We weren’t always in a position to retire young.
When my husband and I met over 12 years ago, we were both broke college students in our early 20s. Two months after we met, my husband dropped out of college, took out a personal loan for relocation and living expenses, and moved to Los Angeles to become a musician. I had just graduated college with a degree in Economics and decided I didn’t want to work in anything related to economics. We were young and never even thought about our debts, let alone how we paid off debt.
We dated long-distance for two years (me living in Wisconsin, he living in Los Angeles) before I moved to Las Vegas to go to nursing school. Las Vegas had an accelerated nursing program for people who already had a college degree. Spending only a year in nursing school to get my bachelor’s degree, instead of 2-4, sounded appealing. A few months later, after growing tired of the music scene, my husband moved to Vegas with me and we moved in together.
Between us, we had over $100,000 in school and personal loans by the time we moved in together in Vegas. I worked full-time at a hotel while I went to nursing school and he took a job at an IT help desk. I don’t know if we even made $50,000 combined. And on top of our school loan debt, we had car loans and rent. The only thing we didn’t really have was credit card debt. Living paycheck to paycheck sucked. Unexpected expenses arrived, like they always do, and it was difficult to find the needed funds. For example, when my Jeep overheated, we had to put that expense on a credit card and pay it off over a couple of months.
Quickly, we decided we didn’t want to live paycheck to paycheck for the rest of our lives. We wanted to travel, go out when we wanted, have pets, and not feel controlled by our debt. At this point, we hadn’t decided to retire early. We just knew we wanted a debt-free life.
How we paid off debt?
I graduated from nursing school a year after we moved to Vegas. Graduating and getting a nursing job doubled my hotel salary, but it also set the clock ticking on my loan repayment. My husband had already been paying on his loans for several years at this point. We were better off financially with my new job, but we still had a long way to go.
It was really my husband’s idea that we pay off our debt as soon as possible. He ran the numbers and if we paid the minimums on our student loans, we’d be paying them off well into our 40s. That sounded awful! He ran the numbers again to see what would happen if we paid off the loans off in larger chunks. And he realized we could be debt free in a less than 5 years. Five years sounded so long at the time, but looking back, it went by quickly! And in reality, it took less time than we thought!
How did we approach this? Have you heard of a debt snowball? We did that, in the opposite direction. Some call it the Avalanche Effect. The ‘Avalanche’ or ‘Reverse Snowball’ is to rank the highest interest rate loans first. This didn’t give us the quick wins of a debt snowball, but did save us more money over time. This required a LOT of self-discipline!
The ‘Avalanche’ plan would involve throwing the majority of our disposable income to debt and really strapping down on spending. The cutting down on spending didn’t bother me. I’m cheap by nature, but I like to have a large savings account. Not saving and paying off debt was a hard sell for me. Convincing me to partake took some time. The selling point for me was when my husband told me the sooner we paid it off, the sooner we’d get to travel overseas. It was then I began to seriously consider his plan. Promising me travel to exotic locations can make me do crazy things!
We talked for weeks before we finally set out on our plan and created our budget. This new budget meant that we had to combine finances and know where every cent of our finances was going. I’d never combined finances with anyone before and it wasn’t an easy conversation, but it has worked out very well for us. We made sure we were both on the same page and set guidelines on spending and money management. For instance, we said any large ticket item over $100 required us to discuss it together unless it was for special occasions (birthday, wedding gift etc). If you can combine finances and agree on a budget, you’ve got a good thing going!
GET OUR FREE BUDGET TEMPLATE!
First, we calculated our necessary living expenses. This included rent, electricity, gas, haircuts, and groceries. This totaled around $1600 per month.
We didn’t have the dogs yet so they weren’t included in our expenses. We also decided, we would build a cash reserve in our bank account for emergency expenses. The savings goal started small, to satisfy one month of necessary expenses. This satisfied my savings side! So, after deducting necessary living expenses from our monthly income and having money in savings, we put the rest of our money towards loan repayment. We’d pay the smallest amount on all the loans except for the one with the highest interest rate. That way, we’d tackle one loan at a time and still never miss a payment on the others.
Instead of paying off the smallest loans first, we decided we would pay the highest interest loans first…the ‘Avalanche’ I discussed above. The interest rates on the personal student loans my husband had taken out to move to Los Angeles were ridiculously high at 12%. Coincidentally, the personal loans were also the largest loan amounts! By paying off the loans with the highest interest rates first, we were cutting down drastically on the total amount we’d pay over time. Our plan was once we paid the highest interest loan off, we’d move to the next highest interest amount.
The first loan took over a year to pay off. It wasn’t always easy watching every cent we made go to debt. Frustrating is the only word to describe some days. I’d see our friends fly off to Africa or Europe and think, when will be able to do that? There were times, when I just wanted to stop paying down debt. I wanted to go out and spend our money however I wanted. But then my husband would remind me that one day, only a few years away, that we’d be able to go wherever we wanted. And so I waited. Not patiently, but I still waited.
Slowly, but surely, we paid one high interest loan off after another. Whenever we paid a loan off, we would take that money and roll it into the next highest interest loan. If we were paying $1000 per month on the highest interest loan, as soon as that loan was paid, we would take that $1000 and apply it to the next highest loan amount. It was a tiered waterfall approach, where one amount just rolled into the other. And since we were used to putting all disposable income to debt, when we got a raise at work, that money also went to debt repayment. Imagine how exciting it is to get a raise at work just to realize that money is doing nothing but going to debt. It was so not exciting to get a raise back then!
We did make a deal that when we paid off a debt, we would celebrate by going out to a great dinner. We ate at great restaurants in Las Vegas to celebrate. Favorites include the Stratosphere, Hank’s Steakhouse, Olive at Bellagio, and my absolute favorite, Joe’s Stone Crab. Make sure you reward yourself for the hard work! We didn’t forget that we were doing this for ourselves and our future debt free life and we could treat ourselves for hitting our milestones!
To save money, we didn’t go out much. Instead, we stayed home and had cookouts and game nights with friends. We cooked at home almost every night and became masters of the grill. In order to go out for a fancy dinner or a night on the town, I found ways to make side money that wouldn’t be factored into our debt repayment. If I wanted to take us out for beer and pizza, I went to the local blood donation center to sell plasma. Each time I sold it, I earned $30. I also volunteered for marketing panels and focus groups, where I could earn between $15 and $80 dollars for testing new products. Once, I made $50 for trying two shots of Baileys and my husband made $10 for being my designated driver.
Just over 3 years after starting the debt repayment plan, we paid off all of our school and car loans. For the first time in our lives, we had no debt. We were in our late 20s and finally in a place to try the things we’d never done before.
What did we learn?
After we paid off our debt, we could buy the things we wanted and travel to places we’d never been. So we traveled, bought ourselves a few nice toys, like a sporty car, Adventure Jeep (named Reco), nice clothes, and stopped adhering to our penny-pinching budget. But most importantly, we did our first trip overseas and caught the travel bug.
We’ve learned that the fancy stuff doesn’t mean much in terms of making us happy. The one thing that did continue to make us happy was travel. So, that brings us to now. We’ve decided we want to make travel and having fun a way of life a priority. We decided to go back to our budgeting ways and save up for an early retirement.
Currently, we are living off a new budget, one that will allow us to meet our early retirement goals. However, the catch is that we won’t be giving up the things we love to do, such as travel and events out with friends. Instead, we are just going to do them in a more economic fashion, and on a cash budget.
So join me on my adventures and learn how we are making this early retirement dream a reality as I lay out our plans in upcoming posts.