At 26, I was working hard and playing hard in Washington, D.C. I thought that I had everything under control—despite living practically paycheck to paycheck, having significant credit card debt and paying the minimum on my student loans.
Luckily, someone special woke me up to the reality of my financial situation. It took a lot of hard work—and some serious creativity—but three years later, I'm almost debt-free. Here's my story.
The Pitfalls of Free Money
I knew from the outset of my college search that my parents had limited funds, but that didn't stop me from attending the University of Maryland out-of-state to get an undergraduate degree in anthropology, and the University of Tennessee out-of-state for my master's in non-profit education.
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I didn't even try to get scholarships or grants; I funded both degrees with student loans—a common mistake. When student loans are being passed out, it’s like free money. You don’t grasp that you’re going to be 23 and earning a modest income— while trying to pay back loans that total twice your salary.
On top of that, I put some of my living and student expenses on credit cards—entertainment, phone bills, groceries—as well as anything else that I didn’t feel like I had enough money to cover. So by the time that I got my master's in 2007, I had accumulated tens of thousands in student loan debt, and almost $9,000 in credit card debt. I was just 24 years old.
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After graduating, I moved to Washington D.C., where I got a job at a non-profit that paid $50,000 a year—and lived as though I didn’t have any debt. I paid the minimum on my loans, and spent $1,400 a month for a studio apartment in the fashionable Dupont Circle neighborhood. I went out with friends a lot, spending $50 every weekend night, and attending countless happy hours.
I honestly—and foolishly—thought everything was fine.
New Romance—and a New Outlook on Money
Three years ago, I met Rob. Beyond his good looks and amazing sense of humor, he's very grounded and carefully considers every decision. Since I'm more spontaneous and free spirited, we balance each other.
One night six months into our relationship, I told him about my debt. I wasn't even sure what I owed, but I could ballpark it.
It wasn't exactly a deal breaker, but he didn't take it well. “That’s a lot of debt," he said. "Have you ever thought about how long it would take to pay that off?"
This was a guy who'd gone in-state, his parents had paid for school and he was in a great financial situation. At 26, he was already saving for a house!
That night, I went home and found the Department of Education's student loan site, where you can pull up your debt, and then I plugged that info into a spreadsheet.
It was a smack in the stomach: I owed almost $90,000.
My private loans had been split, so I had six different ones to pay. And even though I was paying $800 a month in minimums, at the rate I was going, it would take me 112 months (more than nine years!) to pay off my debt—and that didn't include interest. The loan with the highest interest rate was ridiculous at 9%!
But it was Rob who provided me with the biggest motivation to finally deal with my debt problem.
"If you pay off your student loans in three or four years, I will spend that time saving money. I won’t go out, and I’ll stay home with you," he said. "Then I will have saved enough money so that we can start building a life together."
How could I say no to that?
What I Did to Pay Off My Debt
My student loans ranged from $3,000 all the way up to $20,000 for a federal loan. On my spreadsheet, I categorized my debt from highest to lowest interest rates. The $9,000 in credit card debt was at the top, with the federal loans (at a 2% interest rate) at the bottom. My game plan? Tackle the debts in this order.
I started by making a budget for each of my expenses, and then made it a point to look at my bank account and my budgets spreadsheet once a week to categorize all of the money going in and out.
RELATED: Paying Student Loans 101
I also calculated my monthly expenses, and tried to determine what it would take to put $500 to $1000 extra each month—on top of the $800 in minimum payments I was already making—toward putting a further dent in my loans. Since I couldn't do it based on how much I was earning, I got creative:
- Rent I gave up my Dupont neighborhood studio and found a roommate in a cheaper neighborhood, which halved my rent.
- Cable I canceled my subscription, and streamed shows for free on my computer instead.
- Gym Rather than pay $95 a month for health club membership (D.C. gyms are expensive!), I started using the free facility at work, joined a running club on Meetup and streamed free workout videos online during rainy days.
- Phone Bill I limited my data usage and calls, and switched to a plan that cut my monthly bill by $30. I even told friends not to text me!
- Entertainment Instead of relying on happy hours and dinners out, I found free events on Meetup, like hiking trips and book clubs. Or I'd invite friends over for food, and they'd bring their own beer. I also only ate out if it was beneficial to my career, like networking lunches.
- Travel I went to Peru in the winter of 2010, and this year, I'm planning on Malaysia—both countries where the exchange rate is great. I stayed in hostels, and ate where locals do instead of going to pricier tourist spots. Plus, I put a little aside each month, so the expense is built into my budget and doesn't take away from my savings.
- Babysitting I used SitterCity to find jobs. You "work" for two hours, and then the kids go to bed, so you have downtime. I now have several families who use me all of the time—and they pay well.
- Focus Groups These sessions, where you talk about consumer products, pay anywhere from $100 to $250 for a couple hours. You can research groups that pay on Findfocusgroups.com.
- Odd Jobs I check the temporary gigs section of Craigslist for everything from back-end data entry to serving drinks at a party. There are also apps for finding quick, easy jobs, like Field Agent and Gigwalk.
- Mock Jury Jobs They are a ton of fun! I did one so that defense lawyers on a high-profile trial could practice trial strategies. It paid $200 for a day of work. Check Craigslist or google "mock jury" in your area.
- Mystery Shopping You pretend to be a customer at a hotel, restaurant or entertainment venue, and then report back to the company on your experience. (To try it for yourself, check out the Mystery Shopper Providers Association.) You don't earn money—the company pays for the meal or hotel stay—but this enabled me to still have nights out with friends and my boyfriend.
During this process, people at my company noticed what a hard worker I was, and I got five promotions, increasing my salary by $20,000.
With my cost cutting and extra income, I was able to reach my goal of putting $2,000 extra toward my debt each month. After paying the minimum on my student loans, I put all of my extra money toward my credit card, paying it off in about five months. Next I focused on paying off the private loan with the 9% interest rate. I ultimately worked my way through all of my loans in this manner.
Embracing My New, No-Debt Lifestyle
Before I decided to tackle my debt, it wasn’t something that I ever discussed with anyone. Now co-workers, bosses, friends, people I sort of know and even my boyfriend's mother ask: “How are you doing with your debt?"
It keeps me accountable.
Sure, I have to make sacrifices. Since I normally work an extra 15 to 20 hours per week in addition to my day job, I sometimes have to say no to making Friday night plans with friends. But I know that this financial burden will soon be lifted, and I can always hang out the next night that I'm not working.
And having Rob right there with me has made all the difference. Whenever I got a debt-paid-in-full letter, I'd put it on the fridge like an A+ paper, and we'd get a bottle of wine to celebrate.
I'm proud to report that I'm down to just $4,000 on my last loan. By February, with help from my tax refund and some of my bonus, it will be paid off—and I won't owe anyone a dollar.
Rob and I have talked about it for over a year, and I think we’re even ready to buy a house! He stayed true to to his word and saved $75,000 for a down payment, and once I finish paying my last loan, I’ll have extra money to put toward a mortgage.
Paying down my debt has changed the way that I see my money. As we start looking for a house, I now know there’s a difference between what you can afford--and what you can comfortably afford.
I'll take the latter.
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LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. The individuals interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services. LearnVest Planning Services and any third-parties listed, discussed, identified or otherwise appearing herein are separate and unaffiliated and are not responsible for each other’s products, services or policies.