Debt Free!

Debt Blog Pic

So by now, many of you have asked and are wondering how we did it. How did my husband and I pay off $24,000 in student loans in a year.

I’d like to start by giving credit to the one who made it all possible. God. It is because of our Heavenly Father’s care and persistence with opening our hands, hearts, minds, and wallets, we would not have been able to conquer such a lofty goal. It’s safe to say, without Him, none of our goals would be possible.

That being said, the Lord showed us several ways we could be responsible with our money and flow of money.

Several things influenced our decisions. First, Dave Ramsey. I had read other blogs about debt payment plans and we did buy his book: Total Money Makeover. To be totally transparent and honest, we did not read the whole book (which made me feel like we were to a great start- spend money on a book to make you manage money better and never read the book you spent money on…). Without reading it, we did get a good understanding on a few of his key points.

1. Keep $1000 in your savings account for “safety”- in case of a car accident or unexpected medical bills- we altered this a bit and also opened a CD account through USAA for our “house fund”. The CD account was one we could only add to but were not able to tap into at all until 6 months after opening it. It accrues money at a much higher interest rate. We still kept this account low because we were focusing on the debt.

2. His snowball method. This was the part of his plan that made the biggest impact. The first thing we did was line up all the debt in order from smallest debt to largest debt. Because I had taken loans out each semester, they were broken up into 5 parts ranging from $3000-$7000. You then pay the minimum amounts for each of the debts except for the smallest, which you put all of your “Debt Payment Money” towards. Once the smallest debt is paid, you put all the remaining money towards the next smallest, and so on. Eventually, the amount you are paying towards each individual debt “snowballs” to a larger and larger amount.

3. Deciding how much our “Debt Payment Money”, we looked at our monthly income, subtracted all our necessary bills (rent, phone bill, average electric/gas/water, groceries, etc.). Basically took our monthly income and subtracted our cost of living. Then we put EVERY bit of the remaining money towards debt. In order to stay diligent and on top of things, I made payments every paycheck rather than once a month.

I’m a numbers person so in case you are like me and want a visual, here is the “math” behind what we did (for example purposes, I am using arbitrary numbers):

Monthly Income ($5000)-Cost of Living ($3500)= Debt Payment Money ($1500)

Loan 1: Smallest Debt Amount ($1000 with minimum payment of $100)
Loan 2: 2nd Smallest Debt Amount ($2000 with minimum payment of $200)
Loan 3: 2nd Largest Debt Amount ($3000 with minimum payment of $300)
Loan 4: Largest Debt Amount ($4000 with minimum payment of $400)

Debt payment money-$400 for Largest Debt Payment= $1100
$1100- $300 for Second Largest Debt Payment= $800
$800- $200 for Second Smallest Debt Payment= $600

$600 is how much you put towards the smallest debt amount $1000. You’ll notice that that is 6 times the amount of the minimum payment and you would pay off the first bill in 2 payments! This helps tremendously because you will accrue less interest!

Once the first debt is gone, you do the same process, just putting the remaining amount of debt payment money towards the new Smallest Debt Amount:

Debt payment money-$400 for Largest Debt Payment= $1100
$1100- $300 for Second Largest Debt Payment= $800
$800 is the new remaining debt payment amount that you would put towards the loan “2nd Smallest Debt Amount”

Its pretty simple from there! Mathematically speaking. It is not however “easy”. We were on a very strict budget for quite some time because we were paying off so aggressively. This was hard and at times extremely stressful. We did learn little things about ourselves through this venture; things like it was necessary to put into our “Cost of Living” a small “date night fund”. This was just important to our marriage as it ensured that we made a very intentional effort to go out to treat ourselves and spend quality time together.

The other portion of debt payment that is really important- make sure you take tithing money out of your “Cost of Living” first! If you don’t, it makes it that much harder to live with open hands financially. This was HUGE and key to our success. We had to be open handed with our money and FULLY trust the Lord to take care of us.

In case you haven’t noticed yet, I am very transparent and open about more “serious” matters so if you read this and have questions or are confused, let me know! I’d love to walk you through it or help. Please just be sure that you are praying about it and asking the Lord to lead you in a responsible way!

That is all 🙂 Happy Monday!

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