Our Debt Reduction Story

Student loans and other debt is crippling if you don't have a plan in place. It can still feel incredibly daunting at that point but trust me, little by little you will gain strength and feel like you can take over the world if you do.

We started out with approximately $40,000 in student loan debt combined. We managed to come out of school with a relatively low loan amount but little or small, this is still a LOT of money. My loans went in to repayment in November 2010. Gary's went in November 2011. For a few years, we simply paid the minimum plus a little extra to all of our loans. To this day, I very much regret paying on our loans this way.

Why? This is a perfectly acceptable way of paying off debts but in no way shape or form is this the best way or most motivating way. I honestly feel that if I had practiced our current debt reduction plan back in 2010, we would have been rid of our student loans by 2013. Seriously, this made me really pissed off for quite awhile. It was hard to shake that feeling of deep regret. At this point, it's more now just annoying to think I have to work so hard now when I could have been done already.

But not exactly. Life happens. We had credit card debt. We bought a brand new car in August 2013. We've recently done renovations. Approximately $38,000 more financed using debt. These were all choices that we made and understood would prolong our debt reduction plan. Back in May 2014, I posted this picture and comment:

5 out of 12 school loans paid in full! Our goal is to have the rest paid off by Fall 2016!

I'm happy to report that this was before we had a remodel loan but we still plan to be rid of all these debts by the Fall of 2016. That's what I'd call #aggressivedebtreduction!

Old Debt Reduction Method Explained

Like I previously mentioned, for a few years, we simply paid the minimums with a little extra that went towards all our loans.  I had eight separate federal loans and Gary had four. By having our payment spread out among all of loans, it was a very, very slow reduction. Granted, faster than if we were simply paying the minimums but this wasn't much better. Example, we hung on to three loans that were less than $500 for three years. That's just ridiculous! It wasn't in the least bit motivating to pay this way because you can't see much of a decrease in any of your loans. Motivation is how you can get out of debt more quickly!
I didn't pay much attention to this until we got pregnant with Owen in 2013. That's when I discovered our new method of debt reduction.

New Debt Reduction Method Explained

We've used what is called Avalanche method. We now pay the minimums on all our loans and put all of our extra loan payment money to one loan. More specifically, the loan with the highest interest rate regardless of balance. For us, that was our credit card debt. Because those rates are ridiculously high, that had to go first. Then came our student loans with rates 6.8% down to 4.25%. Our remodel loan is at 4.25% so that will be next followed lastly by our car loan. Using this method, it is not suggested to add in your house loan if you have one of those. Once a loan has been paid off, you take that minimum payment and add it to your extra payment. That's what creates the avalanche. Each time you get rid of a loan, add what you were paying on that to your next loan payment.

If numbers make more sense to you, let's say you have $500 in minimum payments. You want to put an extra $500/month towards that first targeted loan. For the duration of your debt reduction journey, you'll always pay $1,000 a month but the amount you put towards each loan will gradually increase as you pay loans off. Loan A has a minimum balance of $50. When that gets paid off the next loan in line will receive an extra payment of $550, up from $500. Make sense?

By targeting one specific loan at a time, it is quite motivating. Using a worksheet downloaded from this website, we can see at a glance when all of the separate loans will be paid off depending on how much extra we have to put towards the debt. I play around with this so much it's crazy. I had a realistic approach saved and then also a crazy wishful thinking approach as well. I followed the realistic approach until May 2015. Once we started paying for two kids in daycare, I realized we should get out of debt as quickly as possible. That moved us to the crazy wishful thinking approach, hence my second job at Rubaiyat!

My suggestions are literally to do whatever possible to get out of debt ASAP. Think 24 months or less. Take a second job, live on a teeny tiny budget, use apps like ibotta and PactApp to save money on everyday things and activities. Again, I wish so very much that we had done this sooner without kids. Talk about busy!

What we are putting towards debt
*Every single penny I earn from Rubaiyat
*The extra money from both of our pay increases at our day jobs
*A fixed dollar amount extra from our regular budget
*Money earned from ibotta, Checkout51, PactApp, ebates

Debt Reduction Timeline

Credit card debt - eliminated November 2013
Vanessa's student loan debt - eliminated fully in August 2015 (4 years, 9 months)
Gary's student loan debt - eliminated fully in September 2015 (3 years, 10 months)
Remodel Loan - projected completion date: April 2016
Car Loan - projected completion date: July 2016

If you want my help with the worksheet, please don't hesitate to ask. You can facebook message me or email me at vanessa.wiest11@gmail.com.

Good luck with your own Aggressive Debt Reduction journey!

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