How I Paid off $112,000 in Debt in 18 Months

You can add this to the unremitting list of “how I paid off my student loan” articles. I will admit right now that my story is more boring than most.

My secret is that there is no secret: I got paid a salary that made it possible to pay off the debt while living a reasonable lifestyle. There are no magical tricks herein. My story is completely mathematically realistic.

There were a few basic guidelines I followed that helped me pay off the debt.

1. I Reduced Debt Before Repayment
Part of the reason I was able to pay back my debt in such a short time was that a year and a half is not that long a time to sacrifice. Had I taken the maximum load of debt offered to me, it wouldn’t have been feasible to pay off the debt for several years, and I likely would have given up the fast-paying scheme.

The more interesting articles are why I only accumulated $112,000 in debt as opposed to upwards of $180,000, which is the full cost of tuition, fees and approximate living costs at my law school for three years, without interest:

How I Saved $65k in Four Years for Graduate School

How I Saved Tens of Thousands in Law School

It also helped that I was entering a profession that offered jobs that could be high enough to pay off this debt in a reasonable time period. I worry sometimes that these amazing debt paying stories may encourage people to accumulate huge debt while preparing to enter low-paying fields. Don’t accumulate so much debt that it becomes mathematically impossible to pay back!

2. I Used my Bonuses
I was lucky enough to get two bonuses during this time period, both of which I put completely towards my debt. I didn’t even consider using the money to buy anything else.

3. I Plowed All of My Money Towards Loans First
After bonuses, I paid about $5,000/month for 18 months to pay off my loans. I had an auto payment of approximately $3,000/month (which was 3 times my minimum loan payment) and then I would make periodic payments when it looked like my bank account was too flush. I could have made a higher automatic payment but I get paid every 2 weeks, making some of the accounting more difficult than getting paid twice a month, and I had already had one disaster where extra expenses left me without sufficient funds to pay my rent and credit cards on time. I figured I’d give myself a little more leeway on the monthly payment.

Instead, I would make extra payments when my bank account looked high. There’s something about having large balances in my bank account that encourages me to spend. Low balances, even if they are artificially low – like the money is in a separate bank account – subliminally encourage me to spend less. So the extra payments served both to pay down my debt and discourage spending. Still  it was really difficult writing such large amounts to pay out of my bank, particularly after loan payments were already taken out. It was like ripping a bandaid off. You force yourself not to put it off and then when you get to it, you do it quickly and move on. If I had given myself the option, I would have left the money to wallow in my bank accounts. But I was determined to pay off my debt so I made sure that

4. I Knew the Value of Money
After maxing out my 401k, transportation, taxes and health benefits, and after rent and utilities, and paying off my loans, I was left with about $1,100/month. That covered the cost of my car, home goods, clothes, food, insurance – basically everything else. For a lot of new lawyers, $1,100/month is too low. (I knew a classmate that was renting a $7,000/month apartment after all).

But $1,100 was enough money for me and I knew it. When I was an entry level employee, I lived on just a little bit less disposable income, because I was maxing out my 401k. And I remember during that time wanting for nothing.

I was also used to living like a law student.  Knowing that I could survive on less was invaluable knowledge to me; I wouldn’t have paid off such large chunks of debt so quickly had I thought I would have had to feel deprived.

5. Everyone was in the same boat
I knew I could live on less, but I also had more expenses in this time period than before. The most difficult parts during this time were moving into and furnishing my apartment, buying a professional wardrobe, and paying off some hospital bills. Also I was much older and I was in a much better-paid social sphere.

It helped that most of my friends were also paying back loans and lived similar lifestyles. I also had a lot of friends that were supporting their parents with their salaries.  It also helped that we were all working such long hours our first year that we had very little time to blow through our money. (Some people though would take this as license to spend more).

I felt that I was able to maintain a fairly comfortable existence – just without any lifestyle inflation – and I knew that the time for watching my purchases was short. It was a small price to pay to be debt-free in 18 months.

***

So there you have it – I paid off my loans by reducing the loans I took out, making enough money to cover the loans I had and then just throwing money at the loans until they disappeared.

It was technically possible, and indeed my initial plan, to pay off the debt in one year. But I thought my life was becoming too Spartan. I had increasing visions of dying without having bought a sofa for my apartment. So I went on Craigslist and I bought a sofa and chair for $60. (frugal doesn’t change, natch).

Whatever your plan, being debt free is amazing.  I don’t regret any part of it (even law school, which is rare among lawyers).

Do you have any debt repayment tips?

How I saved $65k in 4 years for graduate school

It was spring of my fourth year at college and I was barreling toward graduation with a cool job offer with the federal government. This was pre-recession so this was more or less average, instead of exceedingly lucky.  And I, as a completely entitled millennial, pictured myself in the next 30 years of my life working in a gray cubicle under fluorescent lights at this office. And that frightened me (though I tell myself the sexual harassment was the bigger issue with that job).  When one of my friends excitedly told me she was going abroad for a year with some of our friends, I jumped at the chance.

This is not the story you would expect for someone who saved $65,000 for grad school in 4 years, making, at most, $44k  annually.  But it worked out. I spent one year abroad, where I saved nothing,  but in the other three years I got a job and hunkered down at the whole “being an adult” thing.

My first six months back in the States, I foundered about at temp jobs, though I still managed to save because I was living with my parents.  In my last six months, I was unemployed after having been laid off though I collected unemployment. But for a solid 2 years I was gainfully employed as a financial analyst.

I had read about 401ks and retirement early on and was appalled that I hadn’t started saving at the ripe old age of 23. My dad is an accountant! Why didn’t he warn me?

But my parents had always taught us the value of saving. I decided that when I was fully vested I would max out my 401k even while I was making $42k and then $44k a year.  Because the 401k is pre-tax, I saved a bunch on taxes by maxing it out, and I still had enough money coming in my paycheck for a pretty simple existence. And of course I was already maxing out my Roth IRA. With the company match, I was saving about $20k. Then I saved $5k in my Roth IRA. On top of that I saved a few thousand into my savings account and had saved a few thousand before and after this job while working odd jobs.  So that’s the basic arithmetic answer.

The aggressive 401k contribution was a method of forced saving.  After I made the election, I was far too lazy to do anything about it so I just had to adjust my spending.  Fortunately, I was naturally a hermit and a scrooge.  I was paying $800/month in rent, which was an amount negotiated by my family. That seems quite low for the Washington, D.C. area now, though I’ve known people to still find rent in that ballpark. But also this was ten years ago so this was low but now unheard of amount for a room in a 2-bedroom condo in the suburbs. I lived with my brother. We didn’t have a TV or cable. The furniture was sparse – scrounged from my office’s discarded furniture, Ikea and this sweet Jennifer Convertibles sleeper couch for $200.  (Selling that couch was a huge mistake).

We ate at home and I can’t remember doing a lot during these two years though I do remember studying for the LSAT.  I went to work and I went home and did logic puzzles and wrote essays.  On the weekends we visited our parents. This is a highly effective way to save money and be completely lame.

But the key was having the money withdrawn immediately.  When my sparse paychecks arrived, that was all I could spend. And in fact, I didn’t even spend all of it. I think a lot of people may have worked jobs where they weren’t making bank right out of college and took this as an excuse not to save any money.  Sometimes people think, “I need to make $X before I can save money.” If $X is barely over minimum wage, then perhaps this person is correct. But I think for many people, we can make changes and even if we aren’t making that much money, saving small amounts of money is valuable. And making it harder to spend money is an easy way of forcing yourself to do that.

I’m sure a financial adviser would say I was foolish for withdrawing from my retirement accounts to pay for law school, and I probably was. I’m not going to argue this was a smart thing to do but it was what I felt at the time was a good use of my money.  (And to be fair, I did such a poor job of investing my money, it really hasn’t grown much even as the stock market has soared). My approach was, rather than to take out max federal and private loans, I took out the max federal loans and paid the rest with savings and strategic withdrawals from my retirement accounts.

As I will show as I continue in this series, the money I saved in these two years would have a snowball effect to provide a solid financial foundation for the future.