Even though accumulating debt is very easy (and often fun!), paying it off can take far longer than it took to accumulate it.
Not only can debt cause you emotional stress, financial stress, and relationship stress; it can also be stressful because everyone has a different idea about how you should deal with it.
Should you only pay the minimum monthly payments? Should you pay off the largest one first? Should you pay off the smallest one first? Should you keep the loans because having debt and making payments is good for your credit?
When Ross and I got married, we had $20,000 of debt in student loans between us. And that was after we had worked our booties off to pay for as much as we could while we were in school.
In this post, I’m going to share exactly how we paid off the debt within 18 months while living on a very small income.
How to Pay Off Student Loan Debt Quickly
1) Make Sure Everyone Is On The Same Page
If you are married, you and your spouse need to be on the same page as far as wanting to pay off the debt.
You should also decide together how you are going to pay it off.
Working against each other will only cause frustration and make you give up before you accomplish your goal.
What To Do If Your Spouse Isn’t On Board
I knew that I wanted to pay off our debt as quickly as possible… but Ross wasn’t entirely convinced.
He had heard that having student loan debt was “good debt” and you shouldn’t try to pay it off quickly.
So how did we get on the same page?
We did the math. We looked at what would happen if we kept the loan for the life of the loan and made minimum payments. We would have ended up spending thousands of extra dollars on interest if we hadn’t paid it off quickly. This will help you and your spouse get on the same page if they are more of a logical person.
We looked at our goals. We knew that we wanted to have one parent at home full time when we had kids. If you have a large student loan payment every month (or any type of debt payment that comes out monthly) it is much harder to feed and care for your family on one income. Looking at your goals for the future will help you and your spouse get on the same page if they are more of an emotional person.
2) Write Down Your Why
Next, write down your reasons for wanting to pay off your debt.
Writing down your reasons and goals for paying off debt will help you stick with it.
No matter how exciting it is to think about paying off your debt right now, it will get less exciting when the days turn into weeks, and the weeks turn into months and you are still paying off your debt.
Keeping your WHY front and center will help you stay the course.
Our WHY’s were:
We didn’t want to pay thousandsof extra dollars in interest.
We wanted to have the freedom to travel before we had kids.
We wanted to build up our savings accounts, which is much easier when you don’t have monthly payments.
And we wanted me to be able to stay home when we had kids.
3) Continue to Make Minimum Payments on Each Loan
As you pay off your debt quickly, remember to keep making minimum payments on all of your debt.
Why do you want to pay the minimum payments on all of the loans?
You don’t want to default on any of your loans.
Having the minimum amount set aside will help you pay off the loans faster once you get the first one paid off.
How does this work?
Once you pay off the first loan, you will take the minimum payment from that loan, and add it to the minimum payments on the second loan.
Once you pay off the second loan, you will take the minimum payments from the first loan and the second loan, and add it to the minimum payments on the third loan.
Once you pay off the third loan, you will take the minimum payments from the first, second, and third loan and add it to the minimum payments on the fourth loan…
I think you get the idea.
4) Decide How to Tackle the Loans
There are three basic ways that you can pay off your debt: you can start with the largest amount of interest, you can start with the largest loan, or you can start with the smallest loan.
But if you want to pay off your debt quickly you need to start with a loan with the smallest dollar amount of principal left on the loan, no matter what the interest is.
So if you have 4 loans, one for $1,000, one for $2,000, one for $4,000, and one for $8,000, you will start by tackling the $1,000 loan first.
But what about the interest rates? Doesn’t it make more sense mathematically to pay off the one with the highest interest rate first?
Yes, it does, but if the $8,000 loan has the highest interest rate, it is going to take you much longer to pay it off first, which means you will end up paying more in the long run at best and get discouraged and give up and worst.
When you are tackling the first loan, that is the least amount of extra money that you will have to throw at the debt since you are still making all of the minimum payments.
And if you have the smallest amount of money to attack the debt with, you should pay off the smallest loan first.
Getting rid of the smallest loan first will get your momentum going so that you can pay off the rest of the debt more quickly.
5) Decide Which Loans to Pay Off
For us, we decided to pay off everything except for our house.
Since we bought our house right before we had our first baby, it wasn’t practical for us to pay off the house on one income.
Some people want to include the house in their debt to pay off, and if that’s you, go for it!
Think about how much freedom you would have if you don’t have any payments!
But it’s best to sit down with your spouse or significant other and make sure that you are both on the same page for which debts you will be paying off.
6) Start a Budget
If you want to pay off your debt, you need to get you budget in order.
Every dollar that you make needs to have a place in your budget. And you need to stick with your budget religiously.
You can even use it as an excuse if you have to say no to someone. Just tell them, “Oh sorry, I’d love to do that, but my budget won’t let me.” It takes some of the pressure off!
Now that you know your budget and you’ve cut your costs, determine how much extra money you can put toward that smallest loan.
It doesn’t matter if you can only spare an extra $20 a month, that $20 needs to go toward paying down your debt.
Remember: Every. Little. Bit. Helps.
Pro Tip: When your paying extra on your debt, be sure that the extra money you are paying each month is going toward Principal Only!
If you just send the money to the bank without any explanation, they will use it as an additional monthly payment, which includes the interest you are paying on the loan.
But if you specify PRINCIPAL ONLY on the check, it will go toward the total dollar amount that is left on the loan.
You want to make extra payments on principal only because if you are paying off the loan early, you won’t need to pay the entire amount of interest. The interest is based on you having the money for the full term of the loan (which is however many years you were going to keep the money before paying it back in full).
9) Get a Second Job
If you are living paycheck to paycheck and barely scraping by, you need more income.
When we first got married, I desperately wanted to get a job in marketing… you know, that thing that I had a degree in and why I had all this debt in the first place… but living in a low unemployment state seemed to mean that everyone is employed and keeping their jobs indefinitely.
Any job that I did find to apply for needed a minimum of 3-5 years of experience.
I applied anyway, but got a lot of rejections.
So did I just keep waiting and applying until I got my dream job? Nope!
I went to the local temp agency. Yep, a temp agency.
Did I get my dream job through the temp agency? Ha, Ha. HA!
I got a job doing data entry. AKA, something that didn’t align with any of my passions!
In short: I hated it.
But I did it anyway. I had a goal and a plan and I knew we weren’t going to be able to pay off our debt with just Ross’s income.
That is why knowing WHY you are doing this is so important!
After a few months of entering data, one of our friends offered me a job at the warehouse that he worked at, which also happened to be owned by the company that Ross worked for (win for carpooling in our single vehicle!). It still wasn’t a marketing job, but I got to wear shorts and a T-shirt every day and make some really fun friends, so I considered it a move up in the world!
As I was working these jobs, half of my income went to making extra payments on our loans and half of my income went to savings.
If you are a stay-at-home mom who doesn’t want to leave her kids to get a job, no problem! There are so many jobs that you can do from home or with your kids right now. You could drive for Grubhub, set up a profile on Upwork, or reach out to an influencer or online business and see if they need anyone to manage their social media accounts.
Get creative and you can find some way to make extra money!
10) Live On One Income
If you already have two incomes coming in, cut everything back until you can live on only one income for a while.
Even when I finally got a marketing job (a YEAR after we got married), we didn’t raise our standard of living to account for the second full-time job. Being able to live on one income is a handy skill to have in your back pocket in case someone loses a job down the road or you decide to become a single income family.
And it will help you pay off your debt WAY faster.
11) Throw Any Extra Money That You Can Find At The Principal
Any extra money that you receive needs to go toward these payments until you aren’t in debt any longer.
It can be tempting to spend these chunks of money on something fun. After all, you deserve it, right? You’ve been working so hard to pay off your debt!
But you don’t want to reward yourself before you are finished paying off your debt.
Keep that momentum going and put any extra money toward the principal!
12) Sell Things and Put The Money Towards Your Debt
You will be amazed at how much money you can make off things that have been sitting around your house collecting dust.
I had an old violin that my parents had bought off of ebay for me when I was 14. Every time I tried to learn to play it, I broke a string from tuning it…
So I never ended up learning how to play. And every time I saw it I just felt bad that I hadn’t learned to play it yet.
I finally decided to sell it. I asked my parents how much they had paid for it, and they said $75.
Great, I figured I would list it for $75 and someone would talk me down to $25-$50.
But I sold it for $75! When The guy came to get it, I pulled it out and showed him all the broken strings, and he said “Great! I love trying to figure out and save old instruments! This is exactly what I was looking for!”
13) Don’t Accumulate Debt As You Are Paying It Off
As You pay off your debt, don’t get into any more!
If you struggle with putting things on a credit card when you can’t afford it, only pay cash for everything until you have solved this problem.
If you can’t afford something, don’t buy it!
14) Determine a Reward
Ross and I love to travel. When we got married, we each picked a destination that we had always wanted to go to and decided that we would travel to each destination before we had children.
The only catch was that we weren’t allowed to do any traveling (aside from driving to see Ross’s family) until we paid off our debt.
Once we paid off the debt we took our trips (without going into any additional debt… we didn’t want to start that again!).
If you only have one bank account, I recommend that you open more (at least 7!) to be able to track how much money that you have saved for fun things like rewards, while maintaining a healthy emergency savings account.
The last thing you really want to spend time doing or thinking about, right?
We all know we should do it, but it’s usually the last thing we get around to.
It’s like the vitamins of home management.
Here’s the thing though, budgeting can actually be fun!
I feel like you don’t believe me, so let me show you:
Wouldn’t it be fun if you could afford to take that trip you’ve been dreaming about?
Wouldn’t it be fun if you told your money where to go instead of credit card debt bossing you around?
And wouldn’t it be fun if at Christmas time, you already had the money saved up for gifts instead of digging yourself into a financial hole?
Budgeting can make all that happen!
Yes, it takes some time, some effort, and some grit to stick with it.
No, it isn’t easy at first.
But when you pay off that first debt, when your savings account starts growing, and when you stop spending money on things that you don’t need, it is all worth it!
Before we get into the HOW of building a budget, let’s take a quick look at WHY you should start a budget, in case you still aren’t convinced.
Or if you’re ready to get started, just skip the next section. 🙂
And if you prefer to watch your content instead of read it, here is the video that goes with this post:
Why You Should Start a Budget
1) You Will Get Your Spending Under Control
If you spend more than you make each month and money seems to magically disappear between your paychecks, starting (and sticking with!) a budget will help!
When you have your money allocated to where it needs to go, you know exactly how much money you have left over to play with each month.
Basically, it keeps the money from getting confused as to whether it is fun money or serious money.
Creating a budget will help you see exactly what you are spending your money on… and see if you need to make any adjustments.
Having Netflix, Hulu, and Amazon Prime may be nice, but would it be better if you could afford better gifts at Christmas time if you only subscribed to one entertainment hub?
2) You Will Reach Your Goals Faster
Do you have a trip you want to go on? A car you want to purchase or pay off? Are you thinking of purchasing a house and need a down payment?
Start that budget!
By laying out exactly how much money you need to save and dividing it up into nice manageable chunks that you can save each month, you will reach your goals more quickly.
3) You Will Save More Money
Putting your money toward an emergency savings account or retirement can be a challenge when you are budgeting based on your feelings every month.
Going out to eat will always win over putting that money in an account when you don’t have clearly defined goals.
But when you write down your goals on paper, and auto-draft directly into your savings account(s), you will start to build a nest egg for when you need it.
4) You Can Stop Living Paycheck to Paycheck
Living paycheck to paycheck is frustrating and stressful.
No one enjoys living that way without any financial cushion.
Knowing exactly where your money should go each month will give you the courage to say, ‘no’ to things that aren’t in the budget so that you can begin to build in some wiggle-room.
5) You Can Be Flexible from Time to Time
Sometimes, the kids will need a whole new wardrobe, and usually they all need it at the same time.
If you have a budget though, it’s not a problem!
Just eat cheaper foods for a month, or cancel some subscriptions, or put a little bit less into the college savings accounts.
If you know how much money goes everywhere each month, you can easily move things around temporarily if need be, without completely throwing things off track.
6) You Can Get Back in the Driver Seat
Sometimes it can feel like your finances are in control of you, especially if you are in debt.
By creating a budget, you are back in control.
You can allocate where every bit of money is going and know when your debt will be paid off if you stay on track.
7) Having a Budget Keeps You Accountable
Building a budget, is like having a financially savvy friend who will say, “do you really need to buy that cart-full of things at Target? Or have you already spent your shopping budget for the month?”
It may not be what you want to hear, but you know that your friend is right.
Sometimes it’s just what you need to kick your finances into gear.
8) Having a Budget Simplifies Your Finances
Even though it seems more complicated at first, once you get the hang of it, it will make your finances simple.
Especially if you use my simple percentages trick that I talk about in this post, you will be amazed by how easily you can keep track of your money.
You will know where every dollar is going and never wonder why your credit card bill is so high again.
9) Money Will No Longer Get “Lost”
Have you ever put money in your bank account and had it “disappear” less than a month later? You aren’t even quite sure what you spent the $100 you got for your birthday on, but it must have been something, right?
Having a budget and sticking with it will keep you from spending your birthday money at the Taco Bell drive-through and enable you to use it for something fantastic. (That’s never happened to me by the way…)
How to Create a Budget:
Now that we all understand why creating a budget is so important, let’s go through the simple steps for creating a budget!
1) Grab Your Gear
We are kind of spreadsheet junkies. We have a spreadsheet for everything… from every board game that we own, to our Christmas card address list.
So for us, it’s a no-brainer to grab our laptops if we are looking at our budget. We like to use Microsoft Excel for all of our spreadsheets, and I built aMoney Mastery Google Spreadsheet to get you started on the right foot if you’ve never used spreadsheets before.
The advantage of using a spreadsheet for your budget is that you can easily change the numbers if anything changes without having to completely re-do the math.
If you use the formulas, the spreadsheet does the math for you!
But if paper and pen is more your style, it is also a great way to build a budget. You can grab my Money Mastery Printable Workbook if you would like an easy plug-and-play template.
2) Determine Your Reliable Monthly Income
Take your income after taxes, your spouse’s income after taxes, and any other consistent incomes that you have (after taxes!) and add them all together.
The sum of the net incomes is the amount of money you have at your disposal every month.
Notice that we aren’t looking at every bit of money that you *might* make in a month.
What you want to know is what will absolutely be at your disposal.
Be very sure that you are not looking at your Gross Income. That number is quite different than the cash flow you will have available after all of your deductions are taken out.
I used to make a specific recommendation for how much money you should spend on your budget ($100 per person/per month).
BUT in this video I talk about how food costs have gone up since COVID. I now think that you should try to set your food budget as low as you can while still making tasty, healthy meals for your family.
Adjust the number according to your geographic location (I know some places like Hawaii are much more expensive to buy groceries), and your eating preferences (or dietary restrictions). But don’t be afraid to challenge yourself with spending less money!
When you are all done writing down everything you spend in a month, add up all your expenses. Are your expenses 70% or less of your net income?
(If you aren’t sure what 70% of your net income would be, simply multiply .7 by the total net income that you came up with in Step 2. Then compare your answer with the total expenses.)
If you are spending more than 70% of your net income, you are probably going to need to cut some costs in order to be able to save money or pay off debt depending on your goals for creating this budget. We’ll, take a closer look at this later.
Why divide your expenses into two categories? I thought you’d never ask!
After doing all the math. you may find that you don’t have the money to put into savings that you would like to. Or you may be looking to pay off your debt quickly but aren’t sure how you will do that. Or you may want to save for a trip. Or you may find that you are spending more than you make and are getting deeper into debt…
If that is the case for you, then you will probably be looking at cutting some expenses (after you track your spending for a month in Step 8). Dividing your monthly expenses into these two categories will make it easier to see what you can live without.
Everything you put in this category is a non-negotiable expense for your family. You won’t be able to minimize or cut out these expenses without moving or drastically changing your eating habits.
Common things that you may have in this category are Rent/Mortgage, Utilities, Debt Payment, Cell Phone Plan, Groceries, Car Payments, Car Insurance, Home Insurance, Health Insurance, Life Insurance, and Gas.
Now jot down everything that is a typical monthly expense that you can either spend less on or cut out completely if you need to.
This is the list that you can work from if you realize that you need to make some adjustments.
It’s hard to minimize necessary expenses (although not impossible if you are willing to put in some work), but unnecessary costs can easily be shrunk, skipped for a month or two, or completely eliminated if you are in a less than ideal financial situation.
Things that could possibly go in this category: Clothes Shopping (most of us don’t need as much as we think we do), Miscellaneous Shopping, Entertainment, Going out to eat, Television/Cable/Dish, Netflix, Hulu, Amazon Prime Subscriptions (even though Amazon wants us to feel like Prime is a necessity).
You’ll be surprised how easily you can live without so many of these things!
5) Allocate Your Savings/Debt Payments
Why is this section about Savings and Debt Payment together? Because if you have debt (other than a mortgage), pay it off before you start putting money into savings.
Once the debt is paid off, you use the money that you had been putting toward your payments and start putting it into your savings accounts.
If you try to save while you are paying off debt, you won’t make progress with either of them very quickly and will probably get discouraged before you are done.
But if you pay off your debt first, you are able to put moremoney toward your debt and pay it off faster. Then your savings will grow more quickly when you can put all of that money toward savings.
For this step, you should decide what percentage of your income you would like to save or put toward paying off your debt.
In our budget, this category accounts for 20% of our net income. When we had/have debt, we use this chunk of money to pay it off. When we don’t have debt, we save 20% of our income.
What To Do With Savings:
Instead of dumping your savings into one giant catch-all savings account, I suggest dividing it up among several different accounts.
The main reason for this is that it is much easier to track the money we have saved for different items or experiences without dipping into our emergency fund.
If you decide to have several accounts for your savings, I recommend using a separate tab in your spreadsheet to keep everything straight.
Here are some savings accounts that we have and I would recommend to anyone that they apply to:
Emergency Savings Accounts: This account is for emergencies such as a job loss or a medical need. Don’t touch it unless you are in a crisis. It is best if you can pretend this account doesn’t even exist.
Set up auto-drafting for this account on the day that you know you get paid.
It is a good idea to have 6-12 months of living expenses stored in this account. If you are just starting out and don’t have a savings account yet, put the entire 20% of your income into this account until you could live off of this account for at least 6 months if you needed to.
Big Goal Account: If you know that you plan on purchasing a house, boat, car, going on a trip, or paying for a wedding; it is a great idea to save money ahead of time.
Putting all your savings into one account can make saving for a goal messy. By having a separate account, you know exactly how far you are from your goal.
If you have more than one goal that you are saving for at a time, open two accounts! Opening accounts won’t hurt your credit or cost you anything as long as you maintain the required minimum balance.
Investments: It is a good idea to put money into investment accounts for retirement needs. Often long-term accounts will have higher interest rates than your run-of-the-mill savings accounts.
We use Edward Jones to keep track of putting our money in the highest yielding investments so that we don’t have to watch the market so closely.
Sinking Funds: These accounts are what we use to save for expected hits to our bank account. For us, this is mainly our cars and insurance.
We use Progressive Insurance and with them, we can save money by paying yearly for our insurances instead of every month.
To avoid a financial surprise once a year, we divide the total amount we need to pay into 12 smaller payments. Each month, we put 1/12 of the money into an account. When our premium is due, we have the cash available.
We also use our sinking fund for car repairs and oil changes. Ross averages out what we need for these each year and puts the money away to take care of the vehicles… plus a little extra since car repairs can come at a premium and usually happen when you least expect them!
College Savings Accounts: Each month we put a little money into two college savings accounts. One for each of our girls. Any time Ross gets a bonus from work, we also put in a little extra.
Most likely the accounts won’t completely pay for their college educations, but it will give them a nice start when the time comes.
Considering the time value of money, it is best to start these accounts as early as possible when you have children.
The accounts that we use for our girls are for education only. The upside of that is that they have a higher interest rate than a regular savings account. The downside is that they can only be used for trade schools or college.
So if neither of our girls decides to go to college, we will have to transfer the money to someone else who wants to use it for education. This is worth it to us because we figure that worst-case scenario we could give it to a niece or nephew.
If you want more ideas for setting up different savings accounts, check out this post!
6) Determine Your Giving
You can obviously skip this piece of the puzzle if charitable giving doesn’t align with your personal values.
But if you’ve never done it before, I encourage you to give it a try!
It’s ok to start small here, even donating $25 a month to a cause can go a long way. Just eat at home once or twice more per month instead of eating out and it will cover the cost.
Even if you aren’t part of a church, it never hurts to giveback to your community. Find a cause or a charity that you are passionate about.
I’ve never heard of anyone who regretted paying it forward!
If you really can’t afford it, volunteer once a month at a homeless shelter or soup kitchen in your area!
There are a million ways to give back if you get creative.
Plus volunteering will teach your children the importance of helping those less fortunate than yourself and treating everyone with respect.
In our house, we tithe 10% of our income to our church. (See this post for more information on recommended budgeting percentages.)
Additionally, we like to donate to ADRA which supports people who live in less fortunate areas of the world or who are in difficult situations.
We like to get the kids involved in choosing how we donate and they often like to pitch in by asking for donations for Christmas and birthdays. This year we bought a goat for a family who needed food and a way to make money.
7) Create a Calendar for Your Budget
Sit down with your calendar (I love this Amy Knapp Big Grid Calendar) and write in your paydays. Now, choose which payday you will have your expenses auto-drafted.
For example, We have our mortgage payment taken out on the first of the month with the first paycheck. Because of that, we have most of our other expenses drafted after the other paycheck hits our account.
That way we have plenty left over for groceries and gas in between paycheck one and paycheck two.
After you have your expenses divided up, decide when you want your savings or debt payments auto-drafted. You may want to do this all at once, or a little bit from each paycheck.
Having this money taken out automatically tricks your mind into forgetting about it!
The other thing you should write down on your calendar is your weekly grocery budget.
Divide your monthly grocery budget by 4 and write it down. It is much easier to stay under budget when you know how much money you have to spend each week at the grocery store, instead of trying to remember the monthly amount.
8) Track Your Spending
Alright, now that you know where you want your money to go each month, it’s time to find out where it is actually going each month.
If you needed to cut some costs, track your spending for another month. Then see if the initial things that you cut out of your budget were enough for you to meet your goals.
If you are still spending too much, keep repeating steps 8 and 9 until you get where you want to be!
If you find yourself struggling to stick to your budget, you may want to use a cash system until you have your spending under control.
But I don’t recommend using a cash system in the long run because you can build credit and make money by using credit cards… if you use them wisely.
Using a cash system is a great way to reset your spending if you need it, though!
11) Stay On Top of It
Once you have honed in on your perfect budget, don’t just forget about it. Check your budget regularly against your bank accounts to make sure you aren’t overlooking any spending.
We love using Mint.com to stay on top of our money. It saves lots of time, and it’s free!
I recommend checking at least once a week, but it doesn’t hurt to check daily while you are getting into the habit. Or you can be super-cool like Ross and check multiple times a day from now until forever.
I always play a game with myself whenever I buy anything other than groceries to see how long it will be before I get a text from him confirming that I did indeed purchase whatever it was from wherever it was.
It used to annoy me until I realized that’s one of the reasons we have been able to live debt free for so long… and it was a helpful habit to have when someone stole our credit cards…but that’s a whole other story!
The important thing to remember is to check frequently, whatever frequently means to you!