How I Paid Off $50,000 With The Debt Snowball Method (Guest Post)

This is a guest post from Eric Rosenberg, a finance writer at Personal Profitability, InvestmentZen, and other personal finance, technology, and travel publications. His sites are featured in my latest post on the fastest growing personal finance blogs of 2017.

While I’ve never paid a cent of interest on a credit card or carried a balance from month-to-month, I have had a couple of run-ins with debt. Between a car loan and student loans, I borrowed about $51,000 in my 20s. While the news is happy to offer horror stories about student loans and other debt, in my case everything worked out for the best! My loans were a means to an end, and thanks to focus, dedication, and a plan, I was able to get out of debt in far less time than I was allowed. Here is my story of getting into, and out of, over $50,000 in debt.

The makings of $50,000+ in debt

I’ll never forget the day in 2007 that I was driving down Santa Fe Drive in Littleton, Colorado when my car began to shutter. The check engine light immediately came on, and I pulled into the first possible driveway on the major thoroughfare. I had no idea it was going to be the last time this hand me down car would move on its own power.

I was a 22-year-old recent graduate with my first job, and there was no way I was going to be able to get to work 30 minutes away every day without a car. Just a few days later, I signed on the dotted line to buy a brand new 2008 Toyota Corolla, a practical car with good fuel efficiency that I figured would last me a long time. But as a new grad, I only had a couple thousand dollars to put down. That left me with a $10,995 loan balance to pay off.

Shortly after, I decided it was time to follow through on my plan to earn an MBA. With a finance degree under my belt already, I knew the huge value an MBA could have for my career. Even with the hefty $90,000 estimated cost of attendance, I knew an MBA would be a worthwhile lifetime investment. I worked full-time while going to school full-time to help pay costs as I went, but I still ended up with $40,000 in student loans.

Paying off the car loan

I took out my car loan before I started my MBA during the year I lived back at home with my parents after college. This saved me a bundle in rent and helped me get on track to pay off my car as quickly as possible.

The $10,995 loan required a $213 monthly payment to pay off the loan in five years, but I thought I could do better. Because my living expenses were so low, I got in the habit of paying double the $213 payment each month. Any time I had extra cash in my checking account at the end of the month, I would put a big portion right into the car loan. On February 4, 2010, my 25th birthday, I made an extra payment to finish this loan off for good. Happy birthday to me, my loan was paid off in exactly half the scheduled five years!

Paying off my $40,000 student loans

Getting that car loan off my plate added about $400 in cash flow to my monthly savings and debt payment abilities. With tuition due and student loan balances growing, I was not going to lose my financial focus.

Just like my car loan, I started making extra payments on my student loans each month. Because I had multiple student loans with different subsidies, payments, and balances, I knew I needed a plan to get out of debt for good. To build my plan, I looked to the well-known debt snowball method for getting out of debt.

Because all of my interest rates were the same, I sorted my loans by subsidized and unsubsidized, and focused on paying the unsubsidized portion first. I paid my loans smallest to biggest, making the minimum payment on every loan with the exception of my next target for payoff that got every extra possible dollar each month. As the smaller loans were paid off, I would roll that extra payment into the next one.

There are two keys to success with a debt snowball:

  1. Create a plan and stick with it every month no matter what
  2. Budget better and earn more to maximize extra payments on the target loan

Across my student loans, I had a required monthly payment around $300 per month, but I found that by keeping my expenses low I could pay a lot of extra dollars each month. Adding in that former car loan payment, I had about $700 per month to contribute to my loan payoff.

To make it even faster, every time I got a bonus at work or a tax refund, I put 100% of that income into my loans. I was already used to living without those dollars, so I wasn’t counting on them for other expenses. I could make more aggressive loan payments to reach my debt freedom goal even faster.

On March 16, 2012, I had enough cash in the bank to cover the entire remainder of my loans, and I made my final student loan payment.

It was an incredible feeling and wonderful to have that $700 per month back to do whatever I wanted with. Of course, I didn’t go blow it on fun purchases. I increased my emergency fund, added to my monthly 401(k) contributions, and began to put the maximum $5,500 per year in my Roth IRA.

Make debt payoff your number one goal

It has been five years since that last student loan payment, and I have continued to live a debt free lifestyle outside of a mortgage. Doing so has saved me thousands of dollars in interest payments while giving me more freedom and flexibility to control my money.

This would not have happened had I not made getting out of debt my number one goal. This would not have happened had I ignored my finances or just made the minimum payment. It happened because I made it happen, and you can do the same with your debt.

By getting focused, cutting expenses, and maximizing debt payments, you can get out of debt months or years sooner. Every extra dollar you pay into your debt today saves you money tomorrow, as your interest costs go down every month going forward when you make an extra payment. This isn’t alchemy, it’s basic personal finance. If you put your mind to it, you can follow the same path to debt freedom.

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