Now, I know this probably sounds totally crazy. This girl is in massive student loan debt, $127k right now to be exact, and she’s going into more debt?! And I know, I am a Dave Ramsey follower, and I do follow the baby steps that he outlines, I’m currently on baby step 2. But even those, I don’t follow exactly because I can’t give up the compounding interest I’ll benefit from by starting my investments now, even if they are small. So no, I don’t use the envelope system he preaches, and maybe that doesn’t make me a true DR follower, but when I tell you my reasons, I think it is more than justified.
Why I Use Credit Cards During my Debt Free Journey
Of course, I follow a very strict budget each month, one of which includes paying my credit cards in full each month. This is the only time using a credit card is beneficial. If you ever pay any interest on your cards, you’re losing money. No matter how great your rewards are, if you pay interest, it’s not worth it. The habit you are developing of not paying your card in full is much worse in the long run. Set it to auto pay in full and never turn back. When you don’t pay interest on your cards and only reap the benefits of a rewards credit card, it is totally worth it to use them instead of an envelope system. Currently I use my rewards strictly as cash back that goes directly to my student loans. I earn FREE money just for using the card because I am paying my card in full each month. Just using this strategy alone, I’ve applied $400 in cash back to my student loans in the last two years. I’d say that’s worth it, but I also never even think about carrying a balance.
Why I Don’t Recommend This to Everyone
This strategy will absolutely not work for everyone and I don’t recommend this if you are working to pay off credit card debt. My only debt I have is student loans and I’ve never had credit card debt, except the amount I pay each month. If you are someone that is working your way out of or have had credit card debt in the past, then I absolutely don’t agree with you using any type of credit. If you know you have had issues with credit cards in the past, it is a horrible rabbit hole to fall down again. You definitely don’t want to open yourself up to potentially getting back into debt or increase your current debt.
This won’t work for everyone, and of course it is not recommended for people that strictly follow the Dave Ramsey model. But, this works for me and has been a great tool to pay off a chunk of my debt. So, where do you stand on using credit cards?
I graduated from graduate school in August 2015 with about $200k in student loans from undergrad and grad school. My private loans went into repayment on November 2nd, 2015 and my private loans in March 2016. My debt free journey has been going on for exactly one year. I truly can’t believe it’s already been a year and I think it’s super important to reflect on my first year of repayment to see ways I can improve my current plan.
Amount Paid Off Including Interest This Year: $36,342.51
Total Principal Paid Off to Date: $37,264.73
Current Payoff Date: December 31, 2022
Debt Free Journey: How I Paid $36,342 towards my Student Loans in One Year
Sacrifices. As a twenty something who recently graduated from grad school, the first thing I always wanted to do was rent my first apartment and start my teaching career. However, I knew that wasn’t the best choice for my current financial situation. Instead I found a teaching job 20 minutes from my parents house and moved back in with them. This was the biggest way I have been able to pay off so much in one year.
Budgeting. This year I have really cracked down on my budget and tried to be very strict with it. This has helped me immensely to pay down my debt this past year.
Side Income. This was huge for me this year. Throughout the year I managed to add 4 different streams of side income through 2 different after school programs, private tutoring, and babysitting. At this point, I am able to almost afford all of my monthly expenses, except my student loans, with my side income. This has been amazing for my student loans because my salary can almost all go to my loans each month.
Debt Avalanche. Since I have such high interest rates, I have chosen the avalanche method. This allows me to focus on my highest interest, largest accounts first and then apply that payment to my next account. This continues until all accounts are paid off. This has been working out wonderfully for me. I paid off one account this year and was able to apply that payment to my next account making that payment even larger. This has helped my loans get paid off even faster.
Debt Free Journey: My Plan to Make Even Larger Payments
Budgeting. I plan to look at my budget even more and find more ways I can save even more each month. I’m trying really hard to search through my house and use what I didn’t know I had before going out and buying it. For example, whenever I run out of my favorite shampoo or conditioner, my first thought is I need to buy that kind again. Now, I’m looking through my house and bathroom closets to see if we have any kind of shampoo or conditioner that I can use instead of buying new.
Side Income. I don’t think I’m going to add any new streams of income, but I plan to do more within the streams I have. Right now, I only work 2 days at the after school program, but I’m planning to pick up any extra shifts I can and find more students to tutor and kids to babysit.
I’m very proud of myself for being able to make my money work for me and pay off so much of my student loans in my first year of repayment. My current goal is to finish paying off these loans by my 31st birthday, which would be April 29th, 2023, which means my current progress gets me paid off early! I’m so excited to improve my strategy and plan to pay off even more in the next year to pay off my debt even earlier! How much were you able to pay off in one year of repayment? What was your strategy?