Debt Repayment
At the beginning of each month we estimate a preliminary debt payment, leaving enough to cover our estimated expenses for the month and a cushion for unexpected expenses. Usually that’s at least $1,000. Then, at the end of each month, we take whatever is left after actual expenses and make a second student loan payment. This is part of our strategy for maximizing debt repayment every month.
In July, we made our normal $1,000 debt payment at the beginning of the month. That left us about three hundred dollars of cushion over our estimated expenses.
We didn’t get to make an end-of-the-month payment in July. Part of the way through the month, we saw a surprise automatic withdrawal of $697 by our loan servicer, FedLoans Servicing. To make a long story short, we were kicked into normal repayment status because we had not re-certified our income-based repayment status on time. It’s now corrected, but not in time to avoid the $697 withdrawal. While we could have made a final payment of about $300, with some extra expenses this month, we weren’t prepared for the almost $700 of withdrawal.
We were so thankful to be living on last month’s income, so there was plenty of money in our checking account even though July’s budget alone couldn’t cover the unexpected withdrawal. I’ll be writing a post in August about how we handled everything.
Our total amount of debt repayment in July was $1762.
The Debt Remaining number is uncertain. Each month we check our debt totals on the FedLoan Servicing site, and this month we noticed something strange. Neither the site nor the printed statements are ever very straightforward or intuitive, but the way interest was added to several of our loans in July made no sense, and the total amount required to pay off the loans jumped by over $1700. I won’t go into all the details right now, and Mr. SixFiguresUnder will be calling to figure out what happened and get it straightened out, but taking the numbers at their face value, even with the July payment of $1,762, our loan balance only went down $14.
Income
Our total net income for July was: $4,290. For those who are new here, this is income that won’t be spent until August since we live on the last month’s income.
Regular Income: $2969– This is Mr.SixFiguresUnder’s current take-home pay. For more details about his pay see here or here.
Etsy Income: $ 398–My Etsy income was just under average in July.
Other Income: $923– This income includes blog income and income from selling on Ebay and Amazon.
Spending
Each month we budget down to zero using last month’s income. Our spending in July comes from the income we earned in June. In addition to the debt payments above, here’s how we spent money in July:
Tithing–$412 One of the expenses that we never cut out of our budget is a 10% tithe on our income.
Mortgage/Rent– $0 My in-laws are gracious and generous to allow us to live in their basement in the boonies. It’s a huge blessing with some great benefits.
Utilities– $0 Utilities are included in our “rent,” but I include them here just so you don’t think I’m forgetting them.
Dumb Phones– $20 We pay my dad $20 per month for our dumb phones that are on his family plan. We will be cancelling these phone thanks to our successful Republic Wireless experiment. In fact my dad, who had an unlimited data plan with AT&T, decided to make the switch to Republic Wireless as well, which will save him over $100/month.
Republic Wireless– $1.70 We signed up for Republic wireless through a link for a $20 service credit (UPDATE: referral program is now expired). We used $10 off for June’s service, $10 for July’s service and had a bill of $1.70 remaining (essentially 2 months of tax). At the beginning of August, we will be getting another Republic Wireless phone!
Health Insurance– $114 This is through our ACA plan. You can read the details here.
Dental– $23 Our dental discount plan. We finally had dentist appointments, so we cancelled this discount plan until we need to go to the dentist again. The plan allows you to cancel and sign back on anytime, which is weird, but nice.
Car Insurance– $97 It’s kind of fun that the insurance for our two ’97 vehicles is $97.
Food– $254 We always set our food category at $300, but we’re usually under during summer months since we have garden produce to eat! In addition, we don’t eat out, we cook from scratch, and we buy in bulk when things are on sale or in season.
Gas– $486 We try to stay under $500 for gas. I know it sounds outrageous, but with my husband’s commute it adds up quickly. It’s worth it to us though because we live rent-free in the boonies.
Clothing– $29 This was a higher-than-usual clothing month for us considering we didn’t even have any dry cleaning. I bought a few things for the kids here and there. There were some online sales (no minimum shipping plus a percentage off that counted for clearance items), as well as some in-store deals and thrift store finds.
Household– $42 We bought supplies for more homemade laundry detergent, toilet paper, a few toiletries, mascara, and a few random things liked waxed paper and sandwich bags.
Fun– $25 We bought the Frozen soundtrack on iTunes, which the kids have loved! We had enough iTunes credit from an old gift card for half of it. We bought a map from the ranger station and a fishing pole from the thrift store for a family backpacking/camping trip that we took this month (a couple pics from the trip here). I also bought an e-book and a few things for a future sewing project.
Lawyer Marketing– $196 We’re just about done with the monthly fee for a print ad in a monthly publication that costs $160 per month. In addition to that ad, Mr. SixFiguresUnder had to pay dues for a business group and breakfast with a chamber of commerce group.
Law Practice– $44 Monthly subscription to my husband’s law practice management software.
Car Registration– $154 One of our vehicles needed to have its registration renewed along with a smog test. The other car is due for registration next month. Before we started our maximum debt repayment plan we would have broken annual costs like car registration up and set aside 1/12 of the cost each month ($12.83 in this case). Now, rather than letting that money accrue and sit idle for 11 months, we prefer to take care of these expenses the month that they come and just pay off a little less in debt. This works for us because we don’t have minimum payments on our loans, so we can be flexible.
Car Maintenance– $109 It was time for an oil change for the car. Instead of paying for a single oil change, we bought the shop’s special customer card that is good for several oil changes and other services throughout the year. We bought one last year and it more than paid for itself.
Dentist– $706 This was the payment for my dental checkup and the down payment on my husband’s crown and root canal. He had a filling that was cracked and a cavity had formed under it and gotten as far as the root. Two crowns and root canals in one year is painful for the budget, but we’re thankful that everything else looks good for both of us.
Emergency Fund– $0 We were hoping to add another $200 to our emergency fund (currently at $4,594), but with the dental work and the surprise student loan withdrawal, we opted to not add to our emergency fund this month. We keep most of our emergency fund in our Capital One 360 account.
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How did your finances go in July?
I have seen your Blog through Pinterest before, but today I really sat down and read a lot of your entries. I am super impressed, and you have motivated me to do the same. Though I only have consumer debt, I was lucky enough to have all four years of college paid for through a high-school program(for one year) and my job paid for three years with a contract that I would have to stay with them for an entire year after graduation. Car is just under $24,000 now, had it for two years. Plus $5,000 in a Line of Credit and Credit cards.
As soon as my savings gets over my monthly income, I am pulling it out and definitely living off a months income for sure! Thank you for these amazing detailed posts that got me motivated!
Hi Sarah! Great job avoiding student loans for your degree! That’s great that you’re getting motivated to get rid of the consumer debt now. Living on last month’s income really is a stress-reliever!
I am so in love with the idea of living off the last months salary. Heading now to search your site to find out more.
Living off last month’s income has given us so much peace and freedom!
Stephanie, very nice blog! I completely understand your situation as my wife and I accumulated over $200K in student loan ourselves (Med School for my wife $169K and $40K for my grad school.) My wife is still in residency and I’m hoping that her future, potential income would allow us to amortize our debts.
Just some thoughts and suggestions:
1.) Since you have made a “fully payment” on your IBR for the month of July, you may be eligible to sign up for the Pay As You Earned Repayment plan. This plan cap payment to 10%. I know this completely goes against your process (and blog) of amortizing your debt, but with discipline, you can invest the money (that was supposed to be made for student loan payments) and earn a higher interest rate, and subsequently pay off your loan faster. Lastly, there’s also loan forgiveness after 20 years of repayment (or 10 years for public service – will discuss that later.) This is the strategy that we are currently employing.
2.) Your gas expense is very high. The average driver racks up about 12 to 15K miles a year. Let’s say that you live in the boonie and your husband travels a lot, so you drive roughly about 25K miles a year. Assuming the average gas price at $3.5:
•
mpg gallon yearly gas expenses monthly gas expenses
25000 15 1,666.67 $ 5,833.33 $ 486.11
20 1,250.00 $ 4,375.00 $ 364.58
32 781.25 $ 2,734.38 $ 227.86
48 568.18 $ 1,988.64 $ 151.91
If your car happened to be operating at 15 miles per gallon (mpg), then literally you could get a another car for free – by purchasing a used Toyota Prius that operates at 48 mpg and you would not notice any difference in your monthly expense ($486.11 – $151.91 = $334.20, which is used for the car payment.) On the other hand, if you car has good gas mileage (20 mpg) and switching it to a better mpg car 32 mpg (at the same value) will result in monthly saving of $136.72.
3.) Final point. I really like your creative ways to augment your monthly income. I also notice that the corporate environment is not a good fit for your husband. However, has he ever considered working for the Government? With a JD/MBA, obtaining a job like Contract Specialist seems like a good fit for JD/MBA because the job entails both business and legal aspects. I am a Contract Specialist myself. The job is definitely not a stress-free job, but I have to admit that it is a lucrative field, considering working only 40 hours a week. Working for the Government will also enable you to be eligible for Public Service Loan Forgiveness in addition to the student loan repayment program benefits, which pay up to $10K a year.
Hi Tony! Thanks for your thoughtful and thorough comment. We are always open to ideas and really appreciate it when readers take the time to share!
1- We probably would qualify for PAYE, but even with IBR our required payment is $0 per month (July was a mix-up since our IBR expired, but we have since requalified). As for paying the minimum and investing the rest, it’s definitely worth considering, and could work well for some folks, but doesn’t really fit with our strategy of paying off every dollar as quickly as possible. I am addressing it briefly in today’s post: https://www.sixfiguresunder.com/pay-off-student-loans-fast-or-pay-the-minimum/
2- Our gas expense is definitely much higher than average– we sit right around $500 each month. My husband commutes an hour each way to work, which accounts for about 80% of our monthly gas budget. His car gets 30 mpg, which isn’t too shabby. We bought it used and paid cash 2 years ago. Gas here in California is right around $4/gallon, which unfortunately makes a big difference (125 gallons @ $3.50 would be $437, instead of $500 at $4/gallon).
The reason this expense is worth it to us is that paying $500 per month for gas allows us to live in my inlaws’ basement (in the heart of the boonies) for free. The alternative would be living close to my husband’s work and pay $1200+ for rent, plus all of our utilities (which my inlaws currently cover in our basement set-up). Still, we try to be careful with our gas spending.
3- We are open to other job possibilities. I think it would be good to be in his current spot at least 3 years (1 more year) before making a move, just for the sake of having 3 years of experience under his belt. We’re not married to the job though, and have kept our eyes and ears open for other opportunities. What area of government do you work in? There’s nothing we’ve seen at the city, county, or state level that looks like a Contract Specialist, although I’m sure something like that exists.
Best of luck on your debt payoff! From what I’ve heard, that’s actually on the low end for medical school debt. Keep me posted on how things go for you guys!
Student loans are so awful and confusing! I hate how they are set-up and I believe that we need a complete overhaul of the entire system. I love how y’all track your money and debt repayment progress! You’re a true inspiration!
Thanks Jessi! Student loans are confusing, especially because they give you so little information that it’s impossible to figure out where the numbers came from. At least with credit card debt, the statements give you all the numbers you need to figure out the math!
July went well for me. 475 for rent, 20 dollars for mobile (that will now change with my new Republic Wireless phone that is coming in soon!), 44 for electric bills, 40 for Internet, 110 for groceries and food supplies, 50 or 60 bucks on miscellaneous. About 1500 in all for July. Is that reasonable I wonder for a single member household?
That looks good to me, Nicholas! It’s been a while since I was single, but those numbers definitely look reasonable! 🙂 Hooray for your new phone coming soon!
Frequent reader but rare commenter here, but as someone else with lots of student loans in the family (around $70,000 between us) I can guess what may have caused the spike in your balance. I know that while you’re on IBR, some of your interest doesn’t amortize, yet it will if you leave the program. To be honest I’m not 100% sure what that means, but I bet it could be behind your spike. Either way, good luck, and I hope it will be sorted out smoothly!
Thanks for the insight Molly. We’re still not sure, but we’re looking into it. I will give an update when we figure it out! 🙂
I always feel very motivated after a post like this, especially when it comes from you. I thought about living on last months income and figured it would make no difference at all. In our savings is our total income of one month now, and we both get paid the last day of each month, so we exactly know what our budget is for the month to come. August is insurance month and if possible, I would like to add another payback of a personal loan (my parents helped us when we changed all the doors and windows in the house – it’s an interest-less loan, and we can pay back at our own pace, but I would really love it when it’s gone twelve months from now…) I’m focusing on that right now, next comes saving as much as possible. Mainly for house improvements. I know my husband would want to move eventually, but I’m thinking we’ll have to be content with what we have for now, which already is a lot. Maybe in ten/fifteen years I would consider moving :p
Thanks Elvira! That’s great that you have a month of income in savings and wokring to pay back the personal loan is a great idea!
Your low household and fun expenses are always amazing to me!
A question on the income side I don’t think I’ve seen mentioned, do you set any of your blog and Etsy income aside towards taxes (or with your tax bracket and number of dependents is that not needed?) I went from a W-2 to 1099 work earlier this year and have definitely been on a learning curve as far as self-employment taxes go!
Also, have you considered doing your own oil changes? They’re pretty simple to do.
That’s a great question on taxes. We don’t set aside anything for taxes on blog or Etsy income. As married filing jointly taxpayers with our family size and our deductions, the amount withheld from the Mr.’s paychecks covers at least 90% our total tax bill. If the amount of income from blogging, Etsy, and selling online increased substantially we might have to rethink that, but for now, as far as we understand, there’s no need for quarterly estimated self-employment taxes, and we’ll handle our final 2014 tax liability next spring. It might be a good idea to talk with a tax pro just to make sure.
On oil changes, my husband has such limited time at home that we’d rather have him working in the garden, or on the house, or on the treehouse, or on dates with the kids, rather than changing the oil. I know he’s done oil changes before, but right now we’re willing to incur that expense to save the time.
It helps that the customer care card is good for a year’s worth of oil changes on both vehicles, plus a lot of other free and discounted maintenance.
You say you weren’t prepared for the $700 withdrawal, but clearly you were prepared enough for it. Your plan seems to be going well…and I’m sure those interest calculations will be fixed soon…$17 less is still better than none, right?
Yes! Living on last month’s income provides a nice buffer for things like this, so I guess we were prepared enough! Thanks Leslie!
I really enjoy reading your blog, I find it very encouraging! You help to keep us on the right track, thanks!
Thank you Sherrie! It keeps me on track too! 🙂
I absolutely cringe when surprises like that happen. They seem to happen to us fairly often, but it definitely flexes your flexibility muscles. Its awesome that you guys were just able to make it work.
As of last month the hubby and I don’t have any debt (with interest) the last bit of the debt we do have is interest free until July 2015. We are also just getting in the groove of the hubby’s new job and just received his paycheck on the 31st. He gets paid on the last day of the month every month. I think I enjoy the once a month paycheck (for budgeting reasons). So July’s report consists of mostly just my income. When we report back in August I hope things are a little more stable. Here are our numbers for July.
Income: $5973.19 This included my income and income from various other sources eBay/ half.com, surveys, and a little bit of a income from hubby’s last job.
Monthly Expenses: 1701.56 – This includes Rent, Cable/ Internet (That we called and received a huge discount on after threatening to cancel), Cell Phones, Gym Membership, Electricity, Car/ Renter Insurance, and Financial Fees ($20 to have access to our credit scores, banking fees, etc.)
Everyday Expenses: $2048.63- This included only $180 on groceries for the month! (We buy organic whenever possible) Our lowest grocery budget in FOREVER, Dining out, entertainment, haircuts, clothing, Dog Food & Treats, Gasoline ($320!), & eBay Shipping Costs. Also we had to buy new clothes for hubby’s new job. That was included in this. We would like to eventually trip this category down to about $1600-$1700
Savings: $516 a month to the interest free loan. I am saving it right now and making the minimum monthly payments because we are still fresh off of one income. I plan to make my first large payment in October. $465 to sinking funds such as vet visits, doctors visits, car repair/registration (hubby’s registration used a large chunk of this last month at $276). Saving for a home: $1242.00
That’s really nice that you have a year’s flexibility to take care of the last of your debt. That’s a great idea to just pay the minimum but save the payments right now while you’re adjusting. Congrats on such a low grocery month!! And how exciting to put money towards a home!! Thanks for sharing CeCee!
I’m interested to hear what the interest spike was. Stuff like that irritates me to no end!
Maybe you’ve addressed this before, but do you contribute to any retirement or investment accounts, or am I right in thinking that you guys are going the Dave Ramsey route and paying off your debt before any of that?
We aren’t contributing to any investment and retirement accounts right now. We have some retirement investments from when my husband was working before law school. We aren’t adding to it, but we’re not touching it either. We’re not strict Dave Ramsey followers, we just want to get rid of this giant debt before we focus on any other financial goals. While we’re living in my in-laws’ basement our expenses are lower than they will ever be, so we figure the best time to tackle this debt is now.
I am eager to get that interest issue taken care of too!! I just hope he is able to talk to a competent person who can understand what is going on. They better have a lot more information on the backend than what they have available on their site, which is not much at all. Grrrr.
Sorry to hear about that mix up in your loan payment. I hope everything gets cleared up satisfactorily. Your food spending is amazing.
It is frustrating, but hopefully my husband can talk to someone and get it straightened out. Their website gives very little information so it’s really hard to figure out what is going on.