156 | Paying Off $50k of Debt in a Year

Lawyers tend to be familiar with debt—myself included.

About 95% of law students take out student loans, and many lawyers delay life events like getting married or buying a home because of their debt.

In this episode, I’m sharing the first year of my journey out of debt. We’ll talk about the loans my husband and I paid off and the things that happened in our lives that year that impacted our debt journey.

• the total amount of debt we had and why we decided to pay it off
• three steps to take to pay off your debt
• how we kept track of our debt payments
• the extra payments we were able to make over the course of the year
• circumstances and decisions that impacted our debt journey

Downloadable debt spreadsheet

If you’re ready to learn the mindset and strategies to master your money, let’s schedule a call.

You’re listening to Wealthyesque. We are a community of lawyers who believe that true wealth is having control of our time. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey, friend. Welcome back to the show. I hope you’re doing well and having an amazing day so far. So today, we are talking about paying off $50,000 of debt in one year. 2017 was the first year of my husband and my debt journey. And that’s what we did, we paid off $50,000 of debt that year. If you are not familiar with my story, we had our first child in the fall of 2016. And my maternity leave was about to end at the beginning of 2017, the firm I was working with at the time offered a benefit where you could do a percentage of the billable hour requirement for that same percentage of your salary. Most people who took advantage of it would do like 70%, or 80%, of the billable hours for 70% or 80% of their salary. I wanted to do it. And so that’s what prompted us to look at our finances in depth for the first time. And in doing that, we saw that we had over $670,000 of debt, almost 500,000 of which was student loans. And we had a negative $342,000 net worth. So we didn’t end up doing the part time thing. But we did start this whole financial journey of turning our finances around, because we were quite shocked about where we were. I did a webinar last month where I talked about how we paid off $50,000 That year, like the actual steps that we took, and the steps that I shared on that webinar. If you missed it, we’re one to create a plan to maximize the gap between your income and expenses, to use that extra money to pay off your debt. And three, have compassion with yourself along the way. Because there was a lot of beating myself up that we were in that position in the first place. And I know a lot of you are also really hard on yourselves in the same way. So have some compassion for yourself. Give yourself some grace, let’s shift the way you view your debt and the way you talk to yourself about it. Because all of that makes it so much easier to work your plan to get out of debt. Alright, so that’s what I talked about on the webinar. But in this episode, I’m going to share our actual numbers from 2017. So the journey that we took from deciding to pay off our debt to actually paying off $50,000 in a year. Before we jump in, I want to say do not use my specific numbers against yourself. Don’t use my circumstances against yourself. Look for the similarities in our stories, look for how something similar could be possible for you to even if it’s not paying off $50,000 In a year, like would you still be happy? If you were able to pay off 25,000 in a year? I bet you would. Right? So take what’s useful, don’t use any of it to say that you can’t do it or as evidence that you can’t do it. All right. So although we were tracking our debt payments, we were updating the same spreadsheet every time in 2017. So we were like saving over the previous months information. So I don’t have how much we paid off each month. But I do have when each loan was paid off and the total that we paid off over the course of that year. This is why I have my clients update their numbers in a separate tab on their spreadsheet each month. Because I want you to be able to look back at the numbers and see your journey. We started saving each month’s info separately in 2018 When I started my blog, but before that we were just updating the same spreadsheet. So I’m kind of piecing this together from the January 2018. Spreadsheet because it includes when we paid off each loan to that point. And then I also have some notes that I had made about what was going on in our lives at that time. For my first blog post. The actual amount of debt that we paid off in 2017 was $47,029.45. And that includes the interest that was paid over the course of that year. So as far as the principal goes on the loans like the original balance of those loans, it was about 40,000 and then we paid another 7000 in interest, when we started out, we had about $200 a month to pay extra on our debt. So this goes back to that first step I was talking about with creating a gap between your income and expenses. Our gap initially was about $200. The first loan that we started paying on was one of the higher interest rate ones, it was also one of the higher balanced ones. And it was really random. When I look back at my notes, like I have no idea why we chose that one. But we were paying $200 Extra each month on that loan. And when you have as much debt as we had, it wasn’t really move in the balance the way we want it. But that’s what we were doing in January and February. Not too long. After that I learned about the Debt Snowball Method, which is where you pay off your debt from smallest balance to largest balance. I really like the psychological aspect of getting those quick wins because you pay off those smaller balances more quickly. And so we decided to switch it up and focus on our smallest loan instead. In March 2017, we got a really big tax refund. So to give you some backstory on that I started working in big law in 2014. My husband was still in med school at the time, and we had never made any real money before that point. Like we were in school, we had part time jobs in college, I did you know, summer jobs at firms and law school. But of course, like that was only a couple of months each year. So this was our first real big girl big boy income. My starting salary back in 2014 was 135,000, which was market here in Atlanta at that time. And we were so afraid that we were going to owe a huge tax bill. So we decided not to claim any exemptions on my W four. And basically I had the maximum amount of taxes withheld from every paycheck. And so that next year, we got a refund of a couple of 1000. Like I don’t remember the exact amount, but it was a few 1000, maybe 5000, or a little less. The same thing happened in 2016. When we did our taxes from 2015. Now in 2016, we bought a house, we had a baby, my husband was working he started his residency at that time. And I didn’t mention this before, but we also tithe to our church. So we give 10% of our gross income to our church every year. And so all of those things gave us deductions and credits minus my husband’s residency, but the buying the house having the baby tithing, or other charitable giving, all of that gave us deductions and credits, that meant more money coming back to us at tax time. So when we did our taxes in 2017, we had a huge refund, it was like $15,000. And we use that money to really jumpstart our debt payments, because like I said, we had been doing $200 extra a month to that point. So we use the 15,000. And we paid off our four smallest loans, along with a larger private loan that my husband had, it was around $7,000. And it had a 9.25% interest rate, which was the highest one that we had. So that’s why we decided to pay that one off at that time, paying those loans off freed up another $200 a month that we no longer had to pay out and minimum payments. So we were able to put that money toward our extra debt payments as well. So at this point, we had around $400 Each month that we could put toward our extra debt payments is the 200 that we were already doing. And then the additional 200 that we no longer had to pay a minimum payments. And I think we had also reconfigured our budget a little more by that time to decrease some of our expenses, some more. So it may have been a little bit more than that, but not much. In April and May we were putting that 400 or so toward the next highest loan, which was about $2,500. It was like the actual balance was $2,453.97. In June, we decided to decrease our retirement savings so that we had more money in our paychecks. So we still put in enough to get the match and my husband’s job, which was around 3% or something like that. My job didn’t offer a match for attorneys. But we still put that same percentage in my account too. And doing that gave us another 1500 or so to work with. So at that point, we had around $2,000 each month for our extra payments. And this is where having all the details of your debt in one place is super helpful. I have a debt spreadsheet, the same one that my husband and I use to organize our debts. So if you go to rho thomas.com/debt, you can actually download that. But after we decreased our retirement savings, we were looking at our debt spreadsheet and we realized that the amount to pay off the next three smallest loans will be about the same amount to pay off my car loan which was about $10,000 But if we paid off the next three student loans, it would only free up another $150 Each month, versus if we paid off the car loan, it would free up $375 a month. So we decided in June that we would use the $2,000 each month to pay off the car loan. Then we got a $2,000 refund from our mortgage company for over payment to our escrow account. And so we put that right on the car loan. And this is still around June. And then around that same time, we did a reimbursement from our FSA for some of the daycare costs that we had paid for the first half of the year. So the FSA contribution limit in 2017 was $5,000 a year. And it’s still the same as at the time of this recording, actually. And if you’re not familiar with the dependent care FSA, it basically allows you to set aside money pre tax to reimburse yourself for childcare expenses, like daycare, which ultimately reduces your taxable income. So we were about halfway through the year. So that reimbursement would have been about $2,500, which was like a month and a half a daycare, but it’s still better than nothing, right. And we used to do two reimbursements a year. So we would do 2500 halfway through the year, and then another 2500 At the end of the year. And so when we did that reimbursement in June, we put that $2,500 toward the car loan as well. So we had $4,500 of extra money that we paid on the car loan between the mortgage overpayment and the FSA reimbursement. And then in June, July and August, we also had our $2,000 extra payments that we were already making. So we were able to pay off the car in August of 2017. And once we did that, we had another $375 to go toward our debt payments, because the minimum payment on the car loan was 375. So now the extra that we had for our debt payments was up to $2,375 each month. At that point, we went back to paying the loans in order from smallest balance to largest balance. And then in September or so my husband started moonlighting at a clinic on the weekends. So he was a resident at the time. And he wanted to get some more experience practicing medicine on his own without the supervision of his attendings. But it also was helpful to bring in some extra money. And so he made about $1,800 a month doing that which was super helpful. So that brought the money that we had for extra payments to a little over $4,000 a month. And the rest of the loans that we paid off that year were less than $4,000, except for one, that one was $4,892. So with the loans that were less than 4000, we had more money available for an extra debt payment, and then the balance of that loan. So the way that we handled it was we would pay off the lowest loan, and then put the remaining money toward the next loan. So for example, the next two debts after the car loan, just rounding to even numbers were about $2,500 each. So we had $4,000 available for our extra debt payment. And we would pay off the first $2,500 loan completely. And then we will pay another 1500 On the second loan, right, because 2500 plus 1500 equals 4000. And of course, these weren’t the exact numbers, I’m just rounding for the ease of talking about it here. But we did the same thing the next month. So we had about 4000 available, we will pay the remaining 1500 on that smallest loan. And then we put what was left toward the next loan on the list. And so we did it that way for the rest of the year. And from August to December, we were able to pay off a loan every single month, which was really motivating. And all in all, we paid off almost $50,000 in just the first year of our journey, when we had only made minimum payments before that point. And it all stemmed from deciding that we were going to pay it off and actually focusing on it for the first time. So don’t underestimate the power of that decision. When you’re like I’m done. I’m changing this, nothing is gonna stop. Every future decision you make for your money will be guided by that one. And listen, if you know that working with me is part of that decision to pay off your debt. Let’s set up some time to talk head to rho thomas.com/call To get started. All right. That is it for this week’s episode. Come connect with me over on social media. You can find me on LinkedIn, rho Thomas and Instagram at I am rho Thomas. Subscribe to the show and leave a review both of which helped more people to find it and take a second think of a friend or to use this information and share the episode with them. As we close out friend I pray that you take the information you learn here, apply it in your life and open up to the realization that wealth is a available to you. As you do that consistently week after week, you will continue to take steps to regain control of your time, build wealth, and live the life of freedom and choice you deserve. Talk to you later.