How I Left My Debt: Cutting Small Expenses to Reach a Big Goal

In this series, NerdWallet interviews people who have triumphed over debt. Answers have been edited for length and clarity.

[Editor’s note: Whether accelerating student loan payments makes sense for you depends on your unique circumstances. NerdWallet offers updated advice on how to handle student loans as the economic fallout caused by COVID-19 evolves.]

This month, Neal Fogarty and his wife, Laura, will begin renovating the basement of their home outside of Kansas City, Missouri. Updates include a bar, entertainment area, bedroom and bathroom. They had wanted to renovate the space for some time, but until last year, Neal’s student loans stood in the way.

Growing up with a single mom who found herself struggling with her credit cards, Neal never liked the idea of ​​going into debt. But he knew he would need to take out student loans if he wanted to get what he called the “life boost” that a college education would provide.

Neal was educated at community college, then followed Laura to Graceland University in Iowa. Being the first in his immediate family to attend college, he had no one to help him meet the loan. In 2011, he graduated with $ 36,600 in debt on four student loans.

He made his payments regularly until he and Laura, a teacher, decided they didn’t want to keep investing money in loans every month. Instead, they took steps to make their money work for them and they also put some aside for the future of their two little daughters.

In February 2019, Neal refinanced its loans at about $ 18,500. They cut back on monthly expenses they didn’t need and found ways to save on their insurance payments. In October 2019, about nine months after the refinancing, Neal made his last payment.

Now 32 and working in sales, Neal spoke with NerdWallet about his journey deleveraged.

It’s time to crush the debts

Sign up to link and track everything from cards to mortgages in one place.

What were your monthly payments and how much did you earn while you were paying them?

I started with monthly payments of $ 556, but when I refinanced with Earnest I reduced them to around $ 330.

It’s hard to say how much I was making because I make commissions and that has been a big part of my career so far. In the last year of repayment, every commission check I wrote went toward my loans.

How did you increase your payments?

After I refinanced, I continued to pay off my loans as if I had the initial minimum payment of $ 556. Laura and I have a joint checking account and we agreed to pay each other a certain amount each month, and then every additional dollar would go towards paying off the debt. I put pretty much all the commission I made and our tax refund on the debt.

We also looked at everything in terms of spending and asked, “What can we eliminate? I was paying around $ 100 a month to park in downtown Kansas City for work, so I started parking farther away and using the $ 30 lot. We asked ourselves things like, “Do we really need four streaming services?

Then we looked at insurance, which I had never done before, and we also lowered our rates there. In all, we saved about $ 300 per month.

Was it difficult to make these cuts?

I think we were so focused on the goal that we were like, “It’s okay, everything will be fine.” We kind of came up with little tips and we were like, ‘When you compare this to our larger goals, how important is it that we have HBO? “

We kind of made it a game of, like, “What can we take away this month?” Do we really need this now? We found ourselves spending more time together doing free things which allowed us to remove more stuff.

What are your plans for the extra money you have each month now?

We have a ranch style house and under the house is an unfinished basement which we are going to finish completely. We are planning to add another bedroom and bathroom there and create a space to accommodate our friends so that not everyone feels so compact.

Hopefully this will add value to our home as well and I’m really happy to put the money into something that has a yield instead of just paying interest on a loan.

I am also proud to put money in my daughters savings account. We have two Betterment for Education accounts, two for their weddings, and we have started saving for a family trip to Disneyland. We haven’t decided when to go yet, we will probably wait until they are a bit older. [Editor’s note: NerdWallet recommends using investment accounts for expenses that are at least five years in the future. For money you’ll need sooner, use a high-yield savings account instead.]

How not to get into debt?

When it comes to credit card debt this is a core belief and fear for me so I wouldn’t even consider making a purchase on a credit card if I can’t afford it today. . I have a credit card for Sud-Ouest [Airlines] points and we pay them back at the end of each month, so I think credit cards have value, especially these travel rewards programs, but again I’m very disciplined.

I don’t really make impulsive choices so if I can’t afford it now I’m not going to afford it later I’m going to have to save up to pay for it anyway.

We are also saving to pay for the purchase of a new car. Our cars are both doing fine right now, but when we need to buy a new one, we’ll already have the money for them, so we won’t have payment for the car.

It’s time to crush the debts

Sign up to link and track everything from cards to mortgages in one place.

What advice would you give to those trying to repay their student loans?

There are so many learning platforms to use now. It also helped me listen to podcasts and read articles regularly to stay motivated.

It’s so easy to walk away from your plan because the extra payments you make aren’t taxed on you. It takes discipline.

How to get rid of your own debt

To make progress in clearing your balances, try these approaches:

  • Consider refinancing: Refinancing federal student loans could lower your interest rate, but you will lose benefits that could help if your income changes in the future. Make sure your work is solid and consider other pros and cons before refinancing.

  • Establish a repayment plan: If you pay off your debts at the highest interest rate first with the avalanche of debt approach, you can save money on interest in the long run. If you enjoy small wins and think it will be easier to stay consistent on small payments, try the snowball approach to debt. With Snowball, you focus on paying off debts from the smallest balance to the largest.

  • Consolidate where you can: If you have multiple sources of high interest debt, such as personal loans and credit cards, you can consolidate in one monthly payment.

Photo courtesy of Neal Fogarty.

Leave a Reply

Your email address will not be published.