After college I had about $2k in credit card debt that kept growing because I decided to attend grad school for a Master’s degree instead of getting a big girl job. I had to take out loans for this new, shiny degree that amounted to roughly $25k. Once I graduated I got a full-time gig as an external auditor paying $45k. Fortunately, I was able to continue living with my parents as I paid down my debt.
Let me first say that this method will not be for everyone. It’s just my debt payoff story that I’d like to share. My take-home pay after taxes, medical insurance, 401k deductions, etc was ~$2500 a month. I decided to tackle the credit cards with the highest interest rate first, even though paying off smaller balances would have given me instant gratification. Because I didn’t have many other bills, I was able to apply $2k to paying off debt each month. Which totals $24k a year. What about the remaining $6k?
If you read my post on Why I Quit My Audit Job, you’ll know that I got into a car accident. That accident totaled my dear VW buggy and the insurance company cut me a check for $8k. I opted to put that money towards paying off the remaining student loan balance, instead of using it as a downpayment for a new car. The interest rate for the student loan was 6.7% and I was able to finance a new vehicle for 0.9%. That was a no-brainer for me!
Again, this is my story and I would have rather not totaled my car. But the incident helped me reach debt-free status much sooner than I had anticipated. I used the $2k left over from the insurance check as down payment for my new car. The most financially-sound thing to do would have been to buy a used car for $2k and be free of car payments. But I needed something reliable that I could drive for the next 10 years, as I drive my cars until they cannot drive any more.
Update: It is fairly common in Chinese culture (and many other Asian cultures) for adults to honor their parents by taking care of their bills, giving them money each month, and/or providing for their retirement once they have started working. I did (and still do) carry on that tradition. After my loans were paid off, I took the money that would have gone to debt payments and put it toward my parents’ housing expenses.
I am only mentioning this because I have gotten several comments on Pinterest about how it is “easy to pay off debt if you’re mooching off your parents” and that I should “be ashamed for moving back home”. Folks, if moving in with your parents is not an option, YOU CAN STILL PAY OFF YOUR DEBT!
I was surprised by the comments. If I didn’t live with my parents and never got into a car accident, I would have still paid off the $30k. It would have taken me an extra year, but the point is that it would have been paid off. And that post would have been “How I Paid Off $30k in Two Years” by living below my means in a modest apartment with roommates and applying the bulk of my paycheck to paying off debt. The strategy for both posts would have been the same. That is the main takeaway here.
What’s your money story?