Since the beginning of 2020 my husband and I came up with a plan. We want to be debt free and financially independent. Who doesn’t right? We both got very intrigued in the F.I.R.E (financial independence retire early) movement over the last year, and knew that we wanted to make a plan to say we “paid off debt” and are debt free!
Putting the financial independence retire early plan into motion is not a quick task. In my opinion it takes at least 10 years from the moment you decide you want to be financially independent to living that life. Nonetheless, I want to show you how we took action and paid off debt.
Before I show you how we were able to pay off $12,785.85 worth of debt in just four months, I want to set the stage of where we are at. I also want to mention that I don’t write this post to brag, but instead to inspire. Take it from me, as someone who has hundreds of thousands of dollars worth of debt. This is a tiny step in a big journey.
I am going to show you exactly how we made our first step in our journey to becoming debt free.
To start off I want to be transparent, we have a lot of debt. Together we have a total of nearly $800,000 dollars of debt. Crazy right? Sometimes it feels like that will never get it paid off.
But we do have a plan. So for all of you out there that have an overwhelming amount of debt, I hear you. It can feel like it owns you. Even more reason to want to get rid of debts.
Our debts are broken down into the following categories:
#1 – Student Loans:
The total amount of student loans for both of us is $357,000.
$284,000 of that is in Federal Loans, while the remaining $73,000 is in private loans. The good news about this large number of federal loan debt ($284k) is that both my husband and I work at jobs that qualify us for Public Student Loan Forgiveness (PSLF).
The PSLF loan program allows for any remaining balance on your federal loans to be forgiven after 10 years of making payments on time.
Our goal is to maintain working for our current employers so that we can both get our balances forgiven eventually. I am currently on track for a April 2024 payoff, while my husband is on track for a January 2026 payoff date.
#2 Home Mortgage:
Our home mortgage amounts to $407k. We purchased our first home in January 2019, and this year in March 2020 we took advantage of the lower housing interest rates and refinanced our home.
This saved us nearly $300 in our monthly mortgage payment. We have a 30 year fixed-rate home loan with a payoff of 2050!
The mortgage debt doesn’t scare me as much as student loan debt does. The reason is because I feel like you can sell a home, and if you want, live simply, say tiny home style, or rent instead. Its flexible.
My husband and I only have one car, and I am so glad we have been able to make due with only needing one vehicle. We purchased our car used from Hertz in July 2018. We had a five year loan on the car, and we were finally able to make the leap of paying off the remaining balance three years ahead of schedule in July 2020.
The paid off debt amount was $12,785.85.
How We Paid Off Debt On Our Car in Just Four Months
So how did we manage to pay off $12,785.85 worth of debt in nearly four months? I will explain exactly how we did this. It was a combination of getting lucky and being strategic with our income.
We Got a Lucky Break on Federal Loan Payments
The first thing that happened was in March 2020, due to the coronavirus pandemic the government decided to freeze all required payments for federally held student loans.
The government also issued a freeze on interest. That ensured that loan borrowers would not have their balances continue to grow by compounded interest during this relief period.
Because my husband and I hold so much federally held student loans, remember that number from the beginning of this post, $284K, meant that we got a big break.
Our usual combined monthly payments on our federal student loans was $1,127.54.
So we saved all of that money over a four month period which totaled $4,510.16.
We Put Our Stimulus Checks Toward Our Debt Too
We both received a stimulus check from the bipartisan government CARES act in mid April 2020 which was a combined total of $2170.30. So we took all of that money and put that towards our car loan as well.
My Husband’s Employer Allowed Vacation Cash-out
A few months into the pandemic my husbands employer instituted the option for employees to cash out some of their vacation accruals. He took advantage of this and was able to receive an extra $2482.15. We also put that towards are car loan.
The Last Thing We Did Was…
We used some of our tax return we had received in February to round out the remaining debt of $3623.24.
Normally with tax returns I tend to splurge on vacations or fancy dinners. But this year was a little different. While I did regrettably spend some of the tax return money on some home decor items from West Elm, I did save a good amount of the return.
Thankfully my spouse is a good saver. Although, this pandemic has turned me into a super frugal person!
The new habits I have been forced to live by have changed me for the better. I can’t even fathom with buying two lattes a day, or takeout lunch every work day. It seems insane to me now.
I Want You To Remember That You Can Get Debt Paid Off Too
It can seem overwhelming to think about debts that you have. Trust me, I know. The best thing is to write out all of your debts on one spreadsheet so you can see what you are dealing with.
Once you can see your debts, whether its credit cards, student loans, rent or a mortgage you will have a clear picture of which one to attack first.
Once you get that first debt paid off, use Dave Ramsey’s snowball method to put that extra money toward your next debt.
Paying Off Our Car Felt So Good
While it was very difficult to part with over $12,000 dollars at once we are ultimately happy we did. The feeling of not having our nearly $300 car payment each month has allowed an extra cash flow for us, which we are putting towards our next debt, one of our private student loans.
The Key Is To Take Advantage Of Additional Income
As you read, we had some lucky breaks for us combined with some strategic saving that allowed us to pay off over $12k in debt. While you may hot have the benefit of a federal student loan freeze to bring in extra cash, look for any opportunity that comes your way.
I am acutely aware that the federal student loan freeze will not last forever. But I am taking advantage of the situation I am in at the moment. And that is to save that money I would have otherwise been using to make my monthly federal student loan payment and set it aside for my next debt payoff.
My Advice To You
If you are currently living paycheck to paycheck, I hear you. It makes it really difficult to save extra money at the end of each month. If that is the case, perhaps one of these suggestions from my blog post Stop Feeling Broke With These Money Saving Tips can help.