With federal student loan payments resuming in October, I’ve been thinking a lot about my own student loan payoff story. Honestly, it’s the foundation for my business and what helped my blog take off. As we’re growing into a thriving media company, it’s really to look back at that period and realize how my debt story still matters. But when I was going through it, very few people took what I was doing seriously, and I took a lot of heat for prioritizing my debt over investing.
I heard it all.
“You’d be a fool to pay off your student loans instead of investing!”
“Why in the world would you pay off your debt instead of buying stock?”
“The market has average returns of 10% you know.”
To be clear, the people who challenged my desire to pay off debt over invest aren’t wrong. From a pure numbers standpoint, there is definitely a point to be made for investing versus paying off debt. Depending on the circumstances, it actually can be a really good idea.
But the reason I chose to pay my debt off before investing is that it wasn’t just about the money.
Anyone who has paid off a significant amount of debt can probably relate to this, whether it’s credit cards, a car loan, your mortgage, student loans, or any other type of debt. There is so much more to paying off debt than just pure math.
The reality, though, is that less debt equals more freedom, and the start of my business is a great example of this.
Back in 2013, I was working as a high school band director. The kids were great, but I didn’t love what I was doing. I had always dreamt of starting my own business one day (at that point I considered starting a pool cleaning business, which is laughable to me now), but my $40,000 student loan debt was weighing me down. At that point, I didn’t feel like I could move forward in any significant way until my debt was gone.
Eighteen months later, after making a plan involving extreme frugality and side hustling, I submitted my final student loan payment. Shortly after that, I started Millennial Money Man to share motivation and advice to other financially curious millennials.
Being debt free gave me a real sense of relief, but I still didn’t like my job. Having multiple people tell me what to do was like nails on a chalkboard, and to be honest, I probably wasn’t the best employee. I knew entrepreneurship was the right path, so I tested the limits of my new found freedom and quit my job. And no, my site hadn’t taken off at that point — I had literally only made $3 from my blog, but it was enough to realize the potential.
And the only, and I legitimately mean only, reason it was possible is because I paid off my student loans before I was “supposed to.”
It gave me the confidence to change careers and take on so much more risk than I would have if I still had the debt.
If you’ve leveraged your debt freedom to make a big change in your life or even to provide some relief in your day-to-day life, you understand what I’m talking about. There is something about it that absolutely supersedes any dollar amount gained. Paying off debt is a guaranteed return, and I know that numbers people will disagree with me, but it’s not always about numbers.
While the market has historically gone up, none of it is guaranteed. It’s just not. People always seem to forget that you can lose money investing just as quickly as you can make it. When you go after your debt, you’re keeping future interest in your pocket. It’s actually guaranteed.
If you’re ready for the kind of freedom I found through paying off my debt, here’s how to get started:
Step 1: Assess Your Debt
You can’t destroy your debt if you don’t know exactly how much you have. For a lot of people, this is one of the scariest things because it makes it seem too real. But remember, your debt is just a number, and we’re going to work on shrinking that number. When you’re adding up your total debts, make note of your interest rates, balances, and minimum payments, which will help you in the next step.
Step 2: Make a Budget
If you don’t have a budget yet, please consider making one. It’s a huge help when you’re paying off your debt because you’ll see how much you have to work with every month. A budget helps you decide how your minimum payments fit in with making extra payments and how much extra you need to expedite your payoff.
Step 3: Decide on a Debt Payoff Method
There are two really effective ways to pay off your debt: the debt snowball and debt avalanche methods. Both of these strategies have you pay more than the minimum payment each month, but you choose which debt to put that money toward based on interest rates or amount of debt.
Here’s how they work:
- Debt snowball: You focus on paying off your smallest balance first, and put all of the extra money you can dedicate to that account while continuing to make minimum payments on other accounts.
- Debt avalanche: Focus your energy on the debts with the highest interest rates first, while sticking to making minimum payments on the rest of your accounts.
With both methods, once you’ve paid off the first debt, you focus your energy on the next, rolling them into either a snowball or avalanche.
Step 4: Find Ways to Make or Save Money
I did both to pay off my student loans, but I’m a big proponent of the making money strategy over finding ways to save money. Making money is far more effective, but you can also maintain a quality of living you’re used to.
However, it’s worth mentioning that if overspending led to your debt — it isn’t just student loans or a mortgage that you’re attacking, for example — then you need to address that issue. But otherwise, I believe a side hustle is far more powerful than extreme frugality when it comes to paying off your debt.
Step 5: Keep Yourself Motivated
There are a couple of really high points along your debt payoff journey. The first comes when you make a plan, but then it feels like a slog until you start making serious progress and eventually pay off your debt. It’s incredibly difficult to stay motivated during those long periods in between, but you have to find something that works for you.
My wife and I would celebrate small payoff victories with a nice (but still very affordable) bottle of wine. Some people create vision boards or celebrate with dinner out. Whatever it is, you have to celebrate along the way. Don’t go wild and throw off your progress, but paying off debt is hard work, and you deserve to reward your hustle.
Once you’ve destroyed your debt, the world is yours. It’s not only that you have the freedom of being debt free, you’re empowered with the knowledge that you accomplished something so few people succeed with.
It can be work for some to stay out of debt, but a healthy emergency fund and a solid side hustle can help stay out of the red. Also, take advantage of this new found freedom and do the thing your debt has been holding you back from. It’s changed my life, and I know it will do the same for you.
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