How we paid off $105,000 of student loans in 3.5 years

I have something to tell you...”  It started with six simple words.  Few months into our engagement, my soon to be wife approached me these very serious words.

Hundreds of thoughts raced through my mind. Oh my goodness. Does she have a kid she never told me about?  Maybe an ex-husband?  What if she wasn’t really who she said she was?  

“I have student loans…”  and with these four words, all my worries went away.  It turned about she had about $18,000 in student loans she accumulated while working through nursing school.  

Now it was my time shock her. “Haha. No worries honey. I see your $18,000 and counter it with my $87,000!”  

Luckily, we had been introduced to Dave Ramsey just few months prior and getting our financial household in order had become our number one priority.  We were looking at approximately $105,000 in student loans combined.  But we were, as Dave Ramsey would say, Gazelle intense on destroying these loans as soon as possible. 

 
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1) Cut All Expenses to Essentials

When we initially start thinking about cutting back our expenses, the first thoughts usually are... 

“I need to cut back on my Starbucks coffee...”

“Maybe I should start getting my gas from Costco, they are 25 cents cheaper…”

“Instead of getting my lunch at Chipotle, maybe I should try Subway…”

These are all good practice.  However, when it comes to really moving the needle on our expenses, it simply comes down to three simple categories: housing, transportation and food

These are what I like to call fixed expenses because once set (i.e. house purchased, car bought or don’t have a meal system in place) they are very hard to to adjust. 

How many of us have a friend that drives a BMW 5 series but worry about the gas price. Or a 5 bedroom house but complain about the electricity bill.

If you can set these three categories right, you’d be surprised how little impact the $5 Starbucks coffee or the average gas price has on your budget.  

So once my wife and I committed to paying off our student loans early, these were the areas we decided to tackle.  

Housing - Instead of renting or buying the biggest house we could afford, we moved into a small apartment near my wife’s work appropriate for a budget conscious DINK (double income no kids).  We wanted to keep our housing cost around 20% of our take home pay.

Transportation - I made the mistake of purchasing a brand new Volvo S40 in my mid twenties which I had be driving around for about 5 years at the time.  My wife had a Honda Civic she had since college.  Luckily both were paid off.  We vowed that we would not even think about upgrading our vehicle until we were done paying off the student loans.  Because we didn’t have any car payments, the total cost of maintenance, insurance and gas was less than 5% of our take home pay.  

Food - This was the toughest category for us because my wife is a foodie and as typical millennial, the extent of our cooking skills was deciding to either select 30 seconds or 2 minutes on the microwave.  After much trial and error, I developed my $2 meal prep which not only cut our monthly food expenses to less than $500 a month but allowed me to become more efficient and healthier at work.           

 
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 2) Pay down Smallest to Largest Debt

“Pay off your debt from smallest to largest so you get quick wins. It’s a proven method to boost motivation.” - Dave Ramsey

This method is straight from the Dave Ramsey handbook.  He calls it the debt snowball plan.  The basic premise is recognizing the fact that we are more emotional than logical when it comes to making financial decisions.  Though paying off high interest loans first makes more sense, in reality if we don’t see progress we lose motivation and cease moving forward.  

I was pretty new to this whole concept so I did exactly as prescribed.  I listed out all our student loans from smallest to largest and applied all available money to paying off the smallest loan.  

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As soon as the first was paid off, I crossed it off from my list and moved all available money to the next one.  And truth behold, it worked!

Simple - This plan was ridiculously simple.  Given all the different interest rates, term and amount, we can make this pretty complex.  However, by focusing on smallest to largest, we didn’t have to spend any time discussing “what do we do next?”  

Motivating - Seeing the line across of the loan I just paid off (even though it was a fraction of the large amounts) was quite motivating.  I couldn’t wait to just destroy the next one in line!    

3) Anticipate Distractions! 

It was a common saying in the military. “No plan survives first contact.”

Very rarely does a plan work out exactly as initially intended.  Life happens and the key to success is how we handle those unexpected events while keeping the long term goal in perspective.  

To no surprise, we had some unexpected events in our Operation Debt Pay Down.  

Baby! - Whether we intended is debatable :), but we welcomed our first child into to world couple years into our debt pay down journey.  This had two major impact.  It lowered our income for few months because my wife was on maternity leave.  And typical of first time parents, we went on many ‘unplanned’ spending sprees at Target, Baby’s R Us and Amazon.    

Increased Housing Expense - Around the same time we had our son, we decided to cohabit ate with my parents as a way to get childcare help and ease their overhead cost as they were preparing for retirement.  This essentially doubled our housing cost overnight. 

Steady Income Growth - As both my wife and I grew professionally in our careers, our income grew as well.  I would be lying if I said I wasn’t tempted to grow our lifestyle as well.  “Hey we worked so hard the last couple years, how about that Hawaii vacation? We could definitely afford it…”  It’s ironic to say that our growing income was a distraction, but surprisingly it took a lot of intentional effort to continually prioritize the long-term goal of debt pay down.  

In Conclusion

Humans tend to overestimate what we can accomplish in the short-term but underestimate what we can accomplish in the long-run.  

When my wife and I look back at our debt pay down journey, we are in awe of what we were able to do.  If someone told us at the beginning of our journey we would have paid off $105,000 of student loans in 3.5 years, we would have laughed (very nervously).  But by focusing on the day to day progress, I’ll never forget the day I made that last payment and said goodbye to student loans forever.   

Do you have student loans?  How do they make you feel?  Are you thinking about paying them off early?  Take small actions today and you’d be amazed by your progress!