wonderfully made: How we paid off over $22k in less than one year

Tuesday, January 6, 2015

How we paid off over $22k in less than one year

One highlight of December that got me super excited was reaching a big goal of ours - paying off our debt!

I've shared some money tips here before like how to travel on a budget and using mint.com to track your finances. Mark and I made the easy (and 'duh') decision early last year to reduce our debt. We are so thankful that we both have great jobs and the means to put our plan in action, as debt is a lifetime struggle for many people. I am still amazed at the pace we kept up and the ease of paying off our debt. Once you get started, you'll feel so great about your progress that it will keep you going. Here's what we did:

-took stock of all of our debts in April 2014
        -mark's car
        -my car
        -mark's two school loans
-borrowed from our savings account (lowered it to a manageable 'emergency' amount just in case anything were to happen and put the rest towards debt)
-came up with an order of paying each loan off as well as a snowball plan
-budgeted a set amount to contribute monthly, no matter what
-put all additional (unexpected) earnings into debts

We started out with $22,277 in May of 2014 and planned to be done in one year, by May 2015. Thankfully, we were able to contribute Mark's Christmas bonus and a little extra each month and reached our goal at the end of December 2014. It was such a sigh of relief and a feeling of accomplishment to know that we were able to budget and reach our goal ahead of schedule.

snowball debt plan

We used Dave Ramsey's method of paying down debt, which he calls 'snowballing'. We didn't take his class or buy his book or study up, we just used this simple principle: whatever amount of money we would put in savings monthly, we will put toward one loan. We would continue to pay the minimums on the other loans until that one loan was paid off. Once paid, we would put that large 'savings amount' plus the minimum fee of the paid off loan toward the second loan and so on. Our total budget per month was about $2,000, but our average per month was $3,067 because of Mark's bonus as well as a little extra we were able to put towards it from time to time. 

Here's an example of how snowballing works:

Luckily, we didn't really have to scrimp to pay this off. We have been budgeting with mint.com for a few years and we just paid attention to our shopping, food, entertainment, etc. budgets while we went. We were even able to put down our new floors and go on a vacation during this time - so this just shows that you can reach a debt-free goal without sacrificing your life!

I think the smartest thing we did was simply to transfer the money from our checking to the loans on the day we got paid. It was quick and painless to immediately subtract it from our bank account and to plug in the numbers on our spreadsheet to see our goal get smaller and closer. 

Of note - we do still have a mortgage and we plan to pay the monthly minimums as usual. Building equity is a good thing and right now we want to focus on building our savings. Plus - all of that money that was going towards paying off debt is going straight into our savings now. Cha-ching!

I'll be sharing more on how we handle our money in another post but now we can do the scream:


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