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Why Tax Deductions Shouldn’t Change Your Debt Free Journey

Why Tax Deductions Shouldn't Change Your Debt Free Journey

This post may contain affiliate links. Check out my Disclosure Policy for more information.

This time of year everyone is figuring out their taxes, filing their tax returns, making sure they get all of their tax deductions, and waiting on their tax refunds. It comes with this time of year. There is a huge personal preference to get a large refund or a small refund. I outlined why I plan to make myself get a smaller refund, but I understand why some people like a larger refund.

Currently, I get a larger refund because when I originally did my paperwork at work, I had no idea what I was doing. If I’m being totally honest, I’ve just been too lazy to change it! I plan to change it when I get a new job though.

A lot of times people get wrapped up in the tax deductions and it can be overwhelming. Lately I’ve been getting asked a lot about my debt free journey, especially by friends and family. Most of the comments I’m getting are surrounding my student loan tax deduction and not getting it when I pay off my student loans.

I try really hard not to eye roll at this, but it can be very difficult. Yes, I’ll lose my tax deduction when they are paid off, but I’ll get to keep all of that money. My friend shared this article with me that does a wonderful job explaining the math behind this, if you’re into that kinda thing like me!

Why Tax Deductions Don’t Matter

Okay, that’s being a bit dramatic. But, it isn’t exactly wrong. Yes, tax deductions are nice, but they shouldn’t dictate how you manage your finances. You should never do something solely because you’ll get a tax deduction for it, or it will lower your taxable income.

If your money move that you are making adds something else to your financial picture, then absolutely go for it! But, I wouldn’t make a move solely because you get a tax deduction. For example, I’ve literally heard people say they don’t want a higher income because it will push them into a higher tax bracket. That’s insane!!!! Taxes and tax deductions should not dictate your money moves, keep them in mind, but don’t let it sway you this much.

Let’s go back to my student loan interest tax deduction and losing that tax deduction once I’m debt free. The tax deduction would lower my taxable income by $2,500, but I’ll then be able to pocket and invest the $40k a year I’m currently paying towards my loans. Even if I just put it in a high yield savings account, that money would give me a nice return each year.

What you should do instead.

Pay off those pesky student loans! Put that money back into your budget because student loans are evil! I outlined why they are and how blind student loan payments will cause you to pay so much more on them, here. I encourage you to sit down, track your expenses, get that zero based budget going. Send all of your extra money to debt, after you have your emergency fund, and get those things out of your life for good!

If you need help with this, comment below, I love helping people get their budget set up and be sure to get my Google sheets template to help you get started with your own budget.

Don’t fall into the tax deduction trap.

It can be easy to listen to others when they are talking about finances. Don’t be afraid to be a little weird! If I listened to the vast majority of people, I’d still be drowning in $201k of student loans, instead of only $85k (HA!). But in all seriousness, the long term benefit of not having student loans definitely outweighs the small tax deduction I’d get every year, or not if my income increases. So, let’s get moving on freeing ourselves of student loans! I’d love to hear your experiences, have people told you not to pay off your student loans for the tax deduction?

 

Debt

When to Slow Down Debt Payments

When to Slow Down Debt Payments

When you’re paying off debt it can be difficult to slow down the process. I know for myself, I am so focused on paying off my debt that I sometimes need to be brought back to reality. It’s important to remember that a debt free journey is part of a bigger plan.

For myself, my bigger plan is to be able to live a life I love without having to think about money. But that also means that sometimes I need to not focus so heavily on my debt free journey and think about the reality of life. When you’re so focused on paying off your debt and the life you will live after your debt is gone, this can be difficult.

Sometimes, it’s important to slow down or stop extra debt payments all together. It depends on your life and what your goals are, but sometimes it needs to happen for what makes sense in the long term.

1. Unexpected life events would require you stopping extra debt payments.

This can be a long list and really depends on what your income is. But, any unexpected events, like job loss, or medical issues, could mean slowing down or stopping extra debt payments all together. If you’re single, this would definitely require you to stop making extra debt payments. But, if you have another income to rely on, it’s possible that this wouldn’t be the case.

My suggestion for any unexpected life events, is to stop extra debt payments and hoard any extra money. The reason this is important is because there is so much unknown in these events, for example, the recent government shutdown. Anyone who experienced the shutdown knows that the end is unknown. This means that you don’t know when you will be paid.

This is why it is important to stack any money you have coming in, even if you have a bit extra at any given time to throw at debt. That extra money will be there once you get through this unexpected event. Once things have settled down, then you can assess your finances and make an extra debt payment.

2. Any unknowns in the future could slow down your debt payments.

If you’re unsure about things in the future, you may want to consider slowing down or stopping your debt payments. This could be something like your job security being unknown, you may want to stop making payments or at least slow down.

This could also be something that you’re planning to do. For example, I am right now unsure of where I’ll be working and am planning to move this year. So, I am not stopping my extra debt payments, but I am slowing it down to put more money into my emergency fund to plan for it. This way I will have extra money to cover the unknowns of the second half of this year. Once things get settled for me, I can assess my finances and make an extra debt payment.

It is more important to plan for these unknowns when you know they are coming, then to simply hope things go according to plan. Hopefully the money you save up won’t be needed, but in the event that it is needed, it will be nice to have.

3. Needing to cash flow necessary expenses.

Life happens and sometimes you need to purchase things that wasn’t planned for, think car or house problems. It is better to slow down or stop debt payments to cash flow the purchase, then to go into more debt to purchase something. It’s pretty counter productive to being sending extra money to debt, but going into debt at the same time.

One way to avoid this is to cash flow the expense, meaning you send all extra money until you have the cash saved up for the purchase. If it is an expense that won’t be needed for a while, you can also start a sinking fund for it.

Everyone is different and decides what is considered a necessary expense, but it’s important not to go into debt for these things, if it can be avoided.

Keep in mind your long term goals when planning your debt free journey

Everyone wants to get out of debt quickly, but life happens and sometimes our plans don’t work out. It’s important to remember what you have planned for the long term, then to make extra debt payments. Sometimes, it makes much more sense to slow down or stop extra debt payments to get through a specific situation life has thrown at you. Just remind yourself of your long term goals in these situations. Have you had to stop or slow down extra debt payments?

Debt

How to Pay Off Debt on a Low Income

How to Pay Off Debt on a Low IncomeThis post may contain affiliate links. Check out my Disclosure Policy for more information.

When you search the internet for debt pay off motivation, it can be a wonderful motivator or it can quickly turn into wasted time filled with, “I’ll never be able to do that.” This was definitely me when I first started my debt free journey in 2015 with $201k in student loan debt and living on a teacher’s salary.

At first, I had plans to get my first apartment after college and find a teaching job in the area. That dream was quickly shut down when I had the harsh reality that my teaching income wouldn’t be able to support my $2,000/month minimum student loan payment and living. I figured I’d never pay that off early and just make that payment for the rest of my life basically.

That’s when I started getting really angry about my debt and realized that I’d never be able to do anything with that large of a monthly payment. I knew I needed to create some sort of plan to get out of debt and I’m sharing with you my exact steps that I took when it seemed impossible to pay off my debt on my low income.

Step #1: Create a budget.

This is crucial if you haven’t done this already. When I made my budget, I realized that my low income couldn’t support my loan payments and the cost of living in New Jersey. If I hadn’t done this, I most likely would have moved into an apartment, I couldn’t afford, because that’s what the plan was. Go to college, get a teaching job and get my first apartment.

By creating my budget, I quickly realized my expenses would be way more than my teaching income. This made me tweak my entire plan and led me to complete step #2. You can get my budgeting template here!

Step #2: Cut your expenses.

Once you have your budget, you need to cut any expenses that you can quickly and easily. I recommend doing anything that won’t change your lifestyle first. The reason I say this is because you want to create new habits and if you try to cut everything at once, you’re going to hate this process. Once you have cut the easy expenses, start trimming down what’s left slowly. Cut your grocery budget a little bit at a time and see how low you can go. Little changes you make slowly will add up.

The quickest and sometimes easiest way to cut expenses is to find ways to cut down your spending in necessary categories. For example, rent in New Jersey is outrageous, so I moved back home with my parents. This was a quick way to cut a large expense from my budget. Yes, as a 20-something I’d love to be living in my own place, but that just wasn’t an option for me when I had so much student loan debt and a low income. Especially since I was a 10 month employee, so I’d have no income from my teaching job in the summer months.

This obviously isn’t an option for everyone, but my point is to find ways to cut those expenses that you need to make. Maybe get a roommate, downsize, or move to an area with a lower cost of living. These kinds of cuts will make major impact on your budget each month.

Step #3: Create a debt payoff plan.

There are plenty of ways to create a debt payoff plan, you can use a spreadsheet and create it yourself, or you can use a website, like undebt.it to create a plan for you. I personally used undebt.it because it does the work for me and I’m all about saving time. This website allows you to input all of your debt information and has you input any additional payments you can make. This allows you to see how much an extra payment can impact your debt pay off date and interest saved.

You need to decide what pay off plan you’re going to go with. The 2 most popular are the debt snowball and debt avalanche, but there is also one other one that I am currently using. The important part of any plan is that you are focusing on one account at a time while paying minimums on the other. If you have a lower income, I suggest you use the plan that I am currently using to free up money faster.

This step is what really motivated me to get serious about my debt pay off. When I saw how much time and money I was wasting to interest, if I didn’t make extra payments, I knew I needed to get this gone ASAP. This motivated me to keep cutting my expenses and to do step #4.

Step #4: Add side job(s) and earn cash back on required expenses.

When you have a lower income from your day job, it can feel like you’ll never pay off your debt. There just isn’t enough money left over at the end of the month, even when you cut your expenses as low as you can. By adding a side job or jobs, you can increase your income and allow that entire income to go straight to your debt. Side jobs have been a major help in me being able to pay off $105k in 3 years on my teacher salary. My salary from teaching hasn’t increased since 2016, but my side job income can increase easily if I choose to work more. Depending on how much I have going on with school, I work more or less.

I also use different apps for cash back on my groceries and toiletries. My favorite is Ibotta, this app allows you to take a picture of your receipt and earn cash back on the purchases that qualify. Using my link gets you $10 when you scan your first receipt!

Step #5: Sell everything.

I was shocked by how much stuff I had sitting around my house that I wasn’t using. I’ve held garage sales, sold on Poshmark, sold my textbooks on SellBackYourBook, and dabbled with Facebook Marketplace. All the money made can go to your debt payoff and it feels great to get rid of things you aren’t using anymore.

Remember: As long as you aren’t adding any new debt, you’re still moving forward.

Debt payoff is hard, there is no doubt about that. When you are inching forward slowly, it can seem like you’re never going to get out of debt. As long as you don’t add new debt, you are still moving forward though. That’s what is important to remember, if you aren’t adding any new debt, it is still moving forward. I put together all of my tips and tricks to mastering your finances as a twenty something into an ebookHow have you paid off debt on a low income?

 

Debt

$105,405 Paid off in 3 Years on a Teacher’s Salary

$105,405 Paid off in 3 Years on a Teacher's SalaryThis post may contain affiliate links. Check out my Disclosure Policy for more information.

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 three years now. I truly can’t believe it’s already been three years and I think it’s super important to reflect on my last three years of repayment to see ways I can improve my current plan.

Total Principal Paid Off to Date: $$105,405.82

Current Payoff Date: July 2021

Debt Free Journey: How I Paid Off $ of my Student Loans in Three Years

  1. 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 three years.
  2. Budgeting. These past three years 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.
  3. Side Income. This was huge for me in the last three years. 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 can completely cover my monthly expenses through my side income with some left over, my entire salary and some of my side income go straight to my loans. Find out how I make on average $1,200 per month in side income.
  4. Debt Payoff Strategies. Since I have such high interest rates, I chose the avalanche method. This allowed 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 worked out wonderfully for me. Now that I refinanced my private loans and have a lower rate than my federal, I actually changed my debt payoff strategy to focus on the highest monthly payment. This allows me to still focus on my private loans and will allow me to move out on my own sooner. To figure out the best strategies, I always put my debts into undebt.it to figure out the best strategy.
  5. Refinanced my Private Loans. Refinancing is definitely not for everyone, but it definitely can save you a lot of money in interest, if done correctly. If you’re curious if refinancing is for you, check out my post to help you decide! I refinanced my loans with Earnest and got a lower interest rate and shortened the life of my loan. This resulted in my monthly payment increasing slightly, but in the long run, I will save money on interest. If you use my referral link from Earnest, you’ll get $200 when you refinance.

Debt Free Journey: My Plan to Make Even Larger Payments

  1. Selling Items. Recently I have started purging my belongings that I don’t use anymore, like clothes and purses. It is crazy how much stuff we accumulate and don’t even realize it. In the next year I am planning to get more serious about selling my items I don’t use anymore to apply that money to my debt.
  2. Side Income. In the last year I have added many new students to tutor, it is now getting hard to schedule new clients because my schedule is so booked. I’m now going to focus more on creating income streams from my computer. I plan to find new ways to make money from home, since I have reached my maximum amount of babysitting and tutoring I can realistically schedule.

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 three years of repayment. My goal was to finish paying off these loans by my 31st birthday, which would be April 29th, 2023, since I have clearly met that goal, my new goal is do everything I can to pay these off before my 29th birthday, which is April 29th, 2021. 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 three years of repayment? What was your strategy?

Debt

6 Strategies to Help with Anxiety While Paying Off Debt

6 Strategies to Help with Anxiety While Paying Off DebtSomething that I haven’t shared with you all is that I deal with anxiety pretty regularly. I have found ways to keep it under control, but there are times when it completely tears me down.

This happened to me last month. It was a tough time for me with changes at work, side jobs, everything seemed to be changing. And I wasn’t happy about a lot of the changes.

With a lot of change, comes a lot of over thinking for me. Do you my new co-workers think I can handle this job? Am I doing a good job in this new role? Am I doing everything right?

Making a huge life change, like getting your finances in order, is bound to cause some overwhelming feelings. I’ve been on this journey for almost 3 years and have been budgeting for 4 years. I still am facing anxiety over my finances.

It usually creeps up out of no where for me and leaves me with knots in my stomach, my thoughts going a million miles a minute, and usually is accompanied by nausea and not being able to sleep.

Luckily, I have found some strategies that have worked for me to handle anxiety when it gets to be too much.

1. Stop the anxiety before it really starts.

This can’t always be done, but when I have been able to get myself before I really nose dive, it is very helpful. If I notice myself over thinking about something or fixating about a situation, I will do my best to get my mind off of it.

Find things that are distracting to you. For me, it depends on the situation. Sometimes, I need to go do something active, sometimes I need to just zone out with a movie or TV show, sometimes I need a book to get lost in.

It’s always different for me and it usually depends on how far gone I’ve let myself go into overthinking. Sometimes this doesn’t work at all. This strategy has been less effective for me recently and I think it’s because I do a lot in my day to day to help with my mental health and my personal development.

In the long run, this is good, but when I find myself fixating on something, it usually takes much more to get me out of it now.

2. Invest your time into personal development.

This has been wonderful for me. I can’t speak highly enough about the importance of personal development and spending time to do it every single day. This could be through a book, audiobook, video, whatever interests you and you think you need to work on.

This has helped me so much in my day to day and I really don’t find myself with a lot of anxiety inducing thoughts anymore. It usually takes much more for me to get into the pits now, which is good overall.

I didn’t think I had the time in my day to devote to this, but I found that I could make my commute time more productive. Whenever I’m going to be in the car more than 15 minutes, I put on the audiobook that I’m listening to. This has helped me so much and almost always boosts my mood and gets me ready to tackle the day.

3. Prioritize your health every day.

I find that when I am regularly being active, getting a good amount of sleep, and eating healthy, I’m generally in a better head space and can handle the stress that gets thrown my way. When any of these things don’t happen, I find it harder to manage my emotions and stress on the daily basis.

By making it a regular priority, it helps in the long run to manage your anxiety, and it helps you save money on medical expenses. Win!

4. Complete a daily mental dump.

Every day I start off and end my day by completing a mental dump. What I mean by this is that I write down all the things that are bogging down on my thoughts. Usually they are things I need to do, those things are kept for me to cross off throughout the day or week. For things that I am overthinking about, which is pretty regular for me, I write those down and then throw them out.

It may sound corny, but getting all of my thoughts down on paper and doing something with it, really helps me manage it all.

5. Step away.

Something I really struggle with is knowing when to take a break. When my anxiety starts up I do one of two things, tackle everything head on, or completely shut down. When I can’t use the above strategies to manage it, I usually shut down. However, when I manage my anxiety on the day to day basis, I am usually able to be productive, especially if I first step away from the things that are triggering my anxiety.

It’s important to know when you need a break to reorganize your thoughts. A quick walk with nothing to interrupt me does wonders for my productive when I’m feeling my anxiety creeping in.

6. Avoid caffeine after a certain time.

This is one that I never thought about doing. I’m a teacher, I practically survive off of caffeine some days. But, the reality is that when I’m feeling anxious about things, I’m overthinking. Overthinking doesn’t just stop because I’m tired and sometimes it can be really hard to shut my mind off at night. During the week, when my anxiety is usually at the worst, I don’t drink caffeine after breakfast.

Of course, there are some days when I’ll have tea because I just can’t make it to my side jobs, but overall, I don’t drink it after breakfast. This means I’m typically completely exhausted by the time my head hits the pillow.

Paying off debt can be very overwhelming and if you’re someone that struggles with anxiety, it can seem impossible. I hope these strategies help you, like they have helped me over the years. Overall, these strategies have helped me so much in managing my anxiety on the daily basis. Of course, sometimes these strategies won’t work, I’ve been there. But, these strategies have helped me gain better control of my daily life. How have you managed your anxiety?

Debt

Mini Series Part 4: How to Tackle Your Student Loans

This post may contain affiliate links. Check out my Disclosure Policy for more information.

In this four part mini series you will find all the tips to tackle your student loans regardless of where you are in the process. Student loans affect almost everyone now, which is a very sad reality. From the time a person graduates high school, it’s usually an issue in their life. So, I’m starting this mini series with tips for before you go to college and ending it with tips for after you graduate and have entered repayment.

Mini Series Part 1: Before You Go to College

Mini Series Part 2: While You’re in School

Mini Series Part 3: Before You Graduate

Student Loans Part 4

You’ve crossed the stage, you’ve started in your very first job, and you live in your very first apartment. Everything is falling into place, like it is supposed to after graduation. Now you need to start getting serious about where all of this new money is going that you now have and how you’re going to go about your student loans based on the work you put in for them before you graduated.

  1. Finalize that budget that you drafted before you graduated.

Before you graduated you drafted a budget based on what you thought your income would be and your expenses. Well, now it is time to finalize it. You should know by now how much you will be making monthly, how much your expenses will be, and how much your student loan minimum will be each month. Once you know for sure where your money is going each month, then you can see where you can cut things out. For example, I realized I was spending about $250 each month on eating out when I first tracked my spending. That was a huge reality check for me. This is going to take some time and don’t think you’re going to have your budget set right away. Take the time to make it work for you and don’t rush the process.

2. Save a small emergency fund.

This needs to be a personal choice for you and what you are comfortable with having in case something comes up. I personally have about a month of expenses in a savings account I don’t touch, unless an emergency comes up that I need to use it for. An emergency would be something you can’t plan for, like your car dying. It’s not meant for regular budgeted items, like clothes or food. If you want to go shopping or eat out, put it in your budget!

3. Create a payoff plan for your student loans.

Creating a payoff plan for your student loans is super important to getting them gone ASAP. Without a plan, you won’t know what to prioritize or what you need to do. I personally use undebt.it to plan my debt payoff. It’s wonderful, and allows you to pick what strategy you want to use. It even tells you how each plan will change your debt free date. The things you will need to do this is to have your individual account details (amount, interest rate, minimum, etc.), and know how much extra you can put towards your debt realistically based on your budget.

4. Adjust as life changes.

The most important part of a budget is to constantly adjust it as your life and priorities change. Your budget should change as your life changes. This allows you to be in control of your money versus your money being in control of you. In the beginning, it definitely feels like your money controls you because you’re probably sending a lot of money to your lenders. I know for me, most of my income went to my debt minimums when I first graduated and it was hard. But, I knew as I paid off more, the control would come back to me.

As you continue post grad, it will get easier as you get more comfortable with the process. No matter your circumstances after graduation, there are options to make things easier for you financially. There is never a one size fits all when it comes to finances and ultimately you need to make your decisions personal. With that being said, if you have any questions about getting your budget together or creating a plan to pay off debt, feel free to email me with any and all questions! How did you tackle your student loans after graduation?

Debt

Mini Series Part 3: How to Tackle Your Student Loans

In this four part mini series you will find all the tips to tackle your student loans regardless of where you are in the process. Student loans affect almost everyone now, which is a very sad reality. From the time a person graduates high school, it’s usually an issue in their life. So, I’m starting this mini series with tips for before you go to college and ending it with tips for after you graduate and have entered repayment.

Mini Series Part 1: Before You Go to College

Mini Series Part 2: While You’re in School

Mini Series Part 4: After You Graduate

Tackle Student Loans Part 3

Graduation is right around the corner and you can’t wait to finally get out on your own and live the post-grad life. You have a job already lined up and just need to pass your last finals before crossing the stage. But you have student loans that you’ve accumulated over the years and need to get those in order before graduation. I know, most of them have grace periods and you have time to figure it out. However, there are benefits to making sure your ducks are all in a row before leaving campus.

1. Find out about loan forgiveness programs
There are a few loan forgiveness programs out there for federal loans, especially if you are a teacher or public worker. Like I said, federal loans are the way to go. Take out as much in federal loans before you go to private loans because they have so many options for you, even forgiveness.

2. Talk to a financial aid advisor
This might sound strange, why would you talk to a financial aid advisor when you’re done with school. You probably never want to think about financial aid ever again! However, the advisors at your school can help with a lot of other things. I set up a meeting with my advisor before my masters graduation to discuss paying back my federal and private loans and to go over my TEACH grant requirements. She even was able to give me some advice on refinancing my student loans, something that I wasn’t quite sure about.

3. Find out when repayment begins
This is crucial and something I did not do, which I regret. For federal loans, they most likely have a six month grace period. You should be able to find this out when you complete your exit counseling before graduation. Private loans are trickier, which is where I messed up. I didn’t need to complete exit counseling for my private loans and didn’t know when they entered repayment. My private loans had no grace period, so shortly after graduation my first student loan bill arrived. What a wonderful way to say congratulations, huh? I was in shock when I found out, especially when I owed $1,400 in a month on an income of about $1,100/month during grad school. I was running all over campus and calling the loan company constantly to explain that I was beginning grad school. After about 2 weeks of stress, I finally got my private loans deferred due to being a full time student. Don’t make my mistake, call to find out when your repayment begins so that you’re prepared.

4. Draft a budget

Start putting together a draft of a budget for when you graduate and start working. You probably won’t know your exact take home, but you can make an estimate based on your salary and definitely be sure to low ball your take home. This way when you actually make your budget, you’ll have more money than expected. List out all of the expenses you know you will have and see if you can realistically afford everything. This was the time when I completely changed my post grad plans. I realized my income wouldn’t support me moving out and my minimum student loan payment, so I made plans to move back to my parent’s house.

It’s not usually something you want to think about before you graduate college, but it’s important to have some things figured out. This will save you a lot of stress after graduation and allow you to set yourself up for a hopefully easier student loan payoff. How do you plan to prepare for your student loans before you graduate?