Newly graduated Therin and Destiny Alrik paid off $ 6,000 in student loans in less than a year. The Las Vegas couple have a total student debt of $ 142,000, which they are determined to pay off in their early 30s.
Therin Alrik, 22, a graduate student at the University of Nevada, says he and his wife paid $ 6,000 by tracking spending, cutting unnecessary expenses and paying back more money than they owed.
Here is how they did it.
They follow the “debt avalanche” method
To repay their loans, the couple decided to follow the “debt avalanche method”.
The method forces them to focus on paying off their loan at the highest interest rate first – contributing more than what they owe on that loan while paying the minimum on any other loan. Once they pay off the loan with the highest interest rate, they move on to the next one, repeating the process until each loan is paid off.
Alternatively, the “debt snowball” method, invented by author and businessman Dave Ramsey, would have forced them to focus on paying off the loan with the highest balance first.
Alrik says the avalanche method will take them longer to pay off their loans, but will save them money in the long run.
“This method saves you the most money overall because – by attacking the highest interest rates first and gradually going down – you pay less interest,” says Alrik.
Alrik, a graduate student in creative writing and personal finance blogger, and Destiny, photographer and wedding planner, have a combined income of approximately $ 50,000. The couple earn extra money through independent concerts.
The Alriks graduated from college over a year ago with 24 loans between them. They have deferred 16 of their low-interest government loans until next year, Alrik says, and are now paying off six of their higher-interest loans. So far, he says, they have already paid off their two loans at the highest interest rates.
The couple are doing their best to contribute at least $ 800 a month to their loans, which currently have a minimum monthly payment of $ 500, according to Alrik. By following the avalanche method, they plan to continue contributing at least $ 800 per month until all of their loans are fully repaid.
Alrik says the “debt spiral method” is another option
According to Alrik, there is a third, lesser-known method of paying off debt, called the “spiral method,” which combines the benefits of snowball and avalanche methods. The method requires you to do some calculations:
- Divide the interest rate on each loan by its outstanding balance. Then pay off each loan in order from smallest to greatest result.
Alrik says the spiral method will cost you more in interest than the avalanche method, but less than the snowball method, and is ideal if you want the combined benefits of each.
“You save money on interest,” he says, “while trying to get that gratuity of feeling like you’re making progress in paying off balances faster. “
They closely monitor their spending
In order to pay more than they owed on their high-interest loans, the Alrik, who pay about $ 1,000 a month in rent, had to cut spending significantly.
They created a detailed spreadsheet that divided their expenses into 17 categories. Alrik programmed the spreadsheet to fill out a pie chart and graph, which he said helped them visualize their spending.
Here is an example of the model, which does not reflect the couple’s actual finances.
They cut down on restaurant meals and groceries
Alrik says tracking their spending in the spreadsheet helped the couple see how much they were overspending on groceries and restaurant meals.
“Even if you only go out to eat once a month, or once a week, you do it 4 to 5 times a month, and suddenly, especially if there are two of you, there are hundreds of you,” he says. .
The couple reduced the number of times they dine out to about twice a month, Alrik says. They also go out for lunch more often than dinner, which he says saves them a lot of money. In total, he says, they’ve cut the amount they spend eating out to about $ 100 per month.
They don’t stick to a strict budget and sometimes allow themselves to dine out if they’re still within their spending limits by the end of the month, Alrik says.
The Alriks have also saved big on groceries by cutting back on animal products and opting for mostly vegetarian meals.
“It ended up lowering our average grocery bill from $ 400 to $ 300 per month,” he says.
They keep an overall goal in mind
The couple have set a goal of paying off all of their student loans in their early 30s, which helps them stay on track. Alrik plans to earn a higher salary after graduating with his masters degree in two years, which he hopes will allow him to contribute more towards their loan repayment.
“I can certainly say that with the strategies we have and the determined people that we are, it will pay off in 10 years,” he says.
He says it’s important to understand that paying down debt takes time and not to get discouraged.
“After a month, you probably won’t feel any richer than you already have been,” says Alrik. “So just knowing that and trying not to get discouraged after three or four months if you feel like nothing has changed is totally normal. It’s a long-term idea. It’s a long-term adventure.
CORRECTION (Oct. 17, 2019, 6:20 p.m. ET): An earlier version of this article incorrectly stated that Dave Ramsey coined the term “debt avalanche method”. He coined the term “debt snowball”, not the debt avalanche method.
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