How We Paid $110k in Student Loans in Just 4 Years

March 12^th, 2016 is a momentous day for the missus and me. Why? Because it marks our official debtfreeniversary: today we conclude paying off all the debts we owe. The bulk of our debt, $100,000 in student loans, we managed to pay off in just four years and before a single payment was actually ever due! So, just how did we manage to get rid of our debt? I’ll tell you…

Origin story

Our debt started in undergrad. I was fortunate to have a partial full-ride at school while my wife snagged a complete full-ride. That meant when we left college we had $30,000 in debt from me. When I had my personal finance awakening (I talk about it here) and started caring about my money my student loans became a priority. A few of them were above 5% interest and became the target of my excess cash at the end of the month. After a few years of working as a freelance writer/editor in the gaming scene in Seattle I had managed to pay off most of my high interest student loans using the avalanche method. That left only a few loans at <2% interest and I was excited to soon pay them off!

It was about that time that Mrs. Bill Stark began considering a return to graduate school. She wasn’t exactly satisfied with the work she was doing in the non-profit sector and since leaving undergrad she hadn’t really felt driven towards a purpose. We did some math and realized we could afford for her to go back to finish a doctorate at a local university but that we’d have to take out the maximum amount of student loans to cover the high costs of tuition. We could use our house fund, the down payment we were saving to use on our first home, to cover the rest of the costs. Total amount of debt we were looking at taking on? Approximately $100,000 spread over the course of 3-5 years.

All told we were looking at $110,000 counting what was left from my student loans, though the new debt was going to be at a much higher interest rate. We knew I would be the only one who could afford to work during that time because having one of us go back to school only to not get the most out of the education by working was a bad use of resources. Based on my salary at the time and the amount of debt we were taking on our math said we’d have the debt paid off in approximately 10 years, at which point we could start saving for a house again. If we couldn’t pay the debt off before it became due its high cost would be like having an extra mortgage each month: the estimated payment was nearly $1,000!

We were excited for her to go back to school and find a pursuit she could be passionate about, but I was definitely sad I wasn’t going to get my debt yoke off my shoulder by finishing off the last of my student loans as quickly as I had originally planned. It was also a bit of a heartbreaker that we wouldn’t be buying a house as soon as we wanted. Sure we could have qualified for an FHA loan with hardly any money down, but that wasn’t how we wanted to do things. The future looked bright but the debt was a rain cloud threatening our parade.

*GULP*

Early payoff phase one – start with what you know

With our goal of trying to pay off our debt as quickly as we could we first needed to understand what we owed and where our money went each month (for those paying attention that’s the first step in the 10 Step Plan to Your Financial Future). Fortunately we were already using the most powerful financial tool available having kept a budget for the past few years while we saved up to buy a house. We took a real close look at areas we could cut spending and came up with a few. We said goodbye to our expensive phone bill (it was well over $50/month and we chopped it down by more than half) netting ourselves a savings of $100/month or $1,200 each year, savings we would realize each year moving forward.

We also had a bit of luck in finding a new place to live. The apartment we had been in for a few years had raised the rent to 1/3^rd more than when we had moved in. The Seattle housing market was heating up, so we kept our ears to the ground for a better living situation. We found one when a friend happened to be moving out of a mother-in-law attachment a pair of elderly home owners rented out not far from where our apartment was located. It was a two bedroom apartment twice the size of our present one, and at $950/month it was much cheaper than the $1,100/month we were looking at paying. We hadn’t been planning on moving in the midst of our lease but the math made sense: if we found a sub-leaser it was just positive value, and even if we didn’t the cost of buying out our lease meant that after a year of living in the bigger space we’d pay off the difference.

I also discovered the home owner offered a discount of $50/month on rent if you paid by the 1^st of each month. That would bring the rent to $900, but I had an additional ace up my sleeve: the best career decision I ever made. With a fully stocked emergency fund I proposed a deal to our new landlords: we would pay a year’s worth of rent up front if they would take an extra $50 off rent each month. That dropped our rent of $950 all the way down to $850 for a savings of $250/month over the cost of our previous apartment. On top of that our new space was much bigger, had a yard, and included free internet bringing our savings up to $300/month. It truly spoke to the power of a fully operational emergency fund; because we had the emergency fund to pre-emptively pay rent we saved ourselves a significant amount of money equal to a return of about 6%. That let us put more of our income towards paying off our debts all because we had the emergency fund. Instead of paying rent each month we simply refilled our emergency fund until it was back at a level that could balance our living expenses for six months. And if a major expense came up while we were out the full amount we paid in rent? That’s okay! We didn’t have a monthly rent payment to make giving us time to get back on our feet.

All told during the time we spent repaying our student loans our expenses for the two of us living in the greater Seattle area fluctuated between $30,000-$38,000 each year. It took a lot of discipline and work to stick with that number and a monthly review of our budget to see how we were doing, but keeping our expenses low allowed us to put lots of extra money towards paying off debt.

Early payoff phase two – make some moves

Bargaining with a potential future landlord was making money out of a surprising circumstance. With our focus on paying off our debts we had a few more opportunities to take advantage of situations we hadn’t anticipated. First and foremost were a series of job promotions at my employer that saw me switch career tracks from the writing/editing world into technology. I was lucky to have some professional guidance push me in the right direction and combined with a hard work ethic my pay started to go up in ways we hadn’t anticipated when we had first calculated our 10 year repayment rate on our student loans.

Additionally when we had started we were certain Mrs. Stark wasn’t going to work while she was in school. After all, we reasoned, having her work could pull her attention away from her studies which was the whole point of her going back to school. What we found instead was that she couldn’t help but find opportunities because of her go-getter nature (there’s a reason she had that full ride for our undergrad studies). During her first year of school she was offered a part-time job working for one of her professors and she opted to take the position. It wasn’t about the money but the opportunity to learn from faculty more in-depth. She found a way to profit from getting a deeper education and wound up working gigs that would help her professionally or academically and were paid positions each year she was in school. There were a few times that put a lot of pressure on our schedules but thanks to our emergency fund we always knew we could have her leave a job because we weren’t relying on the income to get by. Instead the dollars from her jobs went straight to paying off principal on our debts.

The moral of phase two? If you’ve got debt to pay off start looking for means of increasing your ability to pay it off. If you’re not already start applying for additional jobs or jobs that allow you to move up professionally. It’s a good idea to do 2-3 job interviews each year even if you don’t plan on leaving your current position; knowing what people are looking for from folks with your qualifications and in your preferred position keeps you more competitive. Plus you never know: a different employer might be willing to offer you significantly more than your current place of employment. You can always turn down an offer, but you don’t know what those opportunities are unless you look. Make the effort to get out there and find out what possibilities exist for you (and if there aren’t any, start figuring out what you’re missing to get those opportunities and then start going after those things!).

Early payoff phase three – eye on the prize

By using our budget and getting creative we managed to cut some of our expenses and keep our overall cost of living pretty low. Through some hard work and a bit of luck we also managed to increase our income. With our goal of paying off our debts we were able to combine those two strategies to put all our extra money towards student loans each month. By the end of the journey we were both excited to do our budget each month knowing that each dollar extra beyond what we needed to live on would be going towards getting us out from under the yoke of student loan debt.

All told it took us four years to pay off our $110,000 in student loan debt. We paid off a chunk each year minimizing the amount of interest we accrued. In fact, we worked so hard to pay off the debt that we managed to clear it out before the first payment was ever even due on the graduate loans my wife had to take to work on her doctorate!

Why we did it

Why go through the sacrifices we did in order to pay off this debt so aggressively? When you’re an adherent to the 10 Steps doing the work is its own reward. Of course there were some tangible side benefits as well. By paying off the $100,000 in loans my wife took out for grad school before they even became due we saved ourselves thousands in interest payments. Each check we wrote cut directly away at the principal of our loans, lowering the amount we had to pay to borrow that money. In trying to convince yourself whether you should pay off your debt or not consider it this way: if someone offered to sell you $2 for the low price of $1, how many times would you take them up on their offer? The answer, if you’re not insane, is as many freaking times as possible! When you pay off principal on your debt that’s exactly what you’re doing: buying yourself more of your money back in the future.

We also got a big bump in cash flow meaning we now have more money coming in each month that isn’t spent that we can put towards what we want. My payment for student loans each month was approximately $140 while the minimum for my wife’s would have been $1,000. That’s $1,140 of cash flow locked up into a singular expense each month that we can’t put towards anything else. By paying off the loans we now have $1,140 each month to put towards things we want.

Finally, let me tell you what it feels like to get your net worth all in the black: it’s amazing. If we lost our jobs and burned all the way through our emergency fund I’m comfortable knowing we don’t owe money to anyone. The only cash we need to come up with each month is what it costs us to survive, and we can survive pretty cheaply. It will likely never come to that, but getting that $110,000 monkey off our backs sure makes me feel better knowing we’d be way better off if it did.

Next steps

In the 10 Step Plan we’ve managed to clear out the first few steps. We know what we’re doing with our money thanks to our budget, we’ve got our debts paid off, and we have our emergency fund taken care of. Next we’re going to maximize some of our tax advantaged savings programs (that’s how you can pay close to $0 in taxes!) which should be pretty quick with an extra $1,140 to save each month. When those are maxed out for the year we’re going to go back to putting our extra cash into savings to start saving up for our home again. All told thanks to our efforts to pay off our debts and a little bit of luck we managed to knock our target home buying date from 10-15 years down to 5-6. And when we get there? You’ll be sure to read about it here on the Bill Stark Blog.