Paying off $120,000 of debt in just two years may seem like a big stretch with a single middle-class income and a family to raise. For most people, such circumstances might even encourage more debt on top of what they already owe. Monica Louie not only managed to make this debt payoff happen, but it led her to become a financial coach helping young families do the same.
Like any good financial success story, hers is still a work in progress, as she and her husband Mike continue to tackle additional debt, with one big goal in mind: Eliminate all of her family’s remaining debt in five years, before they both reach age 40.
How to get out of debt: two years, one income, zero budget
The Louie family’s total debt load of $120,000 was a combination of a mortgage loan, a home equity line of credit, and $37,000 in student loans.
The Portland, Oregon-based Monica had graduated about a decade ago with a business administration degree from the University of Oregon, but up until a few years ago, had barely made a dent in her debt.
“I knew I’d be carrying that debt into my forties, and possibly my fifties,” she says. “I was ready to be done with those student loans.” Couple that with leaving her job to concentrate on stay-at-home motherhood and the Louie family was tasked with a six-figure debt balance on a single income, but no tangible plan for how to pay off debt fast.
This was in 2013; Monica’s husband, Mike, had managed to pay down a bit extra towards his own student loans — $13,000 — but the couple found that they were dipping too much into their savings without an actionable plan for how to get out of debt.
It wasn’t a sustainable way to live, notes Monica, not with two young children in the mix. “We didn’t really like going down that path when we knew we should be living on our income,” she says. “That what got us intentional with our spending habits.”
Around August of that year, Monica and Mike sat down to craft a detailed, living budget and a debt snowball plan that mapped out their course for the next few years. It would need to carefully track each expenditure the family made. Where was their money going, and what could they cut out?
Drastic debt calls for drastic measures
The first step in paring down was to reduce spending to only the necessities.
Using the budgeting app Mint, they allocated just $25 each for monthly spending and $20 towards miscellaneous purchases. Leftover money would be deposited into an emergency fund, and the couple, according to Monica, resolved to increase their monthly payments towards her student loans to $500.
The next step to garner extra income would be to sell off what belongings the Louies didn’t need (or want) any longer, the proceeds of which would go towards paying off their debt.
In late 2013, they netted $1,600 in a lucrative two-day garage sale. “We put everything out that we wouldn’t mind parting with,” Monica says.
Then they decided to sell Mike’s car. It held its resale value well, and they turned that revenue around to buy a cheaper, used car. Eventually, he sold his beloved motorcycle and a weight gym: major lifestyle sacrifices, but all for the good of the bigger debt picture.
Mike also began making other concessions to save money, like biking and taking public transportation to work and taking a temporary contract spot in another state to earn some overtime pay. In a nutshell, according to Monica, “We were just as intense as we possibly could be.”
In those first 11 months, the couple managed to pay down $65,000 of their debt, wiping out all remaining student loans. By May of 2015, they’d paid off nearly $90,000.
By the middle of last year, with their HELOC in mind, they decided to sell their house and downsized. With the proceeds from the sale, the Louies were able to pay off $30,000 more in debt, saving $40,000 more. By this year, $120,000 is paid off, including the entire HELOC. About $191,000 in mortgage debt — their last — remains.
Louie turned 35 this month; her husband is the same age. “Our plan is to be completely debt free by the time we turn 40,” she explains.
Helping others help themselves
“It’s still going to be a challenge,” says Monica, “because we’ve sold a lot of things, and there’s not a whole lot we can sell anymore.”
Over the course of her family’s debt payoff, Monica began blogging about her experience and leading a social media charge to share her story and teach others how to get out of debt. She also devotes her time to financial coaching, a career path shaped by her relationship with working towards getting out of debt.
It’s become a lesson that the family continues to live by. “Knowing we’ve done well, we continue to keep our eye on the ball,” she says.
Since the Louies are essentially still paying down a significant portion of their balance, they budget extensively — not just for monthly expenses but also for “budget busters,” surprise expenses like car repairs, and special event purchases for birthdays, wedding showers, and the like.
Monica believes that one of the biggest misconceptions people in debt often have is that they have no money when extra cash can be easily earned with some discipline and budgeting.
“I always felt I didn’t have money. I always felt broke,” she says. “I think that’s where people get tripped up; ‘I don’t have that extra money to pay the debt.’ But most people, if they really were to look at their numbers, where their money is going, and find a few places they can cut out, [they can] save up for something they really want.”
Her basic advice to people interested in getting out of debt is to keep a budget above all else, but also keep an open mind, since one never knows what expenses (or savings) the future may hold.
“Have a detailed budget, but look at the bigger picture of what’s coming,” Monica says. “Be clear on where your money is going. Make adjustments to those numbers, so you can put more money towards debt.”
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.46% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.44%4||Undergrad & Graduate|
|3.05% – 6.47%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|