We Paid off $18k of Student Loan Debt in 1 Year!
In January of 2016 I decided we finally needed to get a handle on our finances and work on paying off debt. Even though we could pay the bills, we had no clue how much money we made versus how much we spent each month. Our budgeting used to involve educated guessing on my part: we’d pay bills based on who was getting paid next and we had a weird system of putting money in the joint account to make bill pay possible. It sounds bad, doesn’t it? Because it was.
Well, my 2016 New Year’s Resolution was to fix our mindset and start treating our finances like the adults we pretend to be. We accomplished this by taking these three major steps:
Step 1: Figure out Income vs. Expenses for a typical month
It always bothered me that we didn’t know how much money we were bringing home. Michael is paid twice a month and I am paid every Friday, which means sometimes I have 5-paycheck months. When we realized that our monthly pay varies based on the number of Fridays in any given month, we knew we needed to start a monthly budget that took that into account.
Adding up our expenses was a little more difficult. Though the amount on the bills never changes, we weren’t monitoring our personal expenses at all. We bought what we wanted when we wanted it. So to get a handle on what we needed to budget for grocery, home, medical, and other expenses, we took a couple months to monitor what we were spending to get what was needed in those categories and built a little bit of wiggle room into our budget.
As part of this step, Michael and I finally combined finances! No more funny business with the money coming into two personal accounts and the bills coming out of a third joint account. All our income goes into one account and we pay ourselves a monthly allowance out of the joint account. With all of our money in one place, budgeting everything was so much easier!
Step 2: Add up all of the Debt
Breathe in, breathe out. This is the scary part. This is the hard part. This is the part that will make you want to quit before you get started… but it’s also the motivating part.
Michael and I added up all of our debt on a spreadsheet that would later become our budget. As of 2016, we had 2 car loans and 7 of my student loans worth of debt! Monthly payments on all of that debt were $1046.55. That doesn’t even take into account Michael’s 16 student deferred student loans because he still going to school part time. We knew we needed to start taking care of this before Michael graduates and we started getting bills for his loans.
Step 3: Budget for success
Looking at our budget, we knew we could cut our spending down and make some extra payments on my student loans. We quickly paid off one of my smaller student loans and then noticed that Michael had a Sallie Mae loan for $2000 that had grown to $3,300! We tackled that next and then went back to paying mine. On months where we were close to paying off another loan, we’d squeezed the budget tighter to finish the payoff.
It’s been a productive year but it took a lot of work! We still have a long way to go, but 2016 was a great starting point for our debt free journey.
What were your financial accomplishments in 2016? Leave a comment below and share your financial triumphs with us. I would love to hear more motivating stories of tackling debt and concurring your finances.