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How I Got Out of $40K of Debt in Just 2 Years

By Edited Mar 2, 2014 3 3

Pay Off Your Debt Fast

With the economy tanking and a lot of people out of work, it can be hard to recent college grads to pay off their student loans. There aren't many people hiring out there and the ones that are, aren't very good-paying jobs. I'm writing this because I was able to get out of $40,000 of student loan debt in just 2 years. It wasn't easy, but it's possible and I hope to motivate you to do the same if you are a recent college grad in debt.

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When I started my journey, I had about $40,000 to pay off. The loans were split into six separate loans, with three of them holding a 6.8 percent interest rate and the other three a 2.8 percent interest rate. First off, before I started my journey, I paid off my credit card debt completely, about $2,000 worth of debt. This is the highest interest rate debt you'll probably have so it pays to take care of it first!

Here are 4 rules you MUST follow to get rid of you student loan debt, fast. 

Rule # 1 - Live At Home With Your Parents

Live With Parents

If you are 22 and just graduated college with a large amount of debt, you should strongly consider moving back home with your parents. Tell them that your goal is to pay off your student loan debt fast and they might consider letting you live there for no cost at all. Plus you will get free meals, free laundry and utilities, etc. 

I see so many people graduate college and immediate move into a big apartment and buy a new car. It may be the popular thing to do but it's the wrong thing to do if you ask me. You're throwing money away that could be used to pay off your debts! 

Rule # 2 - Buy Your Car Used, and Keep It

Used car

You've probably heard this before - a new car is the worst investment you can make. This is because when you buy a new car, the value drops immediately after you take it off the lot. Also, cars depreciate in value every year (unless it's a classic car).

My advice is to keep your old beat up Honda Civic or buy a used Honda or Toyota - something reliable that will get you from A to B! There will be plenty of time (and money) for you to buy your dream car in the future. First you need to pay off this debt!

Rule # 3 - Save, But Also Learn How to Invest

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Stock Market(117939)
aving is good, but you won't make anything keeping your money in a bank account. Actually, you'll lose money with inflation. With the inflation rate at 3 percent, and your deposit only earning .40 percent or less, this means you're losing 2.6 percent in purchasing power every year!

You MUST learn how to invest if you ever want to be wealthy. 

What I did was I taught myself how to invest in stocks and even options. I made 30 percent gains my first year and doubled my money the second year. Even if you don't get those types of gains, you need to learn. 

The best part about this is that it's either free or very cheap to learn - visit free website such as the Motley Fool or Investopedia to learn, or buy a good personal finance book on Amazon - I also list my top 5 books on investing here. Those books helped me out tremendously and I hope they do the same for you. 

Rule # 4 - Every Dollar Counts, So Stop Wasting Your Money

You need to stop spending money recklessly and treat every dollar as an investment. Don't buy clothes or jewelry unless you really, really have to. Stop going out every weekend and eating out. Sell things you don't need and can do without, and stop "keeping up with the Joneses'!" 

I think you're going to find out that you won't miss the things you cut out from your life that you don't need. The feeling you are going to experience from being debt free is worth it, trust me. 

Debt(116865)

So, How Did I Do it Exactly? Here are the Numbers

First, I got a full-time job at 23 that pays decent, but a little less than a school teacher would make. After tax let's say you will make $2,300 a month. 

Next, I recommend getting a second side job. Maybe you'll babysit or be a dog walker. Maybe you will paint houses or mow lawns. I personally worked a catering job on Saturday nights from 5 p.m. to 10 p.m. and I made about $100 a shift. I also blog here on InfoBarrel and other websites in my free time and make about $15 a month.

Total Income: $2,415

Now comes the most important part - expenses. I'm here to tell you that it doesn't matter how much you make from your job - if you spend your money stupidly, you can still be broke.  It's what you do with what you got that really matters!

I made some sacrifices - working on Saturday nights, cutting out Netflix, going out to dinner much less, 

Student Loan Payments and Debt Payments ($300/month), Car and insurance ($350/month), Phone ($25/month), Entertainment, food, gas and other ($350/month). Total estimated amount of expenses paid per month: $1,025. 

Income minus expenses: $1,390 (X 24 months = $33,360 which was used to pay down debts and put in investments. My investments returned a good amount which allowed me to sell them to pay off the remainder of my loans).  

I thought of my finances like a company would - I had my own personal balance sheet and income statement. 

Not everyone will be able to live with their parents rent free for two years - but if you are able to do that, I highly recommend it because you'll be able to save money faster than you ever thought possible. This is crucial to understand. Maybe you can make a deal with your parents that in 5 years you will start paying them back. If you must move out and rent, you should consider finding a place with roommates so you rent payments aren't too high. 

If you take this advice, after two years you'll be in a great position financially. You may even start thinking about buying a home for instance. Your credit score will be much higher and you'll have more time to spend with your family and friends. And when you're older, you will probably be so happy that you did this! 

The truth is that debt holds people down from staying with jobs they don't like and even in relationships that aren't working. Don't let debt keep you down - get rid of it now and you'll be a much freer, happier person in the future.

I hope you enjoyed this article on tips for college grads in debt and how I personally got out of $40K of student loan debt!

Money and Debt
Credit: finanblog.blogspot.com
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Comments

Nov 11, 2012 4:35pm
Derby
Great advice.
Nov 23, 2012 3:19pm
GoldSilverInvestor
Thanks, Derby. It is appreciated.
Jan 31, 2013 1:26pm
Hypergraphista
That is so inspiring...it does take a lot of discipline to pay off that much debt with the income you reported. Good for you and congrats!:)
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