I was fortunate enough to graduate from college debt free. Then I had to go and attend law school where I racked up $112,000 in student loan and credit card debt. So you can add this to the unremitting list of “student loan debt payoff” stories. I will admit 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.
The high income was the most important key to paying off my debt. Still, there were a few basic guidelines I followed that helped me pay off the debt.*
1. I Earned a High Income.
I can’t stress this enough. So many student loan repayment articles are about trying to make something out of nothing. That’s not what I did, and I don’t encourage it. Amassing $112,000 in debt (it could have been much more!) is not something that I would recommend if you don’t have at least a fighting chance of earning a high salary – ideally, six figures. Some people are going to say, I want more stories of people paying off high debt with low salaries! Me, I hate those stories. Those stories signal something went wrong.
So no, this is not a story about paying off massive debt on a low- or middle-class income. I make no apologies for that. I’m not selling a fantasy here. It wasn’t a string of luck and inheritances. I made a high income and I used that income to pay off my debt – end of story. Well, not quite the end….
2. I Reduced Student Loan Debt Before Repayment
Part of the reason I was able to pay back my student loan and credit card 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 student debt load offered to me (around $180,000), the calculus may have favored delaying the payoff further and investing more instead. Sprinting for a marathon-distance would be impossible; fortunately, I was only running a short distance.
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:
It was critical that I was entering a profession that offered jobs that would 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. My favorite debt payoff stories are boring because it’s a bad situation to end up with a lot of debt and a low income. Don’t accumulate so much debt that it becomes mathematically impossible to pay back!
3. I Used my Bonuses
For clarification, the 18-month time period is not the first 18 months I worked in my legal job. After law school, I had a grace period of six months after graduation before I had to enter repayment. This was in November, and I had started working in September. Even if I didn’t need to start repayment the year I graduated law school, it was a good idea to start repayment then because the next year my salary would disqualify me from deducting my loan interest payments in subsequent years.
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. What motivated me was that I wanted to be debt-free more than I wanted any more stuff or experiences.
4. I Plowed All of My Money Towards Student Loan Debt 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 (3 times my minimum loan payment). Then I would make periodic extra payments. I could have made a higher automatic payment but early on, I had a 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. 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 sending such large amounts 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.
5. 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 had $1,100/month left. 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 the value of this amount of money. When I was an entry level employee, I still maxed out my 401k. And I remember during that time wanting for nothing. Living the same way but with a lot more cash flow was easy.
Knowing that I could survive on less was invaluable knowledge to me. Had I thought I would have felt deprived, I wouldn’t have planned to pay off such large chunks of debt so quickly. Instead, I knew I could be happy with less.
I lived like a law student. I cooked at home, kept my 15 year old car, shopped at JCPenney to create my corporate work wardrobe. My fancy corporate handbag came from Target. I rarely shopped and, in fact, my apartment was unfurnished for my first six months working. I didn’t even have my own smart phone (this was back in 2012, young’uns). I was used to this lifestyle, and even though it’s been years since I’ve paid off the debt, it’s basically how I live today, albeit with a smart phone.
6. I Felt Like Everyone was in the Same Boat
I knew I could live on less, but I also had more expenses in this time period than ever before. I had medical expenses, a new wardrobe, a drastically increased rent. During this time, It helped that most of my friends were also paying back loans and lived similar lifestyles. A lot of my friends were supporting their parents with their salaries. It also helped that we worked 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 didn’t take my full vacation days until 4 years in (I don’t recommend this – I mean take a frickin’ staycation even. But forgoing expensive vacations does save money).
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.
How I Paid Off $112k in Student Loan Debt 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 was, 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?
*A version of this post was first published on my previous blog, The Give and Get. I am transferring all old posts to this new blog.