How We Paid off $36,000 of Student Loans in One Fell Swoop While Raising a Family in the Bay Area

I can hardly believe it!

We just did it. We REALLY just did it. We paid off $36,000 of our student loans in one fell swoop! In the grand scheme of our total student loan debt, it’s just a drop in the bucket, but it’s still one sizeable drop!

My husband and I have been buried in over $200,000 of student loan debt for as long as we can remember – about $100,000 for each of us. We’ve been making payment upon payment ever since we got out of college, yet it feels as though, we haven’t made a dent. And having just paid off $36,000 of it is huge for us. While we paid both off in one shot – it was really two years in the making.

How We Saved Up the Cash

Shortly after our move to the Bay area, I decided to start stocking away money when the opportunity presented itself.

The combination of our crazy student loan monthly payments and the high cost of living here left me feeling BEYOND financially insecure. I was worried that if anything were to happen to either of our jobs, we’d be screwed.

In fact, screwed would be an understatement.

I wanted some security.

So I started stocking money away whenever I could with the goal of building up three months worth of an emergency fund.

We did this over the last two years. It wasn’t easy, as our budget didn’t leave much room for extra funds, especially in the earlier months. In fact, and I’m embarrassed to say, we’ve needed financial support from our family to help cover all our monthly expenses when we first moved out here. And before that, we lived with my in-laws because we couldn’t afford to get a place of our own and meet all our financial obligations.

Thankfully, we’ve been blessed with such a supportive and generous family. Without their help, we would have had an even more challenging start here.

We were by no means perfect at saving, but we did the best we could.

Related: Lessons From Our First No-Spend Month

And in the two years since we started, we managed to rake together enough to wipe out two of our remaining four student loans.

This is how we did it:

  • The 3rd Paycheck: I get paid bi-weekly. If you’re paid on this cycle as well, you probably know that two months out of the year, we get three paychecks. Each time I did get a 3rd paycheck, I would save as much as I could of that and not include it in our budget for monthly expenses.
  • Dependent Care Reimbursements: Every year, we take advantage of the Flexible Savings Account (FSA) for Dependent Care. We easily use up the maximum amount of $5,000 for childcare expenses. Each month, money is deducted from my husband’s paycheck to fund this account. But we decided to pay for the childcare expenses out of pocket (or in addition to what was deducted from our take-home pay). So, whenever we got reimbursed, we didn’t include the money we got back into our budget for regular expenses. Instead, we socked it away. So the monthly deduction from my husband’s paycheck acted somewhat like automated savings for us.
  • Work Bonuses: I’m eligible for a performance-based bonus from my employer. Sweet! So whatever I got, minus taxes, my 401(k) contributions and our sushi dinner celebration, was also saved.
  • Side Gig: My husband also has a side gig as a Database Consultant. We don’t get to save all that he makes from this, but what we could, we did save. Every little bit helps, right?
  • Tax Refund: We got a tax refund for 2015 and that went straight into our emergency savings.
  • Salary Increases: Paul and I have been fortunate to both have gotten promoted since our move to the Bay area, which increased our salaries. This helped us get to a point that we are no longer in the red!! And enabled us to find extra money at the end of some months.
  • Monthly Budgets: We have a monthly budget and we try to stick to it. We are definitely not perfect at this and it is difficult given how much liabilities we have. We have and do blow it at times on certain expense categories. However, overall it keeps us in check and we know what’s going on with our money. So when had any leftover money at the end of the month, it got allocated into savings.
  • Family Gifts: Lastly, as I mentioned earlier, we are very blessed to have a supportive family around us. The cash gifts and financial help we received from them – the ones that weren’t allotted for our monthly expenses, once again, got saved. This included parts of our Christmas and birthday presents.

Related: 8 Things We Did to Pay Off $51,000 of Student Loans in 17 Months

The Catalyst for Using Our Savings for Student Loans

Earlier, I told you I felt financially insecure, which led us to saving the way we did.

So, is it counter intuitive that we just used it up?

Well, when we finally stopped to look at what we’d saved up, we were shocked. We knew we had an emergency fund, but we didn’t realize exactly how much we’d amassed since we had them in separate accounts. Anyway, when we saw this, we felt we had to do something with it. We had to make it work for us somehow. Isn’t that the “financially smart” thing to do? So we kept asking each other:

  • Should we keep it as our emergency fund?
  • Should we use it to pay off student loans?
  • Or the most exciting option: Should we use it as a down payment to buy a house? (Well considering where we live, our best bet is a condo. But it’s still more exciting than our first two choices.)

Obviously we went for the most exciting, shiny option. Aside from it being our most exciting option, we also felt it was the practical thing to do. After calculating how much we’ve paid in rent over the last two years, we were really motivated to buy our own place, even if it was small. Just as long as we weren’t “throwing money away” on rent! Plus, I’ve always wanted to get into real estate. I started daydreaming about how our house was going to be … our starter property that would enable us to grow our real estate portfolio.

And so last Fall, we started looking at the possibility of becoming homeowners. Living in the Bay Area, we knew it was going to be difficult to buy something, but we were hopeful. We were determined to at least TRY. I mean, we finally had some money saved up. Right?

So we got pre-qualified for a loan to see how much we “could afford” and started checking out homes. As we got deeper into the house hunting process – making a couple offers on a couple of condos (it’s a crazy bidding war here, so we lost on both offers) – we started crunching the numbers together, I mean truly crunching the numbers.

Reality Check

In crunching the numbers, we realized that if we borrowed the maximum mortgage amount we were approved for – what we “could afford”  according to the lenders – our total monthly housing expenses (mortgage payment, property taxes and insurance, property mortgage insurance and HOA) combined with our monthly student loan payments would have been super tight, if not over our budget.

We even figured one of us would probably have to get another side job to make sure we weren’t in the red. And the excitement we initially felt at the possibility of becoming homeowners soon turned to be a hard slap in the face.

What a rude awakening.

It became scary instead of exciting. And we didn’t want to be in the position – living each month in fear whether or not we’d be able to meet all our financial obligations.

Shortly after the buzz we felt from the prospect of potentially becoming homeowners wore off, we realized we would feel that our home was more of a scary time bomb that could explode any minute, rather than a blessing.

We realized that the only way we’d be able to buy a house and truly afford it was if we paid off more of our student loans off first.

We are in this state of total financial insecurity because of our student loans. And the only way to get out of it is to deal with it and get rid of it once and for all.

I know I know, you’re probably thinking …


Yes, we got a little sidetracked by the shiny option. But better late to realize than never, right? 😉

So at that point, we knew what we needed to do. We had to pay off our student loans. And we had to do it aggressively if we want to gain true financial security and have some chance at owning a home of our own.

The Strategy for Eliminating Our Student Loans

The best strategy we knew that would help us get out of our insane student loan debt the fastest was the Debt Snowball.

You’re probably familiar with the debt snowball, but it you’re not, it’s a strategy to eliminate all your debts by paying them off from smallest to largest in balance. Pay off as much as you can for your smallest debt and only make minimum payments for all the other debts you’ve got. Once you’ve paid off your smallest debt, apply whatever payment you’ve made for that onto the next smallest loan until you pay that off and repeat it again for the next debt until you’ve paid everything off.

So for us, our goal was to free up more cash flow each month so we can pay more than just the minimum for our larger student loan balances. Looking at all our student loans, we had to pay off Paul’s Sallie Mae first, with about $9,000 left. After paying that off, we’d free up about $300 in monthly payments.

We felt that wasn’t big enough to get us really moving so we checked if we could pay off more. The next student loan in line was mine at a little over $28,000. It was big and I was scared to let go of that amount of money even if it was to pay off debt. But we decided we had to do it. So, we did. That freed up about $600 in monthly payments.

In total, we’d free up about $900 a month in cash by eliminating those two student loans.

We thought long and hard about it. As we were pondering our decision, we figured that what we’ve been doing with our student loans hasn’t really been working. And, if we kept up what we were doing, we’d still have these loans 10 years down the line. And we’re not having that.

We agreed that if we wanted to radically reduce our debt, we had to get radical in our approach as well. So we took the leap and used up majority our emergency/house down payment fund.

And we’re so glad we did.

To Be Prepared for the Unexpected

Even after paying off two of our student loans, our two remaining student loans still left us super vulnerable.

$150,000 vulnerable.

We’re thrilled to be two student loans lighter, but I was also still terrified of what could happen without our hefty emergency fund – especially with two little kids.

So to help us feel less freaked out and be somewhat prepared for the unexpected, we decided to not totally clean ourselves out and have a buffer. We had a little bit left over after paying off our two student loans. And we were toying with the idea of using up what savings we had left to start tackling our next student loan in line.

We’ve been living off our previous month’s paycheck for some time now and I told Paul that now was not the time for us to change that. Given how high our monthly liabilities are, we really need a buffer. Just in case. You never know.

So, we decided to keep the status quo on living off last month’s income and not use it to pay our next student loan – although tempting.

While that’s not really a fully funded emergency fund, it still gives us a one-month cushion to figure things out, if we need it.

Our Next Steps to Keep the Momentum Going …

For the first time, we can see the light at the end of the tunnel. And, we don’t want to lose sight of it.

To help us keep our momentum, we plan to set a goal to pay off our student loans and continue to talk about how we’re going to eliminate our debt.

We also just purchased Financial Peace University. We know the basics that Dave Ramsey teaches, but want to dive deeper into his strategies and hope to get inspired even more to push us to keep perservering because we know it isn’t going to be easy.

We have a long road ahead of us and we’re gonna need all the determination and motivation we can get to see this through as quickly as possible.

Are you just beginning to do some serious damage to your debt? Or have you been hammering away at it for some time now? Share your story below.

How We Paid Off $36k in Student Loans 2

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