Making Plans and Achieving Goals

Don’t Trust The Spreadsheet: How We Paid Off $34K Of Debt In Five Months

Don’t Trust The Spreadsheet: How We Paid Off $34K Of Debt In Five Months

It was August 2013 and we had just got home from an amazing, totally not frugal, honeymoon Maui.  We got all of Theresa’s stuff moved into my apartment and we were officially married.  One of the first things on my to-do list was combining our finances.  Seriously I started bugging Theresa on like the second day for passwords and stuff.  I’m such a romantic.  I knew roughly how much debt we were going to have as we had talked about money while we were dating.  In total, we had $34K of debt that we had spread over a car payment and student loans.

To Pay Off Debt Or Invest

The average interest rate on the student loans was around 4.5% (going off memory) and the car was 6.25%.  I have seen a lot of arguments about debt, that basically say “all debt is wonderful as long as the interest rate is below 7.0% because you can make that much if you invest”.  Well, I don’t fall into that camp and I strongly believe cars should be paid for with cash and student loans should be eliminated as quickly as possible.  Read the previously linked articles if you want to see my argument against debt both types of debt.

The Debt Pay Down Plan

I got my spreadsheet out and started planning out our debt pay down strategy.  The strategy was to simply focus all extra income on the car first then the student loans.  The car was the smaller loan and had the higher interest rate.

I actually found some of the rough drafts in my google drive of this budget. Ah, the memories of a simpler time.  

After my initial look at things, we were going to be looking at about two years to pay down the $34K of debt.  That was $1,416.66 per month to pay everything off in two years.  Maybe if we got some raises and used any unexpected money (a bonus, gifts, tax return) we could get there in 18 months.

The Reality

Once we had the goal of “eliminate the $34K of debt ASAP” something changed in our brains.  It took about one pay period before we said this is going to take too long and we need to get serious.  The first and hardest step was emptying our emergency fund.  I had saved up $10,000 for a six-month emergency fund before we got married.  I had hoped to never touch this money but knew we needed to.

It felt like getting rid of that money would leave us broke but the reality was we already were broke and were just paying interest on it.  Once that happened I was beyond determined to dig ourselves out and get that money back.  So, we sold a bunch of extra stuff on craigslist from when combining apartments.

We took all the cash from the wedding and drained our checking/savings down to $1,000 and never let it go above that.  We returned a bunch gifts from the wedding that beyond further investigation were deemed unnecessary.

At the end of the first month, we had cut our debt in half!

Retirement Can Wait

So now we have about $17K in debt.  If we stick to the original plan of paying around $1,400 per month we will be debt free in 12 months.  12 months is a short period of time when looking at the big picture but still wasn’t fast enough.  So we took another tough step and put or retirement savings on hold.

We completely stopped saving in our Roth IRAs and took our 401K contribution down to just 5% to get our company match.  Cutting off retirement savings was not a popular move in the financial community.

I understand if you don’t feel like you can do this but looking back it was the 100% correct move for us.  We were in full on debt attack mode.  We couldn’t be bothered by math at this point.  Besides when talking about putting retirement on hold for less than a year you aren’t missing out on much.

So now we had an extra $1500 per month for debt pay down.  That is $458 from each Roth IRA and few hundred from each 401K.  Total amount going towards debt per month $2900.  Time to debt free less than six months.

The End In Sight.  Do We Have To Eat?

At this point, we are about two months in.  We have gone from facing $34K in debt to $14K.  We were in good shape but I wanted to start saving again and be done with paying banks.  Time to look at the budget again.

This time we weren’t looking at the budget through the eyes of how much do we need for each category.  Instead, we were looking at it like, if we both lost our jobs tomorrow would we buy/pay for this?  All grocery shopping was done at Wal Mart and the only eating out we did was pizza.  If friends invited us out we might go but would just bring a little cash and only use that.

After rent and utilities, our spending was under $900 every month from September to December.  That is groceries, eating out, alcohol, gas, gifts, clothes, car maintenance, entertainment, books, doctor visits and gym membership.  Including Rent and utilities, we were spending under $2400 per month.  This allowed us to start pushing another almost thousand dollars per month to the debt.

college graduation

Are We Already Done

The last payment was made at the end of December.  We both got a little cash for our Birthday’s and Christmas and both got some modest Christmas bonuses that helped put us over the edge.  In just under five months we had paid off $34,000 in debt.  We really couldn’t believe that we had finished so quickly.

I remember the massive feeling of relief after we made that last payment.  It was like this giant weight had been lifted and we were finally free.  We actually received a call the next day from the student loan company thanking us for paying everything back.  “Well, thank you for lending it to us in the first place.”

If you would have asked me when we got married if I thought it was even remotely possible to be debt free by New Years I would have said absolutely not.  We averaged almost $7000 per month which was basically our combined take-home pay at the time.

What I Learned

First, paying off debt is way more motivating than investing.  There is no way we would have ever invested that much money over the same period of time because we can’t see the end.  Or you can see the end but it is so far away it doesn’t motivate you.  With debt you see that number dropping every month you can really see the end in sight.  You start to imagine what it would it will feel like to have no more debt payments every month and get excited to reach your goal.

Second, you can find money when you are on a mission.  I know a lot of people read our story and say yeah but I don’t have a $10,000 emergency fund or gifts from a wedding to return.  Maybe not but I can almost guarantee you that you are leaving money on the table that you aren’t thinking about.  There is stuff you can sale, extra jobs you can do, tax returns, bonuses, gifts, asking for a raise, finding a new job, etc.  I honestly thought 18 months was best case scenario when we started and finished in 5.

Third, it feels amazing to be debt free.  I have never had an overwhelmed feeling of joy from making a 401K deposit but making that last student loan payment felt like freedom.  It just gives you so many options when you drop so many significant expenses from your fixed spending.  Writing this has me considering putting our mortgage on the chopping block next year?

-Grant

Hope you guys enjoyed.  What are your thoughts on paying off debt vs investing?  Have you ever paid off a significant amount of debt?  Did you find once you started it went faster than you thought it would?

 



8 thoughts on “Don’t Trust The Spreadsheet: How We Paid Off $34K Of Debt In Five Months”

  • Hey Grant,

    I agree it is really rewarding to clear your debt. There is something that gets you more motivated seeing your balance go down rather then up when investing. Knowing that when the debt is cleared you never have to make those payments again is a great feeling and well worth it. Then when you are socking it away into investments you can really get the ball rolling.
    Damn Millennial recently posted…5 Ways To Save Money For The Holiday SeasonsMy Profile

    • Hey DM,

      I know it feels AMAZING! That is why we are considering going after the mortgage next year. We would still be investing a decent chunk but I would love to be done with that mortgage payment.

  • Oh wow, you guys did an AWESOME job on that debt. I can see how it is very motivating to pay off the student loan debt.
    We’ve only had mortgage and auto loans. I don’t mind the mortgage, but paying off the car loan was awesome. I could invest that money every month instead of sending it to the bank.
    At this point, I’m not going to pay off the mortgage debt early. Not worth the effort to me.
    Joe @ Retire by 40 recently posted…Cancun Trip Report Part 2 – Luxurious Stay at The Hyatt ZivaMy Profile

    • Yeah we haven’t done anything extra towards the mortgage yet either. I have just been fantasizing about how low our monthly expenses could be if we eliminated that.

    • Thank you! That was four years ago and lifestyle creep definitely took over a bit. Really how we were living was not maintanable. We were putting off things like medical stuff and car maintenance just to save money.

      Thanks commenting.

  • Hey Grant. Again, congrats on paying off $34k in five months. That’s a huge achievement!

    I can totally understand that debt makes people feel like there’s this huge weight on their shoulders.

    A lot of people feel like paying off their debts is almost impossible or hard, but I agree w/ your point that there’s money that can be found almost anywhere. They can look for stuff to sell around their house, start a side gig, do OT, or even negotiate their salary. If someone is motivated enough to quickly pay off their debts, they’ll do whatever it takes to earn more! 😊

    Personally, investing worked out a lot better for me than paying off the debt ASAP, but I admit it was luck. It does however come to the point where I tell myself that I gained enough, rates are going up, so time to just kill that bad boy all in one shot! 😁
    fin$avvy panda @ finsavvypanda.com recently posted…Here’s a List of 15 Financial Goals – What’s Your Score?My Profile

    • Hey Panda, thanks so much for so much for coming by.

      I’m glad that leveraging you debt has worked out so good for you. You are right if rates are going up and another crash is apparently coming lowering fixed expenses in the form of debt might be a good call.

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