Our debt journey: how we paid off over $100K in debt over the past 3 years

This post is brought to you by Ryan 🙂

On one of my previous posts I wrote about how living a healthy financial life creates “optionality”. One tip I had for living healthier financially is to limit fixed expenses as much as possible. The most obvious fixed expense are debt payments. We have been working very hard to get out of debt over the past few years so I wanted to share our story so you can understand how we got there and hopefully to inspire others to pay off debt as well.

By our mid-20s, we managed to accumulate a significant amount of debt. For better or worse, I think this is fairly typical. After taking on student loans through college and grad school and buying a house and a used car, our total debt load was around $400,000 in 2010 at age 27. Luckily, we were able to avoid credit card debt (Lindsay had gotten rid of hers by this time) and only ever had at most one car payment. At that time, the economy was also crumbling which made the debt feel even worse given that getting raises and promotions at work became difficult. At least we were able to hang on to the jobs we had but we were impacted by pay cuts and 401k matches being removed.

I don’t think taking on debt is inherently a bad thing, especially when you’re young and borrowing for assets that increase in value like a house or a career. It is almost impossible today to have enough cash on hand to buy a house without taking on a mortgage. Additionally, the increasing costs of college have made it much more difficult to graduate without some student debt. However, it is much harder to justify taking on loans for cars (even though we have a few times) or other consumer goods that decrease in value.

Part of the reason we justified taking on significant debt in our twenties was that we expected that career advancements and increasing salaries throughout our 20’s and 30’s would increase our take home pay while our debt payments would stay the same which would reduce the overall debt load as a percentage of income. We also didn’t plan on moving and bought a house that we could theoretically live in forever (more on this in a future post).

There came a point, however, where having this much debt just became an annoyance. The idea of having to make payments for 20+ more years didn’t seem desirable. So we decided to take action and come up with a plan to pay it off faster.

The payoff begins

From 2010 to 2015, we were slowly chipping away at the debt by dutifully making payments and throwing what little extra we had left over to the highest rate debt which was our student loans and second mortgage (we took this in order to avoid PMI since we didn’t have 20% to put down – in retrospect, I would not advise putting less than 20% down on a house – live  and learn I guess). However, this was only slowly reducing the issue; moving from a 30 year payoff plan for these to around 15-20.

However, in the spring of 2016 we both had new jobs and higher salaries and we decided to tackle the student loans head on. We applied the entire amount of excess cash flow we had available (around $2500 per month) and paid extra toward the student loans. This resulted in us paying off around half of the remaining student loan debt in a little over one year by August 2017.

Also, later in 2016, we took advantage of the historically low interest rates and refinanced our house to a 15 year mortgage at 3.34%. Our payment stayed virtually the same but the mortgage would be paid off around 8 years faster. Having a 15 year mortgage is amazing! Around 60% of your payment on the very first payment goes toward debt principal so you’re only “wasting” 40% of the payment on interest. At the same time we opened a Home Equity Line of Credit (HELOC) in order to “refinance” the remainder of our student loans (again, not sure I would advise doing this in general but it worked for us).

We continued to make these regular payments and in 2018, I put my entire bonus check toward paying down the HELOC which got us to around $100,000 of debt paid off from 2016 through the end of 2018. But now in 2019, we are inspired to get out of debt (excluding the low rate mortgage) as fast as possible. We paid off the remaining balance on our minivan purchased in 2016 (no more car loans ever for us!), we are applying all excess cash flow to principal payments on the HELOC (i.e. the old student loan), and I will once again be putting the vast majority of my bonus towards this debt as well. Doing this will pay off the remaining HELOC balance by in the next few months.

Not having to make these payments each month will feel amazing! And if we just make minimum mortgage payments, we will own our house at age 48. If you are looking to get out of debt, I recommend devising a plan, writing it down, and sticking to it in order to attack the issue head on. Put as much of each raise and/or bonus to paying down extra principal while still setting some aside for retirement as well. You won’t regret it!

What other tips do you have for paying off debt faster?