How I Crushed My Five-Figure Student Debt on a $25k Salary

Greetings, readers! Just over a year after launching this blog, I’ve finally roped Daniel into writing a post! I hope you’ll enjoy some more background on his financial story and how he, too, was able to build enough financial security to be comfortable dropping everything to travel the world. – Matt

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Back in the early 2000s, at the well-informed and responsible age of seventeen, I took a few tours of college campuses, was impressed by the lovely buildings and manicured lawns, and made the decision to go $23,000 into debt.

Four years later, I graduated with a bachelor’s degree in the highly practical field of European history. As a wide-eyed college student with visions of making the world a more just and equitable place, I went into social service, working primarily with marginalized communities. The work was meaningful and challenging, but as you’d probably expect, it wasn’t exactly the most lucrative.

Over the last six years of full-time work, I earned an average of just $25,000 annually.

For many people, that combination of low salary and high student debt would have been a sentence to decades of financial challenges. But with the right habits, I enjoyed some of the best years of my life, saved a bunch of money, and paid off the entirety of my student loan debt. Here’s how I did it.

How I Crushed My Five-Figure Student Debt on a $25k Salary

I started my career earning very little.

Wait, what? Shouldn’t step one to paying down debt be to earn a lot of money?

It wasn’t for me. For the first two years of my career, I worked with two non-profit organizations via AmeriCorps, the federal program often described as the “domestic Peace Corps.” The program gave me the opportunity to do direct service – exactly what I wanted to be doing – in exchange for about $12,000 per year.

After my fixed expenses, I was left with just $100-150 of discretionary income each month.

That level of income doesn’t allow for a whole lot of splurges, but it does teach you how possible it is to live with less.

Choosing a low-income job (and it certainly was a choice) forced me to question even the most basic “normal” expenses. Living alone wasn’t an option; instead, I spent two years living in community with seven roommates. Owning a car was out of the question; my only reasonable option was to learn how to commute by bike. Dining out, going shopping, and other expensive activities were rarities, too.

Matt talks a big game from time to time about his low spending habits, but when we first met, he was spending 2-3x my annual income! I picked the venues for our first couple dates, which included a by-the-slice pizza place and one of the cheapest dive bars in the city. Do you know what Matt picked for our fourth date? A Seattle bar called Canon, a place that pretentiously describes itself as a “whiskey and bitters emporium,” has been ranked in the top 10 bars in the world, and charges $14 and up for a drink. I think our total was almost $100.

[Matt note: Whoops, it’s true! I’m a jerk. But I still love that bar.]

Fancy cocktails: How NOT to pay down student debt

Fancy cocktails: How NOT to pay down student debt

I embraced simple living.

Living simply wasn’t just a matter of necessity; it became a conscious choice.

Few things helped me reduce my material desires more than my experiences at work, where I spent eight hours a day providing basic services like showers and socks for people who were largely ostracized from society. Many of my clients, lacking even the most basic possessions, weren’t yearning for cable TV or the newest smartphone. They just desired the fundamentals: connections to other people, good health, and meaningful work. After encountering that at work day after day, it was frustrating to be constantly bombarded with media messages trying to convince me that frivolous purchases were of the utmost importance. In my view, society’s priorities were out of alignment.

Every advertisement has basically the same message: “Buying things will make you happy. If you want something, you should buy it. It will feel good! And other people will think more highly of you.” My experiences, though, have taught me that buying things has never increased my long-term happiness. In fact, it’s mostly distracted me from the things that truly make me happy. The more I’ve cared about my possessions or how I appear to others, the more self-conscious and unhappy I’ve been.

The look of true spiritual fulfillment

The look of true spiritual fulfillment

Living simply made me feel more aware of myself and connected to the world around me. Commuting to work by bike, for example, came with benefits like daily exercise and more time outside – but it also unintentionally opened the door to personal connections with my clients, many of whom biked out of necessity (even if my lifestyle was a choice).

Simple living also appealed to me as an environmentalist. Society’s message to buy, buy, buy has created a culture in which everything seems disposable. Many of the negative externalities will be felt by the global non-white poor – people like my clients. It’s an overwhelming issue, but my reaction was to incorporate simplicity into my own life and to encourage others to do the same.

I avoided lifestyle inflation when my income grew.

After two years of AmeriCorps, I took a full-time job with a non-profit organization working with low-income people with disabilities. With my first “real” salary, I allowed myself a few modest increases in spending – but only on things I valued. The challenge was to put an aggressive limit on that inflation so that I could achieve my financial goals.

How it felt to earn $25k a year after two years of AmeriCorps

How it felt to earn $25k a year after two years of AmeriCorps

I allowed myself spending increases on three things: travel, food, and drink. All of these activities generally involve socializing with other people. Community remained my first priority.

For other spending categories, I worked to keep expenses low. Rather than move into my own apartment, I continued to live with roommates. I kept my transportation expenses minimal, commuting by bike rather than buy a car or take the bus. I took up travel hacking, taking advantage of credit card sign-up bonuses and opportunities to stay with friends and family. Even with limited spending power, I was able to travel all over the country – from New York to LA, San Francisco, Denver, Minneapolis, and Michigan. Sometimes I even tagged along on Matt’s work trips to enjoy a free hotel; thanks, corporate America!

We use two free tools, Mint and Personal Capital (affiliate link), to track our spending and net worth every month. It helps us keep track of where our money is going – and to adjust when we don’t like what we’re seeing!

I was persistent.

There’s no big secret here. Paying down debt is ultimately about setting goals and sticking to them.

I had the help of one unique benefit from my AmeriCorps service: an end-of-year education award. While I could have waited to use the money for graduate education down the road, I immediately applied it toward my existing loans. In addition to wanting my debt gone, I also wanted to recognize the income while I was in a low tax bracket.

Even after the award, though, I still had five figures of debt. Paying off the remainder of my loans became one of my core focuses.

I evaluated taking advantage of Public Service Loan Forgiveness, a federal program that forgives debt for certain public service employees, including those working for non-profits. In order to meet the requirements, though, I would have needed to commit to service work and drag out regular payments for ten years. While it’s a great fit for many people, I wanted my debt gone as quickly as possible, so I decided to go all-in on a shorter timeline.

If I were doing things again today, I would also explore student loan refinancing. Services like LendEDU (affiliate link) have made it much easier to evaluate refinancing and consolidation options in minutes without having to spend hours working with different lenders, and the savings from a lower rate can add up to a lot of money over time.

We're a long way from President Bernie, so you'd be wise to create your own student debt repayment plan

We’re a long way from President Bernie, so you’d be wise to create your own student debt repayment plan

Time took care of the rest. I set up regular withdrawals for the beginning of each month to ensure I would stick to my goals. “Paying yourself first” works just as well for debt as it does for saving: when the payments are automatic, you don’t even see or think about the money.

On top of my regular monthly contributions, I also made additional quarterly payments with any money I had left over (aside from a three-month emergency fund that I always maintained). With a few of those extra dollars adding up, I ended up making my last payment just four years after receiving my diploma. Advancing my loan repayment timeline saved me over $5,000 in interest versus making only the minimum payments.

Along the way, I made room for other financial goals. As one example, one of my best friends got engaged and planned a wedding in Ireland. The week I learned about it, I set a goal to eliminate $20 a week of expenses. One year and many more homemade lunches later, I had achieved my goal and banked over $1,000 for the trip.

Traveling in Ireland: Even sweeter when done without looming student loan debt!

Traveling in Ireland: Even sweeter when done without looming student loan debt!

Once my student loan debt was paid off, I didn’t change my financial habits. With no debt, I made saving money my top financial priority. I took advantage of my employer’s generous 403(b) matching program, too, contributing the maximum I could afford.

I’m still a long way from financial independence. But I didn’t take off on this travel journey with no financial foresight. In addition to being debt-free, I’ve built a solid emergency fund on which I could support myself for at least six months without an income.

I’ll always remember that satisfied feeling I experienced when making my last loan payment. Setting aggressive goals and eliminating my debt was one of the best decisions I’ve ever made. It’s given me the freedom to reach other long-term financial goals and the comfort to take time off to travel. I can’t recommend it more!

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How I Crushed My Five-Figure Student Debt on a $25k Salary
How I Crushed My Five-Figure Student Debt on a $25k Salary

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21 Comments

  1. Thanks for being open and honest about Matt’s wild spending on whiskey! Although can’t say I really blame you for that one splurge…my alcohol budget isn’t huge, but it’s 10x what it would be if I could just bring myself to forgo the handle of Bulliet bourbon every couple months!

    • Happy to be here to keep Matt honest 🙂 Even if I wasn’t splurging on fancy whiskey, I was certainly drinking my fair share of great craft beer. If I could bring myself to forgo fancy beer, my alcohol spending would plummet as well!

  2. Well done, Daniel!

    I have actually considered the Americorps route for myself in the past, essentially to kick the can down the road on deciding what I really want to do (now I have the upcoming road trip to fill that role!) , but my understanding is that Americorps pays substantially less if you opt for the cash stipend option rather than education award. But if they provide lodging, etc, how much extra do you really need?.

    • Americorps was an awesome choice for me and I highly recommend it! When I did the program, I received both the cash stipend and the education award. I believe that is still the case today, although there are several programs within Americorps and each has slightly different rules. I agree with you – when all the basics were covered, I found that I really didn’t need anything else. Enjoy your road trip! Where are you heading?

  3. Awesome story Daniel! And I’m still over here laughing about how Matt is the “spender” of the bunch and does all the writing! 🙂 It’s lovely to finally meet you.

  4. I love this. =) You guys are awesome. I can relate to so many of these things. Working alongside people dealing with poverty has significantly shifted our views on spending and consumption. We had some teenage girls over for a birthday party last month and one of them comes from a very poor family (the other is homeless) and she said, “Your house is so beautiful! This is the kind of home I dream about living in when I am an adult.” Her friend continued the tour, gushing about all the spaces.

    We are so darn blessed. We paid cash for this house. It’s warm and nice and ours mortgage free. It’s hard to want something more grand when we are already living in someone’s “dream home.”

    • It’s really easy to look at all the people with more than us and wish for it. We find ourselves doing this occasionally with RVs, fancy dining, etc. I always try to remind myself that so many people are looking at our lifestyles, wealth, and privilege with the same awe and desire. Working with my clients was a great way to realize this and keep myself grounded in what was really important. We are incredibly fortunate to have this life!

      Thanks for the comment, you’re awesome too! 🙂

  5. I did an international service program where the $100/month salary went a lot further (of course, that was something I realized later), so I give major props to the US volunteers! However, my attitudes on money were far from yours. Afterwards in social service work, I still lived simply and I didn’t go into debt, but I never saw it as an opportunity to challenge my money habits as you did. The ideas of a tax bracket or aspiring to actually pay off $80K of student loans were completely foreign. I commend you and whatever brought those ideas into your head early on. They are truly life-changing!

    • I had some friends who did international service programs and some of them felt downright wealthy with their cash stipends. However, with the added cultural and/or language differences, I think it was still a very challenging experience; just in a different way. $80K was a lot more debt than I had leaving college and I wonder if I would have acted differently with much bigger loans. I definitely would have explored loan forgiveness, even if it meant being locked into social service for ten years. Thanks for the comment!

  6. Two things really stick out to me. One is that you veered away from the loan forgiveness program. Not many have the guts to do it. I don’t like the premise of the slow repayment plan and being stuck in a job (or with a type of employer). The other is the wedding in Ireland. My brain immediately jumped to ruling it out with a “yeah right”. But you remained open and figured out a way to approach the expense systematically.

    It’s so nice learning more about you, Daniel!

    • Thanks for the comment! It was definitely tempting to pursue loan forgiveness. For me, I decided my loan was not big enough to make it worth it. One of the program requirements is that you have to make regular payments for ten years. Although my income was low, I suspect that ten years of making the smallest payments I qualified for still would have eliminated almost all of the balance (and I would have paid a ton in interest over that time!).

      When I heard about the wedding, I think I had been so restless to travel internationally that it didn’t even cross my mind to decline. My first thought was, “how can I make this happen?” I can’t say I’ve had the same attitude about other domestic weddings in less exotic locations 🙂

  7. Thanks so much Daniel for sharing and a big congratulations, that is some dedication!

    I had some credit card debit and like you just had to stick to it and made a plan to pay it off. I just hated that looming over my head at night. With any extra money that came in it went towards paying it down.

    Love how you saved money for the Ireland trip 🙂 What fun!

    Take care and hope to have some other posts from you,

    Tina

    • Thanks Tina! I relate to that looming feeling you got with credit card debt. When I made my last student loan payment, it felt like lifting a weight off. Making and sticking to a plan was crucial in getting it done!

  8. What a lovely first post, thanks for sharing your choices. Most people talk a good frugality game but yours is one of the best. I might be biased because of the career path you chose, I have family who have done similar work and know from them how challenging it can be, so I admire the fortitude of making that choice and making the most of the consequential low income.

    There’s really nothing quite like realizing how much harder it is to get basic life needs satisfied for the marginalized folks in our society to be grateful for what we have. I live in the SF Bay Area where it’d be so easy to get caught up in the cycle of more and envy, but how can I when I knowwe have so much already – a good home, decent childcare, food on the table every day? I hope we’ll be hearing more from you!

    • It’s hard (especially in the Bay Area!) to stay grounded and not get caught up in the cycle of wanting more and more. Sometimes we find ourselves day dreaming about getting an RV or being able to dine out at nicer restaurants and we have to remind ourselves how awesome our lifestyle is already. Thinking back on the clients I worked with helps me put our lives in perspective and realize how amazingly fortunate we are. Thanks for the comment! I’m sure Matt will rope me into writing more posts 🙂

  9. So glad to see you here, Daniel! I’m cracking up thinking about when we met, and I asked, “What was it like being with super frugal Matt?” And you said, “Uh, yeah, about that…” Hahaha. I’m sure plenty of our friends see us as the super frugal ones, but we are SO not, and especially not compared to the many marginalized people you’ve worked with over time. I love that you’ve stayed so committed to making a real difference in society, and have passed on potentially larger earnings to do so. I find your story really inspiring.

    Hope you guys have an awesome Thanksgiving! xoxo

    • It’s good to be here! I like to take some credit for introducing Matt to what frugal living actually looks like 🙂

      In truth, it was really nice to date someone focused on financial freedom and simple living when I exited AmeriCorps. It was a good check on my spending once I got a “real” job. Thanks for the nice comment!

  10. Congrats on being so stringent. It’s also interesting here how & why you turned down the PSLF. I don’t blame you, while it’s knowing you can essentially get a graduate degree for free, 10 years of student loan payments isn’t fun.

    I paid mine off in 3 years, I’d rather be debt-free on my own than rely on a forgiveness plan. A lot can happen in several years.

  11. Loved the post and loved your story!
    I admire you for choosing to do what you truly want, despite the pay not being that great.
    And I totally agree with you; living simply is definitely more environment friendly – we as a society need to wake up and stop wasting our planet’s resources!
    Nice to meet you 🙂

  12. I loved this post and the insights you shared about your clients and what you learned from your various roles. I considered city year right after college but was scared to move to Chicago and didn’t know how I’d make it work. Seems like I could have done it though!

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