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Managing home, life, and money in small spaces with intention

How I Paid Off $50K in Student Loans (or How Much Can Two Pieces of Paper Cost?) 

Photo by Vasily Koloda on Unsplash

I must confess, the only debt I’ve had so far is student loans. While generally considered “good” debt because a degree generally leads to higher lifetime earnings, you still own somebody some money. Sometimes a lot of money.  

I went to a small, private liberal arts (read: expensive) college. Total loans: about $20,000. I also went to back to get my master’s degree in Public Health at a larger private school (read: crazy expensive). Total: about $30,000. However, I was able to pay both off in about five years. (Sorry, this isn’t a “I paid of $100K in 2 weeks” article.) There was no magic bullet, but slowly and steady progress. I don’t have any regrets about attending either school, however there are some things I did might have done different if I had a time machine.  

Side note: Mr. H&H had to good sense to attend state school (read: mad cheap). When we got married and he told me how much he owed, I laughed. We put that one away relatively quickly. Now back to my story.  

What I Did Right 

  • I took out a reasonable amount 

While no loans would have been ideal, I was conscience that I needed to keep my borrowing at a minimum. I often read author Liz Weston’s work on the used-to-be-awesome MSM Money site. She advised not taking out more than two-thirds of your starting salary in loans. At the time the starting salary for my field was around $30,000 so having $20,000 in loans was right at the cap. 

  • I lived cheaply 

I was still living at home once I got a full-time job (with dental!). Like a good daughter, I wrote a check for my mom for a portion of the rent, but she refused to accept it. (Hey, I tried). But instead of spending it I socked it away and continue to save. When I moved out several months later, I shared an apartment with a couple of women from church instead of looking for my own place, just because I was “grown.” You can’t be grown and broke at the same time. Amen. Because I kept my housing costs low I was able to send more back to my overlords student loans.  

  • I wrote checks (i.e. I paid down the principal) 

A good friend of my told me that she would send large checks of $500 and $1,000 to pay down her loans faster. Being the broke, newly minted graduate that I was, I initially just paid the minimums. However I remembered the wisdom of my girlfriend. After creating my budget and setting aside money in an emergency fund, I threw whatever extra money I had at the principal.  

What I Would Have Done Differently 

  • Not taking a private loan with a variable interest rate 

The summer before my senior year in college I did a summer study aboard program in Paris (Je ne regrette rien). To do so I need to take a $4,000 loan with an institution that I’ll affectionately refer to as “EvilBank” that needed a co-signer for. So I reluctantly asked the closest relative with the best credit and off I went. The loan was deferred until graduation, but had a variable interest rate that seemed to go up every month. In addition, since it was a private loan I couldn’t consolidate it. Ugh. Needless to say I threw any extra pennies at EvilBank first before my government loans so that I would be done with them and their ever-changing interest rates. Good riddance.   

  • Not continuing to pay off my undergrad loans while in grad school 

When I started grad school my government loans went into automatic deferment. What I didn’t realize is that the interest continued to accrue during the three years (hey, I went part-time!) I was in school. I could have avoided paying the interest of I had only continued to send in payments. Alas. 

 The main point I hope you takeaway is that it can be done. The most important thing is the set up a reasonable budget so that you can find any extra money to pay down the loans.  

 How about you? Any other tips that helped you pay off your loans? Leave a comment below.  

How to use sinking funds (or how to stop busting your budget)

Budgets. Hardly anyone like them, but they are necessary in order to get your finances under control. However, they have a problem. They are great for tracking regular monthly expenses, but what happens when you have a bill that occurs quarterly or annually? Usually a mad scramble to gather as much cash to pay it. But what if you didn’t have to look under couch cushions to pay your renter’s insurance? Sinking funds are the answer.

But what are sinking funds? Basically they are separate savings accounts earmarked for a particular purpose. They are useful for what I call regular irregular expenses and irregular irregular expenses.

  • Regular irregular expenses: expenses that you know are coming, but don’t happen on a monthly basis. Examples include summer camp fees, taxes you pay quarterly, and of course the holidays, such as Christmas.
  • Irregular irregular expenses: inevitable expenses that don’t happen on a schedule. If you own a car, it eventually will need a repair. Clothes wear out. One month you’ll have two baby showers and your best friend’s birthday, the next month is as quiet as a church pew on Saturday night.

Here are some examples of my sinking funds:

  • Christmas – includes what we’ll spend on presents, tree and other decorations
  • Clothing – it use to be a regular category in our budget, but there was too much fluctuation. One month we would spend nothing. The next, a new pair of socks. The following month, my husband needed a new suit.
  • Gifts – non-Christmas gifts. Think birthdays, baby and wedding showers.
  • Missions – we give an annual missions contribution through our church, so we set aside an amount monthly for this purpose.
  • Renters Insurance – it’s cheaper to pay it annually, so we set aside a certain amount each month in this account.
  • Vacation – in addition to our annual vacation we set aside money for any church retreats.

Sounds great? How do I set it up?

I suggest an online bank such as Capital One or Ally which allow multiple savings accounts and have a higher interest rates than your local brick and mortar bank. An online bank also helps keeps the temptation to impulse spend at bay since it takes about two business days to transfer money to your checking account.

Next, determine your categories. Look at your bank and credit card statements over the past year for any irregular expenses that would be well served by a sinking fund. While you’re looking at your statements calculate how much you spend over the last year. Let’s say you spent $600 on clothing last year. That means you can set aside $50 a month your clothing sinking fund.

Cool. So how does it work?

Let’s say it’s January. You have $50 automatically deposited in your Clothing Sinking Fund. You make no clothing purchases that month so your balance at the end of the month is $50. In February another $50 is added to your fund, but you needed new socks costing $10. At the end of the month you move $10 from your sinking fund to your checking account to reimburse yourself. You have $90 left in your account.

Do you use sinking funds? If so, what other categories do you have. Leave a comment below.

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