When I graduated from University, I had a lot of debt. I paid for my school myself and although I’d worked every summer and managed to save a good portion of my earnings, I still somehow managed to rack up $26,000 in student loans. After graduation, I bought a car. I wasn’t a complete dummy about it, I didn’t buy a new one, but I did still manage to spend around $12,000 on a lightly used VW Golf.
So, I went from University student making no debt payments, to recently graduated entry level worker devoting 25% of her paycheque every month to debt. I had $38,000 of it weighing on my shoulders. Then, I got this crazy idea that I was going to pay it all off.
This idea came to fruition from the best possible intentions. I knew that my job wasn’t overly secure, and I didn’t like the idea of having so many debt payments to make should I ever lose it. I also knew that I didn’t want to be over 30 and still paying off my student loans.
I started scheming ways to put more money towards my debt, in order to shorten my total time to debt freedom. The progress was slow going at first (and still is) and I quickly found myself losing motivation. The problem was, I wanted to be out of debt now, and I didn’t want to wait three or four years for all of this sacrifice and extra payments to pay off. Staying motivated was tough, but I’m happy to say I’m still on track with my debt repayment. Here’s what I’ve done to stay on the wagon:
Last year was my first full year of debt repayment. In order to stay motivated, I declared a goal to pay off $7,500 in debt principle. I declared it in a public form (on my blog) and then set about trying to achieve it. Setting this goal really motivated me to throw everything I had at my debt, and in the year 2012 I paid off $16,363 worth of debt.
Setting yearly goals is all well and good, but they take a long time to reach. Due to this, I also made sure to make a huge deal about achieving shorter term goals. Every time either my student loan, my car loan, or my total debt owing decreased by $1,000, I would make sure to crow about it in my monthly net worth updates. Zeroing in on this progress really highlighted the fact that I was making progress, and that I wasn’t throwing away over half of my total income on extra debt payments, to no avail.
Keep a Debt Repayment Timeline
I have an excel spreadsheet that I use to calculate my date to debt freedom. It breaks down my debt owing by month, from today until the day I’m debt free. It includes the daily and monthly interest charges, as well as regular and extra payments I make or am planning on making. This spreadsheet is completely customizable and every time I make an extra $100 from staff writing or my Mom gives me a couple of bucks for my birthday, I add that to my debt payments, so I can watch my debt free date inch closer and closer to the present.
When I first started messing with my debt repayment schedule spreadsheet, it projected my debt free date to be in 2015. Now, I might be able to pull off debt freedom by the end of 2013.
I also keep a separate, “best case scenario” spreadsheet that includes things that I can’t really predict with 100% certainty. In this spreadsheet I include projected raises, tax returns, bonuses, freelance income, etc. This spreadsheet shows me how quickly I could get out of debt if everything works out perfect, and motivates me to keep throwing everything I possibly have at my student loans.
Know Your Daily Interest Charge
When I first started paying my student loans back, I was paying a $26,720 balance at 5.5% interest. That works out to about $4.10 per day in interest charges. That’s so much money to just throw away every single day. Now, it’s down to $0.77 per day. Much more reasonable, but still a lot worse than $0 per day. Knowing that I was throwing away so much money on interest charges is a huge motivator to get rid of that debt as fast as possible.
Keep Your Eye on the Ball
The main reason I want to be out of debt is freedom. I want the freedom to travel if I want without worrying about making my debt payments. I want the freedom to quit my job if I’m unhappy without fear of defaulting on my loans. I want the freedom to invest my money and develop a comfortable cushion to fall back on, instead of worrying, constantly, that the floor is about to drop out beneath me and my debt is going to pull me under. I want that freedom, and making the sacrifices I’ve made in the past 16 months to pay down almost $25,000 of my debt in 16 months on a recent graduate’s income will be worth it.
I’ve got $13,182.00 left to go. Motivation, don’t fail me now.