How I Paid Off $70K of Debt in 3 Years on a Modest Salary

Folders originally labelled Debt, crossed off and now label savings after paying off debt

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Hey all! Today I have a guest post by Liz Brenner of Minding My Thirties.

Liz is a 30-something US expat living in Germany exploring a more mindful approach to finances after paying off $70K in debt.

Like most Americans, I found myself facing thousands of dollars of debt coming out of grad school. Of my $70K deficit, about $10K of that was from consumer credit card debt. I was also earning a modest salary of around $40,000 per year when I graduated.

This was just a few thousand more than the average individual income in Chicago (where I lived at the time). Despite all this, I managed to get out of debt and build a nice investment portfolio in a little over three years. Here's how I paid off $70K of debt in three years on a modest salary:

Full-Time Work While in School

Fortunately, the grad school I attended was for working professionals. Which meant I could work full time and attend class at night three days a week. I maintained this intense schedule for two years. Although stressful, it enabled me to earn money while in school.

And even though it was not quite enough to keep up with my self-imposed inflated lifestyle, it was certainly better than the alternative: not working at all and taking out private loans to live on for two years.

The unfortunate side of this was that I did not live like a college student while in grad school. I lived like a working professional making more than she actually did. This, along with not understanding how credit cards actually work, is how I found myself in $10K of credit card debt.

But for the most part, working enabled me to pay for basic needs and build a career with the company I stayed with well beyond grad school. In turn, I received decent raises that helped pay down my debts (more on that in a bit).

My advice: work full-time (or close to full time) and attend school part-time. Put more energy into an income-producing resource rather than a $60,000 certificate of completion. (I'm not knocking a college degree, but that's essentially how I feel about my own experience.) You may not be able to avoid taking out loans for the tuition, but try to avoid taking on debt to support your basic needs like rent, food, and school supplies.

Put All Additional Income Towards Your Debt

After graduation, I was immediately promoted. In fact, I was promoted twice in a matter of two years with my company. Each promotion came with a 10-15% raise. All that additional money? Went straight to my debts (or investments), allowing me to pay way more than the minimum.

I also incurred smaller raises each year, most around or just above inflation. If I could do without those raises, they also went towards my debts.

I was also fortunate enough to receive quarterly bonuses from my company, ranging from $1,000-$5,000 for each bonus. This additional money always went directly towards my debt. Not to mention these bonuses were particularly motivating as I was able to shave thousands of dollars off my debt balance in one payment.

My advice: Don't let your additional income or bonuses linger in your bank account. You'll find a way to spend it on things you don't need. Instead, set up automatic payments for that additional money and allocate it towards your debts. Also, be assertive and proactive about your raises.

During one review, I asked for a 20% raise (knowing full well that was a bit of a stretch), and they countered with 15% – exactly what I was hoping for. Build your own case, and don't be afraid to ask. The worst they can do is say no. And maybe it's an opportunity to move on and find a company that pays your actual worth!

Make Sacrifices to Cover Your Debts

Less than a year after graduating, I moved out of my expensive downtown apartment and in with my mom. Fortunately, she still lived in the Chicago area, making it easy to see friends and commute to work, but unfortunately – I was living with my mom!

As cool as she is, it's not something every 27-year-old wants to do. And personally, I was reluctant to get a second job as I was still recovering from the stress of an 80-90 hour full-time work and school week. Living with my mom was a much more viable option.

Perks: I lived with her, rent (and grocery) free, for six months. Free (and folded) laundry included. Home-cooked meals. Quality time with my mom. And best of all – this time enabled me to pay off that $10,000 credit card debt!

When living alone, I occasionally made some progress on the consumer debt, but without a real savings fund in place, any unforeseen costs would easily knock me down a peg, putting me right back in the deficit.

Living with my mom, along with a fat bonus I received one quarter, allowed me to crush that consumer debt long before I moved out! Something I once considered a sacrifice, I definitely look at with gratitude for the opportunity to do this.

My advice: Move back in with parents, find roommates, or move to a less expensive location – anything to significantly reduce your expenses. If none of those things are an option, don't forget you can always increase your income. Ask for raises, freelance, pick up a second job, or build a passive side hustle.

I know it's more work. But it doesn't have to be permanent. Set a timeline or a monetary goal to work towards. Once you achieve it, ditch the gig, or maybe keep working the side hustle, but reduce your hours. Or better yet – continue – and invest all that additional income!

Reduce Your Expenses

Clearly, I reduced my expenses by moving back in with my mom. However, I knew I had to completely re-build my financial habits if I wanted to stay out of debt. I mentioned earlier that while in grad school and earning $40,000 per year, I acted as though I earned much more.

I enjoyed expensive nights out with friends, vacations, subscriptions, memberships, and clothing-sprees. You name it. I spent money on it.

When I moved in with my mom, I also discovered minimalism and began to re-evaluate my lifestyle and choices deeply. I wanted to make more mindful decisions when it came to relationships, finances, and where I focused my energy and time. Through this self-discovery process, I was able to eliminate a lot of the clutter.

I figured out what was important, got rid of what wasn't, and made a huge effort to stick to these habits. It meant spending less on unnecessary wants, more quality time with people I care about (not just drunken nights out), and more energy on passions and self-improvement.

When I moved out of my mom's place, I moved into a less expensive neighborhood, took public transit instead of Ubers, spent time with friends while enjoying free or inexpensive activities, and stopped mindlessly spending in general.

My advice: I'm not saying you need to adopt a minimalist lifestyle, but I strongly urge you to consider how and where you spend your money. Does it reflect your values? Do those new shoes or that new piece of technology really make you happier? Or more attractive? Or a better person?

Probably not. Those things come from within. This is an ongoing process, even something I still manage to this day, but doing so can open up financial opportunities and set your future self up for success.

Celebrate Debt Repayment Wins

As the debt reduced, so did my anxiety. Even so, I still felt overwhelmed or annoyed with my debt from time to time. Whenever this feeling emerged, I made it a point to review how far I came on my debt-repayment journey and celebrated (within reason, of course).

Occasionally I took $100 from my bonuses and treated myself to a nice meal or invested in a quality piece of clothing. By learning to deny my instant gratification desires, I was able to enjoy the moments when I did spend ‘significant' money.

It meant I spent money on things or experiences that truly brought joy or value to my life. And because of this habit, I no longer harbor buyer's remorse or guilt when it comes to spending money. I spend consciously and reasonably.

My advice: Acknowledge where you are on your journey and be kind to yourself along the way. Don't compare your status with someone else's. Just take it one day at a time.

It's okay to be frustrated or upset by your financial situation, but leverage that as fuel to get you moving so, you can get out your situation as soon as possible. Take time to enjoy, or even celebrate, how far you've come. Even it's every $100 towards your debt – acknowledge that you are doing something about your situation. Feel empowered by this!

Continue Investing While Paying Down Debt

This is the more hotly debated topic in the personal finance world. I am a huge advocate for investing early and often and letting compounding interest do the work for you, even when you have debt. So my take on this may differ than most.

Regardless of where we each may fall on the subject matter, I had three reasons for why I continued investing while paying down my debts.

  1. To maximize my employer match for my 401k. That is free money; I'd be a fool not to take it.
  2. The power of compounding interest is most beneficial when you have time to capitalize on it, and seeing as I was in my mid to late 20s, I knew that was prime time for me to be investing.
  3. Checking my investment accounts quarterly or semi-annually was beyond motivating on my debt-repayment journey. Instead of starting with a net worth of zero once I paid off the debt, I had a nice, sizable nest egg. This reinforced my investing habits once the consumer debt was gone, and I was able to sock away even more.

My advice: Do what's right for your financial journey. But a good rule of thumb is if the debt has an interest rate of less than 6-7%, it might benefit you to continue making investment contributions while paying it down. If the debt has a much higher interest rate, like consumer debt – then reconsider this strategy.

Be conscious of your emotional relationship to the debt as well. If focusing your financial resources and energy on paying it off means a healthier headspace – then do that.

Final Thoughts

Get clear about a debt repayment strategy. Know exactly how much you earn, your expenses, and how much you owe in debt. Figure out where you can make sacrifices and take it day by day.

Find a path that works for you and be aware that the best way to get there may not be the same way as someone else. Personal finance is exactly that – personal.

Learn how Liz paid off $70,000 in debt in three years while having a modest salary. Her story is one we could all learn from.

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