Becoming debt-free by 23 may not sound important. In fact, you might have already asked your monitor, “How much debt can someone amass by 23 anyway?” Before I spoil my own story, let’s turn-back the clock a few years, to 2002.
It’s a beautiful May afternoon in Indiana, as my black graduation robe absorbs the warmth of the bright Saturday sun. Nervous energy builds as the emcee painfully works his way through the list of graduates. As I’m standing in line with my peers, I begin to think about what the future holds. One graduate will be taking a PR job in Chicago; another will work for a publishing house in New York. Me? I’ll be returning to the 200 square-foot bedroom in which I grew-up, in Minnesota. Oh, and as for a job? That’s to be determined. The only certainty is that I will soon be getting a letter from Sallie Mae reminding me I need to “show them the money”.
This private, liberal arts university I called home for the past four years made an indelible mark on my character; it helped shaped me into who I am today. It also made a mark on my finances! While I am blessed to have parents that were able to provide for a large portion of my education costs there was still a portion that I needed to shoulder. As soon as I was handed my diploma, I officially moved from the black to the red – to the tune of $11,500.
Before I moved home, my parents and I had an honest discussion about my living arrangements. They were more than willing to let me live at home, but I wouldn’t be allowed to freeload. We agreed that I would pay them $200 a month for “rent” and food, and did not have a length to my contract. $200 was a reasonable amount, considering I was tithing, paying for insurance, gas, and the inevitable new wardrobe to fill-out a college grad’s empty closet.
My parents were instrumental in developing a healthy habit of sound personal finance management. In fact, when I graduated, I didn’t even have a credit card! So now that I had steady income and was paying consistent expenses, it was time to tackle those student loans.
My approach was simple: figure out how much extra I could pay-off on the loans each month. Somehow, the prospect of being saddled with student loans for 30 years just wasn’t appealing. I needed to take a cautionary approach, lest I write a huge check to Sallie Mae and then not have enough to fund my Roth IRA. For the next few weeks Excel was my best friend. I built a simple spreadsheet that tracked my income and expenses on a weekly basis. This exercise allowed me to determine the maximum extra contribution I could make each month while still having enough to pay other expenses.
After establishing this method, I made my first payment in August of 2002. By April of 2003 I had re-paid the loan in its entirety!! (Just in time for my 23rd birthday). That birthday celebration was extra sweet: I was able to see my hard work come to fruition, and had a little extra bounce in my step knowing that I would never hear from Sallie Mae again!