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What are your best tips on paying down debt, readers? Which decisions regarding tackling debt — from student loans to mortgages and beyond — have you made that have worked out well, and which haven't?
Our Personal Money Snapshot series has become a reader favorite (we’re always looking for submissions!), and we’ve started taking advantage of the many posts we’ve published to highlight the info and advice these professional women have generously shared. Our first topic was favorite personal finance resources; today's subject is paying down debt.
In our Money Snapshot questionnaire, we ask the following questions about debt:
- What does your debt picture look like? How did you incur it?
- How much money are you spending each month to pay down debt?
- Have you paid off any major debt?
- Have you ever done anything noteworthy to avoid or lessen debt?
We recently took another look at these readers' answers to summarize their tips and share them today!
Professional Women's Tips on Paying Down Debt
Refinance your student loans
When you refinance your student loans, you consolidate them into a new loan with a single payment. The advantages are a lower interest rate, a lower monthly payment, and better repayment terms. A while ago, we shared a guest post from a reader who wrote about her experience refinancing her student loans. Setting aside that general advice for a minute, this August 2021 CNBC article explains why you shouldn't refinance public student loans right now:
[W]hen you refinance a public loan, it becomes a private one and is thus no longer eligible for certain programs such as the current pause on payments and interest. It also means borrowers can’t enroll in different repayment plans or get certain types of loan forgiveness.
Refinance your mortgage
As of September 15, 2021, low interest rates make refinancing a good idea — depending on your particular situation, of course. (My husband and I refinanced earlier this year — we bought our house in 2008 — and we drastically reduced our interest rate and shortened our loan term. We switched from a big corporate bank to a local credit union, which I also recommend!)
{related: how to pay off big student loans}
Pay down your highest-interest debt first
We've previously mentioned this strategy in our post on paying down debt vs. saving. This strategy will help you pay less overall in interest charges. (Doing a balance transfer to help tackle credit card debt is an option you can use in tandem with this — here are some basics.)
Pay extra principal on your loans if you can
When you do this, you'll pay less total interest on a loan and pay it off faster. A couple of readers wrote that they pay $100 extra on their mortgage every month, while another said that she and her husband make payments on their 30-year mortgage as if it were a 15-year. Another contributor mentioned paying 1.5x her monthly student loan payment. (Just make sure that your bank is solely applying the extra funds to the principal.)
{related: how to make a budget}
Reduce your expenses and direct the savings to loan payments
Money Snapshot readers' strategies include moving in with your parents temporarily, living with roommates rather than getting your own place yet; buying a home for which the mortgage payment equals your monthly rent, “living with a third person in a sub-900 square feet, 1-bathroom condo,” “choos[ing] experiences and time over material items,” and moving to a LCOL area.
{related: paying down debt vs. saving}
Follow the advice of a personal finance expert
Dave Ramsey is a polarizing guy, but several Money Snapshot contributors said they follow his principles to pay off debt. (We included him in our posts on the best financial resources for professionals — with a caveat — and the best financial books for beginners.) For focusing on debt specifically, one of the readers recommended The Value of Debt in Building Wealth by Thomas J. Anderson [affiliate link].
Readers, do tell: What have you done to pay down debt? Have you paid off any large loans?
Stock photo via Deposit Photos / payphoto.
Anonymous
We did something that I know is not popular. We didn’t contribute to retirement in our 20s (neither of us had an employer match) and saved a huge down payment, so we were able to buy a house with 50% down and pay it off within 5 years. We started maxing our 401ks at age 30 when we bought the house, and once we paid off the mortgage we started saving even more aggressively for retirement. This method did not maximize our total net worth, but both of us put a lot of value on the peace of mind of being debt free. We’re not retirement age yet, but our savings are on track to surpass our goals well before age 65 and living in a paid off house has definitely brought the peace of mind we hoped it would. A large chunk of our paychecks are diverted to retirement savings before we see them, but the rest is pretty much fun money that we can do whatever we want with, since we don’t have a mortgage.
I would only recommend this method if you’re 100% sure you can contribute aggressively to retirement once whatever savings goal is met. I’ve seen several people defer retirement savings to save for a house, and then buy the house and not start saving for retirement and that’s obviously not great.
Anon
It’s time to retire Dave Ramsey and highlight better human and more in touch people in the personal finance realm. His gold standard of debt repayment doesn’t always work for people with complex debt situations. There are far more savvy people out there to read or listen to.
That said I did use a DR’s suggested snowball method and it helped for the relatively modest car and student debt I had. This was almost 2 decades ago tho. Student debt loads now seem to look very different than mine did.
I haven’t ever figured out how to start or work steadily at a side hustle and my full time job. I have rentals but that’s a definite love hate relationship that isn’t for everyone. And given their upkeep and mortgage costs they build me not easy to liquidate equity, as opposed to monthly cash flow to throw at debt or investing in the stock market.
In my times of paying things off (I’ve purchased two new cars so far in my life) I’ve found starting is the hardest part. Facing the music and making the changes required. Once I’ve got a plan in place I’ll usually surprise myself by beating my projected timeline for completion. This works on things like monthly investment goals as well. If I pay attention I can find ways to surpass my goal. Perhaps the attention means I am simply more willing to trade present money spending opportunities for future goals. It doesn’t feel like deprivation because I’ve got the future goal in my sights.In the immortal words of Pat Benetar “with the power of conviction, there is no sacrifice”.
I don’t think I’ve done anything extraordinary to pay off debt. Other than the start somewhere and keep focused.
anon
Dave Ramsey is a complete t**l and terrible human – please, please, please stop pointing to him in these posts. His systems set people up for failure. $1000 in savings is not enough for most emergency situations. There are ways to save while paying down debt. Going on a complete debt diet often causes people to wildly swing in the opposite direction and end up in the same hole. You may end up spending more over the lifetime of the debt but cash flow is usually the biggest issue. In addition, people need to see little wins. Paying off a lower interest, smaller debt may be what is needed to give that push to people. Any financial advice that isn’t tailored to a person’s specific situation and their personal goals/best life vision, is useless IMHO. People need to be able to be consistent and when they can’t have anything as a delight (like a latte) then they go off the rails, much like strict food diets. I will continue to highly recommend the Financial Gym for people looking at paying down debt and saving.
Ses
I have always thrown any windfalls at debt. And I’ve had a lot of different kinds of debt – medical, mortgage, student loans, credit card.
It might make optimal financial sense to pay off a low-interest mortgage or school loan, but I wanted to know what it felt like to have no debt at all, so I put every bonus and all pay from side-gigs, even birthday and Christmas money, and anything I could spare from my regular paycheck toward the debt.
It was totally worth it :) when I paid it all off I walked around for like a year saying to myself: this is what it’s like to grow up rich. No student loans!
Ses
That should read “might not make optimal sense”
Anon
Windfalls for me are generally broken up into thirds: Savings; Debt payment; Fun/Discretionary. If I’m real close to something being completely paid off but the 1/3 isn’t quite enough, I’ll dip into fun. I am a big believer in doing both/all at once. It helps reach your total life goals as opposed to just one bucket. That said, I don’t have a full emergency savings yet so this is why a lot goes into savings. (I’ve only had windfalls of like $8k)
Anonymous
Honestly the best things I did to pay off debt were move to a cheaper COL city and get a new job that paid more. I just didn’t have any extra money to pay more than the minimum on student loans before I did that. I kind of wish I had invested more earlier rather than aggressively paying down student loans once I had more money, but it also felt really good to not have student loan debt.
Anon
Refinanced at a lower interest rate and got a better paying job. Nothing too mysterious there, ha. Prior to that, used the snowball method to tackle a couple of the smaller student loans.
Anonymous
We just refinanced our mortgage and were throwing extra $ at principal before. Paid off $50k of my hubbie’s student debt in about a year with snowball approach and extra income from a side hustle of mine.