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How to Pay off $100,000 in Student Loans & Debt in Three Years or Less

How to Pay off $100,000 in Student Loans & Debt in Three Years or Less

Primary Points:

  • Your Debt is an Emergency–Live like you’re in an emergency situation
  • Debt is the enemy of freedom. 
  • Choose your freedom date
  • Experiment how much you can pay off in one month–make it a game. 
  • The Snowball Effect
  • Remember to live a little too–Chronic stress isn’t good for anyone.

So by now you’ve already read Our Financial Story and how we paid off $97,402 in ~3 years. We only had two full years of double full-time income, which came to roughly $65,000 per year gross income, not net income. For most professionals that’s merely one salary, and for lower income couples that’s a pretty handsome double income. My point is we weren’t pulling in the money like some Financial Analyst, Computer Engineer, or Lawyer–we were for the most part regular college graduate income earners with humanities degree. In fact, according to Mrs. Financial Bishop and I have two of the worst paying degrees out there! And if we can do it with our “low” income earning humanities degrees, so can you! 

As Mr. Money Mustache says, your debt is an emergency–a real life emergency that should cause everything else in life to come to a screeching halt. When an emergency happens, a singular focus occurs. Everything else in the world narrows and your focus is acutely sharpened to one point–the emergency! Why is your debt an emergency? Because it is THE  BARRIER to your long-term success

Debt  is like a virus, it eats away at your body making you weak, feeble, and unable to perform at your best. More importantly, it keeps you down and it taints every decision you make, either consciously or subconsciously. Where should you live? Well wouldn’t you know, that’s completely based on the mortgage you can afford–how much debt do you have again? Where will your children go to school? Again, and I know this will come to you as a shock, it is also tied to where you can afford to live. What kind of job would you like to have? That question is inescapably linked to “How much money can I make doing X or Y?” Or how about, “Can I go visit my sick mother or father in the hospital?” Well, can you afford to do that? Do you have a good job that will allow you to step away for two weeks while you take care of your loved one? What if they say no, do you have the freedom to quit to take care of your family? What if your boss asks you to participate in a system that goes against your values? Can you say “no” and walk away from that toxic environment? The ability to say “No” and choose a not-so-common path is the power of being debt free. The crazy thing is, you cannot even see that option if you’re piled under thousands of dollars of debt. 

Where you live, what you do, how much time you get to spend with the people you love the most is all tied to money, and if you’re in debt you’re doubly bound to this reality. If you were debt free with 10 times your annual expenses at your disposal you could gain a lot of that freedom back. And, if you were debt free and had 25 times your annual expenses you truly have your freedom to work where you want to work, live where you want to live, spend time with the people you want to spend time with, and even give your time to those in need. In other words, you could have an ACTUAL FREE CHOICE that’s not tainted by the need for money.

How does one pay off $100,000 of debt in three years or less? Well, here’s how we did it:

  1. We fostered a belief that it could be done–hope is the great enemy of fear, and it fights off depression that debt can bring on. We had hope because we ran the numbers and made, sometimes hard choices to reduce our spending so we could increase the amount of money we paid towards our debt each month.
  2. Develop a singular focus of mind and will to address your debt emergency! People don’t play when there’s an emergency going on, they do what must be done to ameliorate their debt problem. If your significant other isn’t on board, you’re going to have a hard time accomplishing your goals. Sit down with them and share your values, share your concerns, and use “I feel” statements like “I feel unsafe when we have $100,000 in debt”. Or “I feel secure when we can put back X amount of money each month in investments and savings.” Or “I feel like I’m taking crazy pills when we go on spending our paychecks when we are loaded down with debt.” Maybe don’t use the last one, but you get the idea.
  3. We developed a frugal spending plan. Since debt is an emergency, we cut out most–but not all–fun money or extra expenses. We gave ourselves 1 night a week where we’d go out to eat for dinner and limited the amount of money we were willing to spend (oftentimes we’d share meals).  We had friends over instead of going out. We got rid of our second car in graduate school and became a one-car family. We reduced our clothing budget. We reduced our meat and dairy consumption–lost weight and had to buy new clothes, which admittedly was an unforeseen cost. We said “yes” to select social events and “No” to last-minute unplanned frivolous extra spending events–in those situations we often asked for an alternative solution (i.e. come over, or we’ll come over to your place to spend quality time). We got our groceries at Aldi, and we planned out our meals weekly to reduce cost and waist–all meals were made from scratch–so that last night’s dinner became lunch for the following day. I was lucky enough to have a job that covered housing costs, and several meals covered each week  (but this also came with the downside of getting paid very little money–$30,000 per year gross pay!).
  4. We used Dave Ramsey’s envelope system and paid in cash for almost everything. A key component to the envelope system is to always pay in cash—at least until you get out of debt and have learned to use your credit card like a debit card. The reason why you will want to pay in cash is not because cash is king, but because it’s more psychologically relevant and present in your life when you have to exchange the money physically from your hands to the merchant’s hands. You see the money dwindle in your purse / wallet. It stings a little to see it go. You also are more aware of its absence than a mere line item on a budget sheet. The psychology and emotional reality behind paying in cash is why you need to pay in cash. You’re developing your CENTSability.
  5. We chose our freedom date–the date we would be debt free. This allowed us to know what we would need to pay each month to hit the target date. Here’s the post-it note I used to figure up how much debt we had and when we might reach our debt free goal…before we added the car loan which added an additional 6 months of debt-enslavement!


  6. We took over half our income and put it towards our debt each month. Because both my wife and I worked–she made $35,000 and I made $30,000–we took my whole net salary plus some of hers and we put it towards the $97,402 we owed. To be clear, $78,402 of it was school loans and the rest was a car loan we picked up about a year and a half into the three year journey. Some months we were able to put back more than others, but after about a year we settled on $2,477 per month. I know, it’s a completely random number; it’s not a nice and neat number, but that’s exactly what we could afford, down to the last $7.00 per month. Again, some months we were able to put back more if we underspent in some other categories of our spending plan
    1. Side Note: Even though we were aggressively paying off student loan debt, we had already started a habit of setting back a little money each month for our 401(k), IRA’s, and a European trip–on the salary of 65-66k a year. In 2013, before we had paid off our loans, we used the money we had saved up to take an anniversary trip to Ireland. Did this make the most CENTS? No, but it was emotionally healthy, healing, and it provided us the psychological reward to continue on our quest to reach debt free status. Again, the personal finance game is not all about numbers on a page, it is also a deeply psychological game. Sometimes you really do need a reprieve from “normal” life.
    2. The side benefit for having already put back a little bit in our 401(k)’s and IRA’s is that once we were done paying off debt, all that money could more easily just shift over towards our investments without any lag time. Don’t underestimate the benefit of a mere $50 each month in your 401k’s and IRA’s. The habit of investing is an important one to develop even when you’re in debt. Again, it doesn’t make financial sense to do it this way, but it makes psychological/emotional sense–you can check your balance and see that even if you feel like you’re not getting anywhere with your debt, you have a little bit going towards retirement that you can watch grow over time.
  7. We used the Snowball method of paying off debt, because at the end of the day, this is a psychological/emotional battle and not a mere numbers game. Most of humanity is not a heartless engineer or computer technician who can coldly go about the world in some smug inhuman stoic state. You’re a human, it’s okay to name that and what you’re experiencing and how that relates to your finances–this will actually help you in your quest to become debt free. When you can name the emotions behind why you want to purchase a good or service, you can start to address the underlining and more real issues at hand. Again, this is a psychological/emotional game. For this reason I set the automatic payments on all the loans except the one we were aggressively paying down. For that loan, the debt we were trying to kill, I paid it off manually–it’s good to have the psychological satisfaction and sadness that paying off the debt brings. Satisfaction because you’ll see the principle go down, and when you finally get to pay off one loan and apply all that money you were paying to the old loan to the new debt, there’s a sense of empowerment that can come with it. But, there is also a sense of sadness because you realize how depressing it is to have mounds of debt hanging over your head and that if you weren’t in debt you could be investing that money for a better future–you will never, ever, want to go into debt again after this experience!
  8. In a relatively short amount of time–approximately 3 years–we paid off $97,402 in debt and threw a party to celebrate!

More Life-Hacks to Reduce Expenses & Pay Off Debts Quickly

    1. The Snowball method cannot work unless you do the hard work of developing a spending plan and start to develop your own life-hacks to reduce the amount of money that is flowing out of your bank accounts. 
    2. Reduce, reuse, borrow, and try not to buy. Minimalism and Mustachism/Hyper-Frugality go hand-in-hand. They’re not mutually exclusive. For Minimalism, try these guys, or this guy. For Hyper-Frugality try the classics like Early Retirement Extreme or Get Rich Slowly by J.D. Roth, or the Mad Fientist
    3. Don’t expand your spending life. In fact, try a Spend Nothing Year
    4. Aside from groceries, wait on your purchase. Seriously, just give yourself a few days to separate yourself from the emotions of the purchase. I normally shop online, esp. for my Home Depot purchases. If I think I need something I’ll put it in the in digital cart and wait. I’ll see if I can’t borrow from a friend, reuse another tool or find another method, and if all else fails I’ll then breakdown and buy the item if I believe it’s truly necessary. I’ve been surprised at just how much stuff I haven’t ended up purchasing because I gave myself a few days to mull it over. 
    5. Shopping for Clothes—checkout Marshalls, esp. off season. Shop your local consignment shops, or perhaps your local thrift store—if you’re in a big city area, you’ll have no excuses because people will literally throw out clothes with the tags still on them!
    6. Make it a game—level up by withholding purchases. Test  yourself–try going without beer or alcohol for a season and see how you feel! You’ll save money and lose weight! 
    7. Question your “normal”. Start to question everything. “Wait but why?” is a good question to keep in your back pocket. Start thinking like a scientist—question human behavior and start to look at things from an outsider’s perspective. When I lived in Hong Kong I would tell people about what it was like to live in the USA. We’d swap stories and experiences. What surprised me most was just how different the US is–we have great big houses and multiple cars and we think “well, I wish I had a bigger home” or “I wish I had a fancier car.” The fact is many people in the world don’t own cars, and to have more than one is a luxury. When I told my friends in Hong Kong that most US citizens where I was from owned at least two cars, they looked at me like I was crazy. It helped me begin to question my “normal.”

At the end of the day, it really is important that you don’t live with debt. It’s a chronic illness that eats away at many aspects of your life. However, it’s also not a good idea to tackle the problem of debt like a heartless-non-human stoic taking away every last penny for the sake of a 0.001% higher savings rate–if you do, you might just find yourself divorced, unhappy, and alone with your money. You’ve got to find a balance, but don’t be too lenient with yourself either. If you know that you’re the type of person who tends to “let things just happen as they will, it’ll all work out” then balance that out with a hefty dose of frugality and CENTSability. But if you’re the type of person who already loves spreadsheets and are naturally frugal, maybe it’s okay to put back a couple hundred bucks a month for that vacation, in order that in the long run you’ll stick with the plan and not go out on a binger after you’ve cracked under the frugality pressure of attempting to get that 0.001% extra savings rate. It is a balance, but don’t forget, your debt really is an EMERGENCY, and in order to address it you need to be willing to try and make it your singular focus–at least until it’s paid off. You might surprise yourself at the end of this journey and find that life isn’t so bad after all with a reduced spending budget and a richer life. 

The Financial Bishop
Personal Finance for the Real World

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