. Money is still a very taboo and private topic, so it’s not wise to make assumptions on any of those factors. Statistics show that the vast majority of people handle money very poorly and the level of financial literacy to be very low. The comparison trap can be detrimental to accomplishing financial goals because it can alter one’s perspective on their own success by comparing to others with completely different circumstances. Run your own race and define success on your terms in your own situation.
So to sum up lessons we’ve learned in paying off six-figure debt, I would share the following:

  1. Know and be able to communicate your “WHY?” – What is it that will keep you running outside when the weather’s bad? Be passionate and obsessed.
  2. Start with a reasonable long-term plan (keep in mind life events)
  3. Break that down into shorter, specific goals (build an emergency fund by X, pay off loan #1 by Y).
  4. Develop consistent habits over time whether it’s a monthly planning meeting, checking your accounts daily or reducing unplanned spending.
  5. Get a trusted partner(s) that can keep you accountable (significant other, friend, relative), preferably someone that manages their own money well and celebrate the small victories together.
  6. Make budgeting fun! Budget for miscellaneous spending, but make it reasonable, so there’s no guilt.
  7. Expect roadblocks. There may be months where you cannot pay down any extra or you may have to pause your payoff plan. Life happens! That’s okay! Readjust the plan and continue forward.
  8. Run your own race. Everyone has different income, expenses, debt, goals, and values. Don’t fall into the comparison trap.
  9. Have a vivid picture of what success looks like. How will you feel the first month you have no more debt to pay? How will you celebrate accomplishing your goal? What are you going to allocate that money toward afterward?

We celebrated by sharing the good news with our friends and family and then starting this blog to share our story and continue the conversation.
I wish you the best of luck on your own journey.