How I Paid off $20,000 in Debt in 10 Months

As I reflect on this first major financial goal I achieved in my early 20s I can now see that there were many decisions that led me to achieving $20k of debt paid off in 10 months.

I feel that the word sacrifice is a term that scares a lot of people, especially when it comes to talking about money because we fear that we are going to be told we can’t have a life in order to save, pay off debt, etc. But I believe quite the opposite. First of all, let me rephrase the way you think about sacrifice. I think many of us see sacrifice as long term or forever, when in fact it doesn’t have to be permanent! Another thing I have realized is that we don’t have to sacrifice the things in life that are the most important, or bring the most joy. Instead we should aim to identify areas of our life / of our spending that aren’t at the top of our values, and there is an identified area we can “sacrifice” or spend less in, without it being so painful or heavy. This is the type of mindset that helped me achieve this major goal & here’s how…

 

Nearing graduation, I received notice from the student loan company indicating my options for repayment. At the time of graduation I had accumulated about $20k in student loan debt. The standard option lays out a 10-year repayment plan. If I recall correctly, the 10-year plan had me paying somewhere around $200 a month. Thanks to the financial education I had started to accumulate through attending free financial literacy classes on my campus during my senior year, I decided that I wanted to take a more aggressive approach towards paying off my student loans. So, I organized myself, asked questions and ran some basic numbers.

Below I will lay out the different methods, habits and mindsets I had in order to become debt free. It goes without saying, that each person’s situation is going to be different from another. So not each and every one of my methods is going to be exactly right for you, but I do believe if you are committed, that each one can have some sort of meaning in your life.

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Consumed Financial Education PRIOR to Increased Income

One of the biggest road blocks for many individuals wanting to improve their financial situation is that they don’t make enough money. And in that state they may see it pointless to acquire the education needed to improve their situation since they won’t be able to do anything with it. I felt this same way as a college student. I was working a $10/hr job for maybe 20hrs a week.. I didn’t have a lot of money. But I started attending these financial literacy classes because I knew that my income would be soon increasing as I graduated. This is truly the best decision I have ever made.. because once my income increased, I had a plan and I knew what I wanted to do the minute that paycheck hit my account. Unfortunately so often we think that increased income will solve our financial woes… and while it can help, without solid financial foundations we may soon find ourselves living paycheck to paycheck no matter if we are making $20k or $200k. So I encourage you to start educating yourself today, you’ll be surprised how much you may already be able to implement without increasing your income, and then once you do you’ll already be 10 steps ahead!

 

Cut down on big 3 expenses (Housing, Transportation, Food)

The biggest three expenses that most Americans face are Housing, Transportation and Food costs. In my debt payoff journey, I got incredibly intentional about significantly decreasing these expenses, which allowed me to make massive monthly payments towards my debt and knock out $20k in 10 months.

#1 Housing – I made the decision to move back home with my parents after graduation. Of course, this wasn’t ideal in my head.. but I also knew that it was not long term. If making this decision for just 1 year meant that I would become debt free, that was more than worth it to me. I also knew that housing at this point in my life was not the end all be all most important aspect of my spending, so this “sacrifice” was not as heavy on me. On the other hand I knew that travel was at the top of my values & how I wanted to spend my money.. so I continued to spend there and cut back in other areas like this. Full transparency – my parents allowed me to live at home for $0 and naturally other household expenses like groceries, furnishings, utilities, decor, toiletries, etc. were are significantly decreased. This was by far the biggest and smartest decision I made that gave way to having so much more take home income available to pay towards debt.

Now I understand not everyone may have the option to move home, but think about how could you cut your living expenses? “House-hacking” if you are a homeowner (AKA renting out a spare bedroom), renting with a roommate, etc.

#2 Transportation – Upon graduation I was still driving a 2001 Honda Accord that my parents so graciously allowed me to drive throughout my schooling years. I was on my way, earning a $50k salary and I was excited at the thought of finally being able to purchase my own, new car! I had seen many of my peers make this same decision after graduation, and it felt like it was just what you were supposed to do! Well again thanks to the financial education I was consuming in my final semester in college I slowed down and really analyzed this decision. I decided to take a different approach, and again thanks to my parents they allowed me to drive the Honda for one more year. Not only did I save myself a ~$500/ mo car payment by not purchasing a new car but car insurance also remained very low. Instead during this year of debt payoff I also strived to save 20% of my income, which allowed for a nice chunk of change to purchase a quality used car with cash a few months after achieving my debt payoff goal.

#3 Food – The final area of spending that I aimed to stay very intentional with was food. This meant shopping for groceries at discount stores like Aldi, being smart about my grocery hauls to save money and reduce waste. I also know from tracking my spending that eating out is not something high on my values, so I stayed conscious of that and instead ate at home, and used this money to travel.

 

Tracking My Spending

It is difficult to have control over our money, or make a proactive plan for our income when we don’t fully understand the current state of our spending habits. If you are in the beginning stages of wanting to create a spending plan (budget) and get your arms better wrapped around your financial situation, the first thing you should do is track your spending so that you have a very clear picture of your current state. Before I started to take a more proactive approach to managing my money (and before I had any sort of regular incoming paychecks) I strived to track my spending each month to keep aware of where my money was going.

This practice then allows us a solid foundation to build a forward looking, proactive plan with our money. Without tracking our past spending we start to “guess-timate” our spending and often that leads to frustration that a budget isn’t working… because it was likely never realistic in the first place! Learn more about tracking your spending here.

 

Savings BEFORE Spending & Automation

Before I started my “big girl job” out of college, I set a savings goal for myself (this included my savings account, investing & paying down debt). Many people may find themselves getting their paycheck, paying all their bills, seeing what is left (if anything) and then asking themselves how much they want to save. I challenge you to decide how much you want to save or pay on your debt and then see what is left, is it a realistic amount to pay your bills and live life? If not, you may need to reconsider your goals to make sure they are realistic and sustainable. After determining these goals for savings, I encourage you to automate these transfers to savings, investing or debt payments shortly after the day you get paid. With this approach your money comes in from your paycheck and immediately goes right back out, working for you… there is no negotiating with yourself and you don’t have to remember to manually do anything! This is what I did with my student loan payments. I decided my budget would allow for a challenging yet realistic payment of $1,500 to student loans. I also set this monthly payment to take place within 2 days of payday so that it was prioritized and essentially I didn’t even see that income or become tempted to spend it elsewhere!

 

Allocated Extra Money Directly to Debt

One of the best feelings is receiving some money that is in addition to your weekly paycheck from work! I kind of view this money as “surprise money”.. it is additional money that I had not necessarily known I was going to receive, and thus, didn’t have specific plans for it! In this case, since it was money that I had not already planned for- it went straight to my students loans. When I was making my plan and setting my goals for paying off my loans, I decided I would make monthly payments of $1,500 and this would come from my biweekly paychecks from my fulltime job. If you do the math, I paid $20,000 in 10 months, that meant my average monthly payment was +$500 of “unplanned surprise money.” For example, some of this money came from birthday money, bonuses, federal and state tax refunds, side hustle money, and savings bonds. Next time you receive some money that is outside of your typical paycheck, stash it away in savings or use it to pay some debt instead of going on a shopping spree, you’ll be surprised at how much you’ll come up with. In my case it totaled to about $5,000 and allowed me to pay down my debt 3 months earlier than planned!

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So there you have it- how I accomplished paying off $20,000 in 10 months.

The greatest thing you can do for yourself and your finances is creating a realistic and sustainable plan. Personal finances are personal and everyone’s situation is unique, do what you can and be proud of yourself!

– Malia