By Jen Hayes for The Penny Hoarder
The second our wedding was over, my husband and I started saving for a down payment on our first home. We were excited about the prospect of being homeowners and couldn’t wait to move out of my parents’ basement.
However, after running the numbers, we realized buying a home at this point in our lives would be a terrible idea because of our massive student loan debt.
When we got married shortly after I finished graduate school and he finished his bachelor’s degree, we knew we both had high student loan debt. But neither of us had done a good job of tracking exactly how much debt we had accumulated. When we realized we owed a combined total of $117,000, we felt overwhelmed and anxious about our future. So we put our plans to buy a house on the back burner, and made the decision to pay off all our debt in just three years.
Why We Decided to Pay Off Our Debt Sooner Rather Than Later
We considered multiple options. We thought about lowering our monthly payments by extending them over 20 years. But we knew that with that option, we’d end up paying more than double what we owed. Compound interest is a nightmare! We also thought about staying on a 10-year payoff plan. But even then, we would pay more than $30,000 in interest. Our monthly payments would remain as high as a mortgage at $1,400 per month.
With either option, we wouldn’t be able to afford savings, a retirement account or an emergency fund. If an unexpected issue came up, we would likely put it on a credit card and become trapped in an endless cycle of debt.
We needed to find a better way. So, inspired by Dave Ramsey’s debt snowball approach, we committed to paying off our loans in just three years. This method isn’t easy—it requires hard work and sacrifice. But it will be well worth it.
Here are the steps we’re taking to finally get out of debt.
1. We made a debt repayment plan.
When my grace period ended after graduation and I started making my enormous monthly payments, I was miserable. I knew I would have debt, but I had naively believed a master’s degree would be my golden ticket to a high-paying career.
I was wrong. My first job after grad school paid so little that 50 percent of my income went toward my student loan payments. I spent a lot of time wallowing in regret, wishing I had made smarter financial choices. But I soon realized obsessing over my debt wasn’t productive.
What I needed to do was take action.
Combined, my husband and I pay $1,200 per month on our loans. To boost our debt payoff, we try to pay an additional $1,500 each on our own loans every month. While we have a joint savings account, we make payments on our own debt from our personal accounts. This isn’t always possible, but we still throw as much extra as we can toward our loans. We’re able to do this because we side hustle and scrimp like crazy.
2. We found ways to make more money.
I work in HR and my husband is a graphic designer. Neither of us works in particularly high-paying fields. But after gaining a year of experience at a low-paying job, I was able to land a job with a $10,000 pay increase and much better benefits. Recently, I received my first raise. I also started a blog and have been working on monetizing it.
My husband side hustles as well. He does freelance graphic/web design projects and works part-time as an assistant wedding photographer.
Together, our combined annual gross income is about $90,000. We have a small emergency fund of $1,000 and no other debt. And we’ve put saving for retirement and other funds on hold until we’ve finished paying off our student loans.
3. We practice extreme frugality.
Increasing our income wouldn’t make a difference if we didn’t manage our money well. We live an extremely frugal lifestyle and are currently on a three-year spending ban, which means we don’t spend money on any non-essential items.
I don’t spend any money on dinners out or other fun activities with friends. The hubby and I still get together with friends often, but we have found free things to do for fun. We also don’t have car payments because we both drive old cars we’ve already paid off, and we plan to keep driving these cars as long as possible.
4. We live with my parents.
The biggest way we save money is by living with my parents and only paying them $150 in rent each month. I realize many people don’t have this option, and I am extremely grateful to my parents for allowing us to live with them. That said, living with parents at the age of 27 isn’t easy, especially with five of us (my brother also lives here) in a small, crowded house—but it’s worth it.
The easy choice would be to switch to a 25-year repayment plan on our student loans and buy our own home. It would be much more enjoyable than our current living situation. But it wouldn’t be smart.
We’re one year into our debt payoff journey, and we have paid off about $30,000 so far. The sacrifices we’re making now will be well worth it when we finally attain financial freedom.
This post originally appeared on The Penny Hoarder.
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November 15, 2016