Thanks for checking out my guest post today as I am relatively new (90 days) to the blogging – millennial money – tracking for financial independence community. Here is why I might have something worthy of sharing for other millennials out there – since February 2016, between my wife and I, we have paid off over $80,000 towards our student loan principals… while knocking out both auto loans and paying for our wedding in cash.
Whats Money Life Wax (MLW)?
Before I get into how we paid off a third of our debt in just over 18 months, here is a quick background on me. My name is Josh and I am a 30 year old teacher by day, but I am a man of many trades outside of work. In addition to an online marketing group I work with, I also started a personal finance website with an emphasis on student loan help – Money Life Wax. Before you ask what the wax part means – it refers to the whole ball of wax – and because student loans suck, I thought writing about my wife and I’s journey we could help others.
Early in 2015, like most people, I read Dave Ramsey’s Total Money Makeover. But human nature took over and I thought that it would be cool to one day pay off my debt and my eventual wife’s debt. Six months later I finally sold my ego inflating truck that was running me about $800 a month. Once I asked my wife to marry me we starting thinking long term towards the future – instead of long term “What are we doing Friday night?”
Want free money?
In February 2016 we decided to put our backs up against the wall and get serious. We cut our wedding budget in half, cut our guest list in half for our wedding and started being strategic with our money. I had already sold my money pit of a truck so keeping up with all of our friends was the next tough test. To be honest – most of what we did involved discipline and spending habit changes. However, we did use an acceleration program for my wife’s student loans.
$270,000 Student Loan Problem
Our story is nothing special until I add one detail: my wife graduated with her Doctorate in Physical Therapy and had over $270,000 in student loans. This number is much higher when you add her parent plus loans currently in her dad’s name. At first we just thought our jobs – teacher and physical therapist – would take care of it. Then we looked at her student loan statements and quickly saw that her debt to income ratio payment did not even cover the accrued monthly interest. We decided to get serious about getting out of debt, what we call GOOD. The public loan forgiveness program after 20 years of “good” payments just seemed to risky – who knows what could happen in the next 20 years. Not to mention all the fine print involved.
Washing Debt with Debt
Besides the common budget, read, discipline, etc. my wife and I used one trick when it came to paying off debt. We robbed Peter to pay Paul, otherwise known as using debt to pay debt (Sort of like the mafia washing their money only its legal). I will be the first to admit that the program we used to pay off student loans at an accelerated rate is unconventional and very rarely discussed. I am a big supporter of debt acceleration due to the fact it has helped us immensely, but I always recommend checking with a financial planner before jumping into any sort of investing or acceleration programs. Two factors to make it work: positive monthly cash flow and the desire to get out of debt.
Debt Acceleration and HELOC’s
A debt acceleration program is similar to a debt snowball approach, only it is more like a debt avalanche. Without getting into all the integral details, we used a home equity line of credit (HELOC) at a 3.5% interest rate to make one time large principal payments towards our debt. By doing this we freed up cash flow. Secondly, we were able to save money both in the short term and long term in interest.
Think about it logically and it makes perfect sense – what costs more monthly, 3.5% on $40,000 or 7.8% on $155,000 (my wife’s grad school loans)?
We took a $40,000 line and paid off a portion of my wife’s grad school loans and some remaining undergrad loans. We freed up over $350 to throw back at the line while still paying the minimums on her grad school loans. In conjunction with our income, we used my wife’s salary to pay off the HELOC as rapidly as possible (8-10 months) to wash, rinse, repeat. The approach is often used with mortgages and optimizing equity – the dormant asset. One of my more popular posts details the entire process here.
Making the debt acceleration & HELOC program work requires some open mindedness. However, if you are just getting started and you are serious about paying off student loans, credit cards, or just saving for the future here are some more conventional easy to do things that helped us.
What else we did to pay off over $100,000 in debt
Find people who have money and can teach you about money.
Besides the acceleration program my wife and I really focused on adjusting some lifestyle characteristics. First we wanted to find someone who had the proverbial “fruit on the tree”. Mentorship is loosely tossed around these days, but we had friends who had paid off debt and were able to become FIRE in their 20’s. We started only taking advice from them when it came to finances. Having a mentor does one other really important thing – the accountability piece. Being held accountable is huge when it comes to accomplishing financial goals. Naturally, as humans we can convince ourselves just about anything is a good idea, so best bet is to always have input from a trusted advisor.
Focus on earning not spending.
Cash flow is king when you are getting out of debt. The time is now to earn. You will only be young once. 24 to 30 felt like a blink of an eye. In two years my wife and I will be debt free and starting a family. Grant Cardone has a great article about why millennials need to focus on earning in their 20’s so they don’t pay the price forever. Between a rental property, renting a room in our home, and the online marketing side hustle my wife and I have been able to net over $1500 extra month to throw at student loans.
“Pay the price today so you can pay any price tomorrow” – Grant Cardone
The last thing we did – we learned to be happy without keeping up with everyone. Prior to our debt crushing story we lived a life of work – gym – repeat, and then live for the weekends. Now we treat every day like it’s the weekend and enjoy spending time with great people. I always tell millennials who are serious about making financial changes that if you try to keep up with all of your friends you will never fully reach your potential. 8 in 10 adult Americans live paycheck to paycheck. In order to change that we put things like concerts, season tickets to football, weekend trips and vacations on the back burner for a few years. When we are debt free we are going to take a vacation a month for a year straight… I would say delaying for 4 years is worth it.
In parting, here is the goals we have for the next four years. I think it is important to have goals that serve as a destination for your journey.
Goals to financial independence by 2021: No job, no boss, happy family.
- Pay off remainder of Lauren’s student loans
- Pay off mortgage on townhouse
- Acquire 5 rental properties & grow net-worth
- Have a family!
Thanks for reading!
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