Meet Bernadette. Checking her student loan balance 10 weeks before her graduation and seeing the amount of interest she was paying was the catalyst to her paying off $73,000 of debt in one year on a household income of $140,000. In this interview she talks about what she sacrificed and how she did it step by step. Enjoy!
"I would have told my 21 year old self to stop spending so much money on going out trying to impress people that won't even be around anymore when you're older."
What was your "enough is enough" moment?
It was my last semester of graduate school in business and I decided to take a look at my student loans as I would be graduating in 10 weeks.
I had already accumulated over $6,000 in interest on 67,000 worth of student loans. I for some reason thought that interest wouldn't kick in until after I graduated (I clearly didn't understand the grace period situation) and I was furious with myself for allowing myself to take out so much debt without understanding the terms in which I took them.
That day I decided to learn everything I possibly could to pay off this debt as quickly as possible. I was hoping to leave my day job soon and run a business I had just started full-time. I decided paying off my student loans for the next 10 years was not an option.
How much debt did you pay off in total?
I paid off a principal amount of $67,000 plus $6,000 interest - I also accumulated some additional interest while I was paying it off. We started paying it off in Jan 2016, last payment made Nov 2016, 7 months after graduation in April.
How much income were you earning when you/as you have accomplished this?
My husband and I had a combined annual household income of ~$140,000. My portion of income at the time was primarily commission only.
What specific things did you do to save or pay off your debt?
I started listening to podcasts, reading books and watching YouTube videos of anything and everything about saving money. We stopped putting money in the savings account until we paid off debt. We depleted all our savings except for $1,000 in an emergency fund and took more than half our pay checks each month and paid it directly on the debt.
We paid off the debts smallest to largest (ranging from $5K to $20K loan) and gathered momentum each time a debt was paid. We stopped eating out, didn't take any vacations, cooked every day and took on extra jobs when we could (we worked as extras on TV!) We declined invitations to spending time with friends and family so we could save money.
We also had a family member move in with us temporarily to help pay for housing expenses. I also cut up all my credit cards and I still don't use or ever plan to use credit cards. I returned my leased car and we relied on one car for the two of us.
How did you keep yourself motivated?
I started posting about our debt journey on social media, not to show off, but to keep myself accountable on what I was doing. If I put it out to other people, I didn't want to go back on my word. I was surprised by how many people liked my posts and engaged in dialogue about their own debt.
I found some people who wanted to talk about their struggles as well and we kept each other motivated and shared tips. I posted a sign on our refrigerator with our debt amount and it motivated me to see the number go down little by little. It also served as a constant reminder that we had to finish it.
How did you manage the days where you just wanted to go out and spend money?
We allowed a little bit of money each month to spend on things that we didn't necessarily need, but liked to keep us from feeling like we sacrificed everything. We allocated money for things like playing sports and for the occasional "treat" like eating out at a casual restaurant (we would still share a meal and only drink water).
There was a point when we had the biggest loan left ($20,500) and I felt like I was losing steam and for a week I went crazy and bought a bunch of things I didn't need. I felt really regretful after I did it and I ended up returning all of the items I had bought and realized it wasn't worth all the time I had wasted.
What would be your money advice to your 21 year old self?
Save with a purpose. Don't just save money to save money, but know what you're saving that money for whether it's a house or retirement - my two biggest goals. I definitely would have told my 21 year old self to stop spending so much money on going out trying to impress people that won't even be around anymore when you're older.
I am a highly introverted person and I spent a lot of money when I was in my 20s just trying to fit in. Now my friends are close people who like the same things I like: board games, business, music and cooking, all things I don't have to spend so much money on.
What steps are you taking to ensure your debt freedom is permanent?
My husband and I are working on paying off our remaining debts, a rental property and our mortgage on our current home. We want to be completely debt free within the next five years and while we paid off that student loan debt fairly quickly, this is going to be a longer process.
We are still employing many of the habits we learned paying of the student loans and applying that same discipline to our mortgages. I've also become very vocal in my local community about living debt free, which holds me accountable to practice what I preach.
What advice would you give anyone reading this looking for encouragement?
A lot of people assume we were able to pay off this debt quickly because we are "rich," but it was because we made a lot of sacrifices a lot of my friends are not willing to make. Because we were able to pay off the debt quickly, I was able to quit my day job and pursue a business of my own renting dresses and helping other people save money.
I finally feel like I am finding my purpose in life and debt was preventing me from doing that for so long. Imagine what your life could be like if there were no payments you had to make. It is actually possible to pursue your dreams!