Marvelous Money: Paying off debt

6 January 2014

I mentioned in my 2013 recap post that we had recently ticked off the major financial goal of paying off my student loans. HOORAY! I received a few emails asking questions about how we did this, so I thought it would be a perfect topic for our first Marvelous Money post of the new year!

Let me make the requisite disclaimer here that this is simply me sharing my experience. I’m also assuming that you’re starting from a place of paying all of your bills on time. Debt can be complicated and scary, so if you’re in over your head, I would highly recommend seeking the advice of a financial professional.

I wanted to start by briefly addressing why paying off debt is a worthy goal. With it being the New Year, a lot of people are talking about this right now (which is awesome!), but if paying off debt is just something that sounds good, it’s easy to lose heart when you’re slogging through the often long and tedious process. There’s power in understanding the why. Remember that aside from reducing the amount you’ll spend in interest over your lifetime, the real goal of paying off debt is to move one step closer to financial freedom — and when you’re financially free, you have more independence, more security, and more options in almost every part of your life.


Let’s begin! I’m going to start with a little background on our situation, and then share a few techniques we’ve used over the last four years. From the beginning of 2010 (shortly after we graduated) we’ve had five financial goals. We tackled them roughly in this order, though all have been ongoing:

1. Fully funding our emergency fund
2. Fully funding our wedding contribution
3. Fully funding a house down payment
4. Paying off my student loans (3)
5. Paying off our car loans (2)

We’ve never had credit card debt. Our focus (and dollars) have shifted over time, but here’s a rough breakdown from year to year:

2010: Extra money went toward wedding and emergency funds (minimum payments on students loans, no car payments).
2011: Extra money went toward wedding and emergency funds (minimum payments on student loans and minimum payment on car loan number one, added halfway through the year). In the last two months we doubled the car payment.
2012: Completed wedding and emergency funds and transferred that monthly amount to a down payment fund. Added a new car payment but did not increase the total amount spent on cars by cutting back car payment number one to minimum (see 2011). Increased one of three student loan payments and paid off that loan by the end of the year.
2013: Completed down payment and transferred that monthly amount to student loans. Increased student loan amount again later in the year to pay both off.
2014: Transferred entire amount to car loans, which will both be paid off by May.


Aside from sticking to a budget, here are a few of the techniques we used:

Schedule payments in advance.
Sign up online for a monthly auto-debit for each of your accounts so that you’re never late with or forget a payment. Make it automatic – you won’t miss it as much as you think.

Feel the pinch.
Every time our budget expanded, we chose to allocate the extra dollars toward debt reduction. Raise at work? Going toward debt. Bonus? Going toward debt. EFM profits? Going toward debt. Sometimes in the last few years we looked at each other and were like, why do we feel poor?? But then we reminded ourselves that we were living at a lower standard of living by CHOICE. If you’re paying off debt and are not feeling the pinch in your lifestyle, you almost certainly have room to cut back and increase your payments.

Pay more than the minimum amount.
If you’re feeling the pinch you are likely already doing this, but it’s worth stating again: pay more than the regular monthly amount. Annoyingly, banks will often make this difficult to do (you might have to talk to a representative or mail in a form instead of doing it online), but persevere! After all, they don’t want you to stop paying them interest :) At times, we were paying more than twelve times the required monthly payment on certain debts using the debt snowball. Which leads us to…

Roll the snowball.
The debt snowball is simple, but it is by far the most important technique we used to pay off our debt early. The basic idea is to pay the minimum amount on all of your debts except one and then throw all of your other available resources at that one. Once that debt is paid, immediately move the payment for that debt toward another and so on until all of the debts are paid. You can follow the general outline of how we did this above. Dave Ramsey suggests starting with the debt with the smallest dollar amount and moving toward the largest dollar amount; other experts recommend starting with the debt with the highest interest rate and moving toward the lowest interest rate or considering the taxability. We used a combination of these strategies. As long as you’re working aggressively toward your goal, I don’t think you can go wrong.

Track your progress.
I kept a Google Doc spreadsheet that listed our debts, the current amount we paid per month on each, the outstanding total of each, and the month the last full payment was scheduled. Every time a payment processed, I’d go in and update the spreadsheet. It was extremely motivating to see everything shrink over time!

Two final thoughts:

1. Work with urgency, BUT.
I am all for paying down debt aggressively. However, as in almost every other area of my life, I believe that a dose of moderation is healthy. Throughout this process John and I have made decisions that not all experts would agree with, but that we are comfortable with because they were thoughtfully made. For example, we chose to save for our wedding instead of putting that extra money toward a debt payment. We also have taken several trips together over the last few years, money which could have gone toward paying a debt.

I hesitate to even include this because I don’t want it taken out of context or for anyone to think that you can be jetting to exotic locations every month (or even every year!) and still be making aggressive progress on your debt, but y’all are sophisticated people. Balancing on one hand the idea of “living like no one else so you can live like no one else” and on the other, the reality that life is uncertain and your days are not guaranteed, is difficult, but very necessary.

2. Think about what’s next — tell your money where to go.
As we approach the end of our debt snowball, we’ve been thinking about how we want to allocate that money once it’s available. We are still deciding, but we’re currently planning to use some of it to begin building up a car fund so that our next car purchase (hopefully a few years from now) will be in cash.

Once you find yourself in this position, by all means, go ahead and use some of that money for something fun! (And feel free to dream about it beforehand as motivation!) But remember you also have a great opportunity at this juncture, and the potential to build a firm foundation for your financial future — one where you speak about debt only in the past tense. You’ve already conditioned yourself (probably for several years) to live without a considerable amount of your take-home pay, and so instead of increasing your consumption, why not put some of it toward other financial goals? (Might I suggest retirement or an emergency fund?) The best part? This time, instead of paying interest, you’ll be gaining interest. And that, my friends, is pretty marvelous.

I would love to hear: Is paying off debt something you’re working toward? Where are you in the process? Are you using the debt snowball?

P.S. Want some more encouragement? My friend Nancy and her husband Will have an amazing story of paying off their house in 32 months. Read it in five parts: 1, 2, 3, 4, 5.

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January 6, 2014 8:12 am

We are trying to start a plan to pay back our student loans as we speak, they add up SO fast. We are really just in the beginning of the process since we are still both in school, but we are trying to make a plan so when we do have jobs this summer we can get the ball rolling.

January 6, 2014 8:46 am

I’m really blessed in that I’ve paid off my car in full already and only had a tiny student loan (which my parents graciously paid). So as of now, I’m debt free! However, I’m applying to graduate school for the fall and at a private university, it’s looking like it’s going to cost a pretty penny. Thanks for sharing how you guys accomplished such a huge goal!

January 6, 2014 10:06 am

Wow this is awesome! I do the finances for our household so I love reading your posts about money. We definitely want to pay down our debt at some point, which is 1 car + my school loans. I think we’re not too worried about it now because we’re making the payments and we’re more invested in saving a ton of money. So like you and John, we still have those moments where we feel really really broke (we live in a major city and only go out to eat ONCE a month) haha Not because we’re paying down debt but because we’re shoveling a crazy amount of money into our savings accounts. I kind of gave up on eliminating my school loan debt because I went to a private university in an urban area. So I’ve learned to live with it. But who knows…maybe one day I’ll actually be free. Thanks for telling us how you did it.

Victoria B
January 6, 2014 10:15 am

This is a great post and congratulations! I don’t have personal experience on paying back loans, so this was great to read. I was extremely blessed by my parents who bought me my car in high school, which I’m still driving 13 years later, and paid for my college education. I came into my marriage with a large savings account, 401(k), and Roth IRA since I didn’t have any debts to pay off. My savings essentially went to our house down payment and my husband has a car loan and student loan that we are now paying off, but nothing too outrageous. We are know rebuilding our emergency fund this year and I would love to up the payments on one of his loans and then use the debt snowball for the other!

January 6, 2014 11:51 am

I love reading all of your financial posts! It’s great to see how other people do things as we try to figure out the best plan for us. I was very fortunate and didn’t have to worry about paying for college myself, but my husband wasn’t as fortunate. After paying for undergrad and private law school on his own, needless to say, we have quite a bit of student loans to pay back. We’ve decided that for now we are going to focus on saving for a house while paying what we can on his student loans. Once we buy a house, we’ll split that savings between retirement/savings, college savings for our (future) children, and paying off his student loans at a higher rate.

January 6, 2014 12:53 pm

I love this series so much, so grateful for your willingness to share! My husband and I completely re-did our budgeting practices last year and it has made a huge difference. The car I drive now has 180k miles on it – fortunately, my husband is an engineer and VERY handy when it comes to repairs of all kinds so we are able to keep our cars in great shape but I’m not sure how much longer this will be reliable. I’m definitely a believer in moderation so if my car has to be sold and we have to get a new one, with a payment attached, I’m willing to do it and then turn our attention to paying it off asap!

January 6, 2014 1:38 pm

This is so great! It was especially nice to hear how you guys felt “poor” as my husband and I often feel that way too when we have to say ‘no’ to fun things that come up. We are about to pay off one car loan, and plan to have all student loans and the remaining car loan paid off in the next two years. Our house is paid for, so at that point we will be debt free! I am a big fan of working toward goals, so we are planning on surprising my parents with a trip they have wanted to take their entire lives once we are out of debt. The thought of how happy that would make them makes the pain of pinching pennies less difficult. :) Congrats on your progress!

January 6, 2014 1:39 pm

We are paying off our debt this year. We are doing a written budget, which I believe is key. We don’t live an extravagant life, but we feel like we never have money and I think it’s because of not having a budget. We always talk about needing to save money, etc. but now by having it written down we are telling our money where to go. We now have a plan which feels great. We are following Dave Ramsey. We don’t have a lot of debt really, so I hope our snowball moves quickly. Best of luck to you!

January 6, 2014 2:11 pm

We have been working to pay off debt since we got married. All that is left are my student loans. We would like to have a baby next year and for me to stay home the first couple of years, but in order to do that, we want to make sure all of my loans are paid off. I think that if we are really diligent this year, we can do it!

January 6, 2014 6:51 pm

I’ve kind of accepted the fact that I will never (realistically) pay off my student loan debt but paying off my car loan and my credit card debt was amazing! Unfortunately, I’ve used the credit cards again since then so I need to pay that off again but these are great tips!


January 6, 2014 6:55 pm

Hi Emily, thanks for sharing.

My outlook on debt is very similar to yours. Dave Ramsey’s plan gave us a great framework, and we even coordinate his class for our church. BUT we just got back from a cross country trip visiting both our families for the holidays. Plane tickets are a hefty expenditure, and we had to forego extra income we could have earned during those weeks had we stayed home. We decided that it’s more important to us to see our loved ones at the holiday days than to be out of debt slightly sooner.

We have been actively working our plan for 2 years, and hope to be debt free at the end of this year!

January 6, 2014 9:56 pm

Oh my goodness, thank you for adding number one in there about possible exceptions! My husband and I are working on paying off all of our debt but it is also very important for us to travel to see family that live far away. We were back and forth about whether or not we should cut these trips out but decided that family comes first and it’s nice to hear that you also feel that there can be some exceptions to budgeting and paying off debt. I love reading your financial posts – thank you for the wonderful motivation!!

January 6, 2014 10:54 pm

Hi Em,
I am grateful for all your posts about managing money, thank you for sharing. I like to think I’m good with my money, and hopefully am still improving all the time. I find hearing others’ talk about their goals, plans and – importantly – their realities (ie. what it actually takes) is so very encouraging to keep me on my own journey.
I have worked hard at having no other debt aside from home loan debt. Dad (and thanks to his dad) always said, “if you can’t afford it, you can’t have it”. That means taking a lot of public transport! I’m currently (and have often done in the past) writing ALL spending down (ie. even a $1 item get’s tracked), which is definitely a way to keep accountability.
I solely own a mortgage. I know I should say I solely own a home, but home loans can feel like mountainous debt and it can be tricky to see snail-paced progress and balance life. I really like your first final thought, thank you for including it.
All the best to you and John – bring on May and you will be car debt free :)

January 7, 2014 3:58 pm

Em! This is the YEAR! So pumped for you guys. I say let’s have a debt free dinner to celebrate when that last car is paid off! I love your strategies and attitude towards your finances : always being thoughtful, having many conversations about your life priorities, and then sharing that with others. That is what it’s all about. So grateful for your example and your perspective! And of course, thanks for the shout out at the end :). Love you guys a lot.

High fives for being financial nerd friends!!

January 9, 2014 10:45 am

Em! This post was fantastic. I can’t wait to share this with all my friends and apply some of your wonderful tips. Will you be at MTH in March? I’d love to meet you in person!

January 9, 2014 7:30 pm

Because I’m currently paying off student loans this post is incredibly encouraging to read! (There is now a light at the end of the tunnel.) I currently have a credit card that I don’t use, student loans and I have to buy a car this year. I’m managing the student loans by paying the most on the one with the highest interest (the largest one, not sure if that’s recommended but so far it’s working)and paying barely above minimum right now since I don’t have too many other obligations. Getting a car payment however, is kind of scary! I’ll definitely be revisiting these posts as I navigate that! xo

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January 19, 2014 5:36 pm

A spreadsheet scares me but the fact that it was so motivating to you helps!

January 21, 2014 7:55 pm

First of all, I just love following your blog (and I don’t comment to tell you that enough)!

These Money Marvelous Money posts are so informative. I’m 25 and FINALLY finishing up graduate school in the next 4 months, so I’ve never really had money to save or to start a retirement fund with, but after reading your posts so far, I’m so much less intimidated about getting started! Luckily my husband and I have no debt. His car that he’s had since he was 16 finally gave up on us this past year, and we opted to not get a new one (we just didn’t need it). We also have no student loan debt because God blessed me with scholarships that have paid 100% of my tuition. My husband paid his way to becoming an EMT (while also paying his parents mortgage!!!) and has been working a somewhat low-paying job to get me through school. He plans on going back to school though his job (for free) to become flight medic. Anyway, even though I’m not paying off debt, I appreciate these posts so much. I’ve read quite a bit about money (from Dave Ramsey and others), but you’re the only person that has ever explained money management in a way that really resonates with me. As a topic for one of your future posts, I would love to hear about how you chose a financial adviser for your IRAs. I would like to get the ball rolling on that as soon as I land my first “big girl” job, but I’m not sure how to go about it! Thanks for being “marvelous!”

February 28, 2014 4:35 pm

Em, What an amazing post! I first found you on pinterest looking for wedding ideas. Financial advice was the last thing I expected to find but you put it so smart and eloquently. You’ve made me excited to start being more responsible with my money. I look forward to reading more of your blog.

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February 28, 2016 11:48 am

I’m finding this kinda late but this is so encouraging! We paid off about half of my student debt this past year and hope to be totally done by this time next year. It’s hard to say no to fun things at times, but I am so looking forward to the future!