When it comes to eliminating large amounts of debt, it can be a real challenge. I am still strapped with about $60,000 worth of student loans from 1995 to 2003. That debt will haunt me for the rest of my life unless I make a plan to deal with it now.
Income And Expenses
In order to eliminate my debt, my income has to be higher than my current bills with enough left over to comfortably repay my student loans. Right now, I need $1,189 a month to pay all my bills and buy food and gas.
My student loan payments are $205 a month. In order to start paying them back at the minimum monthly payment amount, I need to earn $1,400 a month. I currently earn $1,200 a month which means I'm short the $200 I need to start paying back my student loans.
In order to make up the difference, I need to take a long hard look at my bills. My rent is $540 a month. My cell phone is $71 a month. My electricity is just under $100 a month. My gym membership is $10 a month. My car insurance is $65 a month. My internet is $35 a month, and my food, gas and miscellaneous expenses amount to $368 a month.
With my bills already low, I don't have a lot of wiggle room in my budget. I could reduce my full coverage auto insurance to liability only, but if I were to get in a car accident, I'd still need a new car. Liability doesn't give me that peace of mind. I could cancel my gym membership, but that is the only form of exercise and entertainment I have. I also use my gym membership. Everything else is associated with my apartment and my job.
The only way I can cut back is to move to an apartment with a lower monthly rent. Assuming everything else stays the same, I can move into a one bedroom apartment for $350 a month including water, sewer and trash. That would lower my living expenses by $190 a month, and I can earn the extra $10 a month.
Paying More Than The Minimum
Ideally, I would like to pay double the minimum payment on my student loans and pay them off in half the time which means I need an additional $200 a month. That means finding another way to cut back and increase my income.
In November of this year, my cell phone contract ends. I do not plan on renewing it or buying another phone with my current carrier. Instead, I am going to go with another carrier that charges $55 a month for unlimited air time, internet and tethering. That will save me $16 a month leaving me with a $184 deficit.
I can crochet four doilies a month and bring in an additional $80, and I can increase my income from $40 a day to $44 a day.
By making these small changes, I can pay off my student loans in 15 years instead of 30 years. While that may not sound like a huge deduction, it means being able to pay off my loans by the time I am 50 instead of 65, and it means I won't have to deal with my student loans during my retirement years.
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