MONEY College

Good News: There’s a New Way to Get Out from Under Student Debt

Wells Fargo signage
Peter Foley—Bloomberg via Getty Images

Wells Fargo and Discover plan to offer new loan modification programs to help borrowers who are suffering temporary financial hardship.

Two of the biggest private student loan providers have welcome news for struggling grads: Soon, some distressed borrowers will be eligible for lower interest rates and lower monthly payments.

Wells Fargo announced on Wednesday that it would launch a private student loan modification program for customers who are experiencing financial distress, like a job loss.

“Through the program, Wells Fargo private student loan customers experiencing a hardship will have their financial situation reviewed on an individual case-by-case basis to determine eligibility for a short- or long-term loan modification, as appropriate,” Wells Fargo says. “If eligible, Wells Fargo will lower the customer’s interest rate to achieve a student loan payment that is determined to be affordable based on the customer’s income level.”

For eligible borrowers, Wells Fargo plans to decrease interest rates to as low as 1% and lower monthly payments to be about 10% to 15% of each borrower’s income, the Wall Street Journal reports.

Likewise, Discover plans to offer a “repayment assistance program” early next year, though the details have not been finalized, public relations manager Robert Weiss says.

Today, the average college student graduates with $28,400 in debt. Only about 20% of that debt is comprised of private loans, according to The Institute for College Access & Success. The rest is comprised of federal loans. But private student loans are a lot more expensive. The Department of Education found that private student loans have variable interest rates of up to 18%. And private loan providers aren’t required to offer the same relief as federal loans — so private loan borrowers and co-signers who face unexpected hardships are often out of luck.

“With federal loans, you have built-in insurance in case of job loss or disability or death,” says Justin Draeger, president of the National Association of Financial Aid Administrators. “These are protections provided to every borrower. Those protections don’t always exist in the private student loan market.”

That’s why these new initiatives are good news, Draeger says. “The fact that they’re willing to look at loan modification is a good thing,” Drager says. “You just have to see the whole picture before you see whether this is good news or if it’s great news.”

Deanne Loonin, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, says she is also cautiously optimistic. Other student loan providers, like Sallie Mae, have offered similar relief, and the devil is always in the details, Loonin says.

“It’s a good first step, but as with many things, I want to know more details,” Loonin says. “Which loan you have, how delinquent you are, what your income status is — those kinds of things can end up limiting who can benefit quite a bit.”

Wells Fargo’s head of education financial services, John Rasmussen, told the Washington Post that 600 to 1,000 borrowers should be able to get loan modifications by the end of this year. He said Wells Fargo will also offer help to people who are not yet late on their payments but foresee financial problems that may limit their ability to pay in the near future.

Struggling to repay private student loans? First, read your loan agreement. Private loan providers are not required by law to offer relief, but some do, Loonin says. Your loan agreement should explain if you have any recourse.

If not, call your loan provider, whether it’s Wells Fargo, Discover, or someone else. “It’s definitely worth contacting your creditor and finding out what they offer,” Loonin says. “It may not be totally obvious. Some make modifications on a case-by-case basis.”

Otherwise, consider bankruptcy. Borrowers have been told that it’s nearly impossible to discharge student loan debt in bankruptcy, but that’s not quite true. In fact, 39% of people who tried to get their student debt discharged in bankruptcy received at least partial relief, according to research by Jason Iuliano, Ph.D. candidate in the Politics Department at Princeton University.

But almost no one bothers: Only 0.1% of student loan borrowers in bankruptcy even tried to discharge their student debt. Iuliano estimates that an additional 69,000 debtors would have been eligible for student debt relief. At the very least, if you file bankruptcy, you can wipe out credit card, car loans, and other kinds of debt, which should free up money for you to pay off your student loans.

Finally, know that you’re not alone. “This is still a widespread problem,” Draeger says. “This is a lagging indicator from the recession. People are still having trouble making ends meet.”

Related stories

MONEY Debt

How One Couple Paid Off $147k of Debt (Even While Unemployed)

two birds escaping cage
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Feeling overwhelmed by your debt? Look for inspiration on how to break free from this couple.

Jackie Beck and her husband once “owned” a six figure debt. They’d borrowed for their mortgage, credit cards, education, autos, and home improvement projects. Like most of us do, they’d borrowed over time, barely noticing as their balances grew and interest accrued.

Beck is not alone. The average American borrower owes $225,238 in consumer debt, including $15,263 for credit cards, $147,591 in mortgage debt, $31,646 for student loans, and $30,738 for auto financing.

What set Beck and her partner apart, however, is that they set out to pay off that debt, and after a 10-year journey, they succeeded. Today neither holds a traditional job, they maintain collective annual expenses of less than $12,000, and they’re free to pursue their passions. “Anyone can do it, too,” says Beck. “You don’t have to have debt. Life is a lot easier without it.” (See also: How One Inspiring Saver Found True Love, Shook Off Debt Denial, and Paid Off $123,000)

Getting Started

The Beck’s get-out-of-debt journey began when they decided to tackle their credit card balances. “We were just really sick of being in debt and feeling like all our money went toward the credit cards and interest,” says Beck. Paying off the balance on their cards took a full three years and Beck was unemployed for a lot of that time. “In the beginning, it took us a long time to pay things off,” says Beck. “Then we figured things out and we had more money because we had paid more off. You get better at it and it gets faster.”

She’d been deferring her student loan payments but, once the credit card bills were paid, that freed up some extra cash. “I’d been living for many years on very little money. I never would have been able to start paying on my student loans if I’d still had those credit card payments,” she says.

Beck viewed her student debt as a burden and she couldn’t wait to get rid of it. When finally she landed a job, she was able to speed her repayment schedule. “I continued to live on nothing. I put all my money toward my student loans,” she says. “Then it went super fast.” (See also: How One College Graduate Paid Off $28,000 in Three Years on a $30k Salary)

Maintaining Momentum

Beck’s husband was inspired by her student loan success and together they worked to amp up their efforts. They started paying for most of their purchases in cash, foregoing credit cards altogether. Then they decided to tackle their car loan. “After he saw what I did with my student loan,” says Beck, “he thought it would be nice to live without the car payment.”

Even with successful milestones along the way, the Becks repaid their debt at a measured pace. “We spent a lot of time getting out of the debt we had gotten into,” says Beck. “You don’t have to live like a monk the whole time. We had more money coming in and it didn’t all go toward our debt. We spent some.”

The Becks increased spending somewhat over time but even so, they began to view their mission as preparation for an emergency. In the previous years they’d taken turns being unemployed, had undergone surgeries, paid expensive veterinarian bills for their pets, and even totaled a car. They’d taken out a $10,000 home improvement loan around this time, but even though the loan came with a 0% introductory rate for the first 12 months, they realized their attitude toward borrowing had shifted. They were no longer comfortable taking on new debt. “Gradually we realized that debt is dangerous and that something could go wrong,” says Beck.

Ultimately, the Beck’s took the remaining balance from their savings account and paid off the loan. “Life doesn’t work out perfectly and, when you don’t have debt, it really changes what you’re able to do,” she says.

By the time they were able to start tackling their mortgage, their journey had become about more than just safety. They started to view it a road to freedom. According to Beck, “The fewer expenses you have, the longer you can go without a job.” (See also: The Freedom of a Debt-Free Life)

Rewarding Yourself

For the Becks, freedom was defined by the rewards they chose for themselves after they paid off their mortgage. Beck had wanted to travel to Antarctica since she was eight years old and her husband had his eye on a new car. “After the house was paid off, we spent another year saving up for those things,” says Beck, “and then we went and did them.”

Beck also started developing other streams of income and eventually left her day job. “I created the app Pay Off Debt after I paid off my student loan,” she says. “I thought other people might want to obsess about debt as much as I do.” She also started to blog about her journey at TheDebtMyth.com, and even bought a couple of rental properties, paying for them in cash.

As a couple, they’d also learned to keep their collective expenses low.

“We can live on $12,000 a year if we need to,” says Beck. “We basically have no required bills and we’re not eating ramen,” she laughs. “My husband got laid off a week after I quit my job. Neither of us has a [traditional] job now. People who owe a lot of money don’t do things like that,” says Beck, “because they can’t.”

The Beck’s get-out-of-debt journey has changed the way they think about money altogether. Now it’s common practice for them to make their purchases — even big ones — in cash. They don’t carry debt and they can live their lives freely, without the burden of owing money to anyone. Beck is even thinking about a second trip to her dream destination, Antarctica. “I’m totally going back,” she says.

Because she can.

Read more articles from Wise Bread:

How One College Graduate Paid Off $28,000 in Three Years on a $30K Salary
How One Young Entrepreneur Paid Off $40,000 in Student Debt By Age 24
Our Worst Financial Mistakes and What You Can Learn From Them

MONEY Kids and Money

4 Costly Money Mistakes You’re Making With Your Kids

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Yellow Dog Productions—Getty Images

Help your kids become financially literate.

When you’re a parent, it’s easy to get caught up in day-to-day money issues: Which brand of milk is a better value? Is Old Navy having a school uniform sale? How much lunch money is left in the kids’ accounts? But parenting is ultimately about the long view, with the goal of raising capable, self-sufficient adults. Dealing with daily details, we sometimes neglect important money issues that can have a huge impact on our kids — and on our finances — as they prepare for college and adult life.

The mistake: Not talking enough about money

Too many parents don’t talk about money with their kids at all. Others skirt topics they don’t know much about, like investing and debt. Parents are the main source of money information for children, but 74% of parents are reluctant to discuss family finances with their kids, according to the 2014 T. Rowe Price Parents, Kids, and Money Survey. That’s too bad, because ignorance about money can set your kids up to make bad decisions — and eventually pass those bad habits on to your grandkids.

The solution: Make financial literacy a family value

In her book, Do I Look Like an ATM?: A Parent’s Guide to Raising Financially Responsible African American Children, Sabrina Lamb details “the business of your family household.” Lamb, founder and CEO of WorldofMoney.org, says all families should work together on five financial topics: learning, earning, saving, investing, and donating time or funds to causes you value. She recommends a daily diet of business news, occasional meetings between the kids, your banker, and other financial advisors, and support of your older kids’ entrepreneurial goals.

The mistake: Believing in the “Scholarship Fairy”

A lot of parents pin their hopes on pixie dust when it comes to funding their kids’ college educations. Eight in 10 parents think their kids will get scholarships. In the real world, less than one in 10 U.S. students receive private-sector scholarship money — an average of $2,000 apiece, according to FinAid.org.

Even more unrealistic is the myth that great grades and high test scores will lead to a full scholarship. The truth, per scholarship portal ScholarshipExperts.com, is there are many more 4.0-GPA students than there are full-tuition awards, and only one-third of one percent (0.3%) of all U.S. college students earn a full-ride scholarship each year. The time to learn this hard truth is now, not when college acceptance letters start arriving.

The solution: Save something now (or accept that you can’t)

There’s a considerable body of literature out there on the merits of 529s, trusts, and other college savings options. Don’t let the details distract you from the real issue, which is that if you want to help finance your child’s higher education, you must save regularly, starting now.

If there’s no money to save, be honest with your kids about it. You can start educating them about ways to finance college through loans and cut costs with community college transfer credit and placement tests. It’s perfectly acceptable to expect your kids to take responsibility for their own higher learning as long as you prepare them properly to face that reality.

The mistake: “Investing” in extracurricular activities

Everyone’s heard about overscheduled kids with too many after-school activities. Not as much is said about the huge dent extracurriculars can put in your budget — hundreds or thousands of dollars each year for lessons, league fees, uniforms, and more. If you’re sacrificing because you think these activities will pay off when your child gets an athletic scholarship, remember that the Scholarship Fairy is rarely seen. The odds of any particular student getting even a small athletic scholarship at a Division 1 school aren’t significantly better than the odds of a student getting a full-ride academic scholarship.

The solution: Treat extracurricular activities as extras

If your child loves soccer, piano, or hip-hop and you have the time and money to spare, that’s ideal. But if it’s a choice between paying for extras and saving for college, save for college. Find cheaper after-school options for now, and don’t apologize for making that decision.

The mistake: Not teaching your kids to negotiate

There’s a big distinction between a child who’s been taught how to speak up when appropriate and one who’s been trained to be passive in the face of authority. The kids who know how to negotiate tend to earn more money as adults, even when they’re doing the same jobs as those who keep quiet. Salary.com found last year that workers who negotiated a raise every three years earned a million more dollars over the course of their careers than workers who simply accepted whatever they were offered.

The solution: Teach your kids how to deal

Show your kids the ins and outs of deal making through trading games, doing some haggling at garage sales, and expecting them to keep their word. You can find specific age-appropriate suggestions here.

By talking about money and business a little each day, being realistic about college planning, and giving your kids the skills to advocate for themselves, you’ll give them long-term advantages when it comes to understanding and earning money. That’s a valuable legacy to pass from one generation to the next.

TIME Saving & Spending

The Problem With Millennials, In One Staggering Statistic

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KC Photography—Getty Images/Flickr RF

It's almost unbelievably bad

New data about how much debt today’s students are graduating college with just came out. The results are ugly, but that’s not the worst of it.

The Project on Student Debt conducted by The Institute for College Access & Success says the average debt load carried by last year’s crop of four-year nonprofit college grads is $28,400. That number is several hundred dollars higher than last year and roughly ten grand more than the average a decade ago. Roughly seven in 10 students today graduate with debt, a figure that has ticked up in that time period, as well.

This number would likely be even higher if for-profit colleges, which were included in previous tallies but left out this year because many failed to provide data, were included, since their students tend to leave school burdened with debt at a higher rate — 88% indebted with at average of nearly $40,000 in 2012.

That’s bad — but that’s not the problem. You might think these young adults would be worried about paying off a new car’s worth of debt they’d accrued before getting their first full-time job.

Nope.

A new study from Junior Achievement USA and PwC US conducted by Ypulse finds that 24% of millennials think their student loans will be forgiven.

“It’s a scary statistic,” Junior Achievement president Jack Kosakowski tells CNBC. The survey doesn’t explore why roughly a quarter of young people have such an optimistic — and for the majority, unrealistic — expectation.

In many cases, the payments they expect to be forgiven are significant. “Loan payments are also rising, taking a significant chunk out of Millennials’ pay checks when it comes time to pay up post-graduation,” the report accompanying the survey says. “One-third of those with student loans are shelling out over $300 per month and five percent are actually paying more than $1,000 per month.”

Although 60% of respondents to the PwC/JA survey say financial aid is a consideration in their school choice, the survey also finds that today’s high school seniors are relying on an average of just over $8,200 in contributions from their parents and more than $6,600 in student loans to help fund their first year’s tuition. Their average contribution from savings or earnings: less than $1,400. (These students also spent almost $200 of their own money, on average, on back-to-school shopping. School supplies, followed by clothes, were the most common purchases.)

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MONEY College

Average College Grad Now Leaves School With $28,400 in Debt

man overboard waving arms in the air for help
Gary John Norman—Getty Images

A new report from the Project on Student Debt shows that many recent grads are drowning in student loans, but also offers advice for avoiding this destiny.

Student debt has hit another record—with the typical 2013 college grad who borrowed commencing post-collegiate life with loan bills totaling $28,400, according to a Project on Student Debt report released Thursday.

That number is up 2% over the class of 2012, who owed $27,850.

Not all the news was so grim: a new College Board study of financial aid also released Thursday indicated that the total amount of undergraduate federal student loans fell by about 7% in 2014, while enrollment only fell about 1%.

But several debt experts warned against celebrating this as a herald to the end to the student debt crisis.

The recent decline in federal borrowing may simply reflect parents’ shift to other kinds of borrowing, like home equity loans, noted Lauren Asher, president of The Institute for College Access and Success, which runs the Project on Student Debt.

Also, nearly one-fifth of new graduates’ debt load is made up of private student loans, which charge much higher rates than federal loans and have much less flexible repayment plans, she added.

Mark Kantrowitz, publisher of Edvisors.com, attributes the recent dip in borrowing to the economic rebound. But since states continue to stint on funding for public colleges, and since college prices are rising faster than financial aid budgets and incomes, borrowing will likely soon bounce back up, he predicts.

State budget cuts “will continue to shift the burden of paying for college from the government to students and their families. Family income and savings do not increase enough to cover the added cost. This forces students to shift their enrollment to lower-cost colleges and to increase their debt at graduation,” Kantrowitz warns in his own recent analysis of student debt numbers.

The key takeaway for students, says Asher is that students should continue to pursue degrees—for the great advantage they provide in the job market—but should also be making sure to limit their debt loads.

Perhaps the single most important step: choosing a college with a net price you can afford using your family’s savings, earnings, your scholarships and no more than the maximum standard federal student loans: $5,500 a year for freshmen, $7,500 a year for upperclassmen. (Here’s more advice on how to avoid crushing student debt.)

The Project on Student Debt also noted that there were many low-debt schools students could choose from. These tend to have some combination of low tuition and/or generous financial aid. They range from private schools such as Princeton University and Berea, to the public campuses of the City Universities of New York and the California State Universities.

On the other hand, colleges that load students up with debt tend to have high tuition and small financial aid budgets. That list includes public schools such as the University of New Hampshire and private schools like the Ringling College of Art and Design.

You can also search for low-debt colleges using MONEY’s list of the 100 colleges with the lightest debt loads.

This story was updated on Nov. 14 to delete an incorrect description of the rate of borrowing by 2012 college graduates.

TIME Education

The Real Student Debt Problem No One is Talking About

College Student Graduation Debt Loans
Getty Images

Graduate students make up just 14% of university enrollment, but account for nearly 40% of student debt

An Army veteran, Anthony Manfre paid for his associate’s and bachelor’s degrees mostly with his GI Bill benefits, although he also took out $4,000 worth of student loans.

“At the time, I thought that was a lot,” he says. “And now I look back and wish I only owed that much.”

That’s because Manfre went on to graduate school, picking up a master’s degree before setting off on the long road to a doctorate in marriage and family therapy while borrowing to also pay his living expenses. And now he’s $200,000 in debt.

“In the back of my mind I was always thinking, this money is an investment — that later on, when I graduate and get a job, I’ll be able to pay it off,” says Manfre, who earns $61,500 a year working for the Veterans Administration. “But now I don’t think I’m going to get the return I thought I would.”

Much of the concern about ballooning student debt has focused on undergrads taking out steep loans to pay for the rising cost of college. Largely overlooked are a principal source of the problem: graduate students like Manfre, who are less likely to have support from parents or other sources, and who face almost no limits on how much they borrow.

Graduate students now collectively owe as much as 40 percent of the estimated $1.2 trillion in outstanding student debt, according to the New America Foundation, even though they make up only 14 percent of all university enrollment.

“People focus on the undergraduates, because there are more of them and they’re younger and more naïve,” says Joel Best, a professor at the University of Delaware and coauthor of The Student Loan Mess. “They aren’t really paying attention to graduate students, but graduate students are really stacking up substantial student-loan debt.”

This indifference helps graduate programs get away with continually increasing their prices, Best says. “They can charge whatever they want and say to themselves that they don’t need to worry about it, the students can get loans.”

It has also freed lawmakers to raise interest rates on graduate and professional students, who are being charged rates nearly 50% more than those paid by undergrads. In 2012, to save about $1.8 billion a year, Congress also stopped subsidizing the interest that accumulates on federal student loans taken out by graduate students while they’re in school and for six months after they finish. And a proposal to streamline existing federal tax credits would reduce the deductions they will be able to take for educational expenses.

Often past the point at which their parents help them pay for their tuition, room, and board, graduate students borrow an average of nearly three times more per year than undergraduates, according to the College Board. And while the average debt of undergraduates has more than doubled since 1989, according to the Brookings Institution, it has more than quadrupled during that time for graduate students.

This comes at a time when the Bureau of Labor Statistics projects that the fastest-growing careers through 2022 will require workers to have graduate degrees.

“We might have a philosophical discussion about, ‘Do you need a master’s degree for X, Y, and Z,’ but in a free and open marketplace employers are asking for them,” says Suzanne Ortega, president of the Council of Graduate Schools.

It’s also true that those workers will make more money than people without graduate educations. An employee with a master’s degree earns about 20% more than one with only a bachelor’s degree, while those with professional degrees can make around 55% more, according to BLS calculations.

But not all of them. Teachers, for example, can have a particularly hard time earning enough to pay back their debt. About 16% of U.S. master’s degrees are in education and the median debt for graduates is $50,879, according to the New America Foundation— up from $30,724 a decade ago. The yearly salary for the average public school teacher with a master’s degree is $57,830.

And while enrollment in graduate programs has increased 41 percent since 2000, according to the U.S. Department of Education, the Council of Graduate Schools reports that the pace of applications has stalled — in part because people are put off by the cost.

“We’re going to have graduate enrollment going down in our universities, because people can’t afford to take on that level of debt,” says Neleen Leslie, president of the National Association of Graduate-Professional Students and a doctoral student at Florida State University. “There’s a misperception that people who pursue advanced degrees are going to be able to make enough to pay back those loans. That’s not necessarily true.”

Now a new measure to help ease student debt could cause problems for everyone else.

In an executive order issued in June, President Obama expanded a little-known provision called income-based repayment that allows borrowers to limit their monthly federal loan repayments to 10% of their incomes, and forgives any remaining debt after 20 years. That’s down from 15% and 25 years, respectively.

Obama said the change was meant to help undergraduates. “If you got a professional degree like a law degree, you would probably be able to pay it off,” the Harvard Law School grad said when he signed the order. But federal loans account for the largest share of graduate student debt, and some education policy experts worry that it could encourage grad students to borrow even more than they already do.

“Why the hell should you worry about how much you’re borrowing? Borrow a million, you’ll still have to pay off the same amount,” says Best.

The potential benefit for higher-earning graduate students is “a policy accident,” says Jason Delisle, director of the Federal Education Budget Project at the New America Foundation. “And who’s going to figure this out? Probably people with graduate degrees.”

This story was produced by The Hechinger Report, a nonprofit, nonpartisan education-news outlet affiliated with Teachers College, Columbia University.

Read next: How A College Grad Paid Off $28,000 in 3 Years on a $30,000 Salary

MONEY Debt

How A College Grad Paid Off $28,000 in 3 Years on a $30,000 Salary

Broken chains
iStock

Think you'll never get out from under those student loan payments? Steal some tips from this college grad who did it in three years.

The average college senior graduated with $29,400 in student debt last year and the number is projected to rise by a staggering 6% per year. Even worse, a full 44% of borrowers aren’t making their payments for one reason or another. Despite the depressing statistics swirling around what’s now been dubbed the current student loan crisis, there are still plenty of college graduates who manage to buckle down, live cheaply, and pay off their debt burdens. (See also: How One Inspiring Saver Found True Love, Shook Off Debt Denial, and Paid Off $123,000)

Take Zina Kumok, for example, who is just one month shy of making her last payment on what was once a $28,000 student loan balance. Through a combination of tenacity and frugal living, Kumok will pay off her debt in just three years — while bringing home an income that’s just slightly higher than what she once owed.

How did she do it?

The Motivation

Like most students today, Kumok didn’t give her loans much thought while she was in school. “It wasn’t until I graduated and had my first job,” she says. “I was making $28,000 per year. It was depressing to think that for the next 10 years I would have this payment that was a large chunk of my income.” Even more motivating, Kumok and her then-boyfriend and now fiancee had started talking about marriage. “I didn’t want to saddle him with my debt. My monthly payment was $350.” (See also: 10 Dark-Side Motivations to Get You Out of Debt)

The Job Switch

Kumok’s newspaper job required frequent night shifts and she was living a three hour distance from her boyfriend. “I wasn’t happy at the newspaper and I wanted to go back to a normal schedule,” she says. “I knew I wanted to switch jobs.”

Kumok was able to land a marketing and communications position in the city where her boyfriend lived and she even received a slight salary bump. (Her current annual income is slightly more than $30,000.) With a little more money coming in and lower expenses now that she wasn’t traveling to see her boyfriend most weekends, Kumok was able to increase her student loan payment by an additional $300 per month. In short, instead of using her excess cash flow to expand her lifestyle, Kumok funneled the extra cash into her loan so she could chip away at her balance month by month. (See also: 6 Simple Steps to Discovering Your True Salary Potential)

Decreased Living Expenses

After their engagement, Kumok and her fiance moved in together. They also took on a boarder. “My rent went down significantly,” she says. “Now I split utilities and rent with two other people. That really made a huge difference. Now half my take-home pay goes toward my loans.” (See also: 7 Unnecessary Household Expenses You Can Cut Today)

Keeping Track

For Kumok, her fairly low income offered motivation to wipe out her debt. “Every month I would go through my statement and I would see how much was going toward interest. It was so much hard earned money and I didn’t have a lot of it,” she says. “When you’re not making a lot, every little bit counts.”

Kumok was further inspired once she was able to boost her monthly payment. “I was finally paying more in principal than in interest,” she says. “I liked seeing my interest decrease each month. I felt like I was throwing less money away.”

Budgeting for the Fun Stuff

Kumok admits she finds it difficult to spend money unnecessarily when she owes so much. Even so, she was able to put money aside for a couple of overseas vacations, proving that debt repayment doesn’t have to be all work and no play. “It was hard for me to relax and have fun,” says Kumok, who was able to take each trip on the cheap. Even so, she says, “I counted my budget every day on those trips. I’m excited to travel on a budget but not feel guilty about it, once my loans are paid off.”

And… What’s Next?

About a year ago, Kumok started saving for retirement. “Once I became eligible for my company’s 401(k), I paid enough to get the match. Now I’ll be boosting that contribution amount.”

She soon won’t owe any money and yet she doesn’t expect that much to change. “I was careful for so long. I don’t want to get back into the frivolous habits I had in college,” she says. “I’m a child of the recession, the stock market crashed when I was in college, and I’m the child of immigrants. There are plenty of horror stories around about people who didn’t save or make careful choices. Those things make it hard for me to take a backseat when it comes to money.”

Being the careful sort, Kumok looks forward to starting her marriage without any debt. “He helps me relax a bit so I hope we’ll learn how to be responsible while still having a balance,” she says.

You can read more about Kumok’s journey on her blog, Debt Free in Three.

MONEY Out of the Red

Have You Conquered Debt? Tell Us Your Story

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iStock

With patience, you can pay off large amounts of debt and improve your credit. MONEY wants to hear how you're doing it.

Have you gotten rid of a big IOU on your balance sheet, or at least made significant progress toward that end? MONEY wants to hear your digging-out-of-debt stories, to share with and inspire our readers who might be in similar situations.

Use the confidential form below to tell us about it. What kind of debt did you have, and how much? How did you erase it—or what are you currently doing? What advice do you have for other people in your situation? We’re interested in stories about all kinds of debt, from student loans to credit cards to car loans to mortgages.

Read the first story in our series, about a Marine and mother of three who paid off more than $158,169 in debt:

My kids have been understanding. Now I teach them about needs and wants. The other day, I was coming home from work, and I said, “Do you need anything from the store?” My son said, “We don’t need anything, but we’d like some candy.” If they want a video game, they know they need to save their money to get that video game—and that means there’s something else they won’t be able to get. They understand if you have a big house, that means you have to pay big electricity and water bills. I’m teaching them to live within their means and not just get, get, get to try to impress people.

Do you have a story about conquering debt? Share it with us. Please also let us know where you’re from, what you do for a living, and how old you are. We won’t use your story unless we speak with you first.

MONEY Out of the Red

How I Paid Off $158,169 in Debt

G. McDowell Photography

Think there's no way to get out from under your obligations? This first in a series of profiles of people getting "Out of the Red" proves that it's possible.

Rachel Gause just wanted to give her three kids more than she had growing up. So, though she was receiving a secure income along with child support, she found herself living beyond her means every month—eventually racking up six figures in debt. With a whole lot of determination and almost a decade’s worth of belt-tightening, she’s climbed most of the way out. This is her story, as told to MONEY reporter Kara Brandeisky.

Rachel Gause
Jacksonville, N.C.
Occupation: Master Sergeant, United States Marine Corps
Initial debt: $179,625
Amount left: $21,456
When she started paying it down: 2006
When she hopes to be debt-free: November 2015

How I got into trouble

“I was just trying to keep up with everybody else. I’m a single parent to three kids, ages 10, 14, and 16. I was always spending extra on Christmas and on birthdays. Also, growing up, I didn’t have new clothes and new shoes at the start of every school year. But I wanted to make sure my kids always did.

Looking back, I wish I would have known not to rely on credit cards. I wish I would have known that it’s okay to keep your car for four or more years, as long as you maintain it.

I started going into debt when my first daughter was born, 16 years ago. I remember I had to get a furniture loan. By 2006, I had $55,848 in credit card debt and $76,711 in car loans. Then there were the personal loans. I had a consolidation loan that I used to pay off my credit cards. Altogether, it came out to $179,625.”

My “uh-oh” moment

“I wasn’t aware of how much debt I was in. The turning point for me was when I hit the 10-year point in the Marines, and I saw other people around me retiring. I wanted to sit down and see where I was at. And that’s when I realized I didn’t want to retire in debt. I didn’t want to be that person.

At the time, I had a Toyota Sequoia, and I couldn’t make payments on it. I knew I was in way over my head.

Even though I had three kids, we didn’t need that big truck. It was going to put my family at a financial challenge. So I spoke to a lady at my church, and I said, ‘I have this truck, and I’m going to trade it in for something smaller.’ And she said, ‘I always wanted a Toyota Sequoia.’ I sold it to her and got into a Corolla instead.

I realized buying that truck was a bad choice, and I knew I needed to develop better habits from there. That was my first step forward.

How I’m getting out from under

Now I put roughly $2,100 a month toward my debt.

For the rest of my income, I use the envelope system. Before I get paid, I do my budget. Then I have 13 envelopes—one for groceries, one for clothes and shoes, one for charity, one for dining out, one for gas, and so on. I go to the bank, take the money out, and divide it between the envelopes.

I don’t spend anything that doesn’t come out of those envelopes. Debit cards are nice, but swiping is less emotional. Cash makes me more aware of what I’m spending my money on. If I run out of money for something that month, I don’t buy it. But I’ve never run out of money for something important—now I’m more aware of how much I’m spending.

That’s because I also got a small composition book from Dollar General to track my spending. Every time I spend money, I write it in that book. Then I compare that to what I’m supposed to be spending, according to my budget.

I also do a quarterly audit on myself to make sure I’m not spending too much more on my cable or cell phone bills.

But it’s not all deprivation. We have a chart that we color in every time we reach a milestone, and we treat ourselves to something nice. For example, recently I went on a trip with my high school classmates to Atlanta—funded totally in cash.

My kids have been understanding about our debt-free journey. They know that mommy has made some bad financial decisions in the past. Now I teach them about needs and wants.

The other day, I was coming home from work, and I said, “Do you need anything from the store?” My son said, “We don’t need anything, but we’d like some candy.”

If they want a video game, they know they need to save their money to get that video game—and that means there’s something else they won’t be able to get. They understand if you have a big house, that means you have to pay big electricity and water bills. I’m teaching them to live within their means and not just get, get, get to try to impress people.

What I’ve learned that could help someone else

My advice would be to sit down, see where you’re at—first, you have to know how much debt you’re in—and then create a spending plan. (Some people are scared of the word “budget.”) You have to tell your money where to go, or it’s going to tell you where to go.

The numbers may scare you in the beginning. It takes two or three months before you can get the budget right.

And you have to be consistent. If you don’t put 100% into it, it’s not going to work. You can’t be half, ‘I’m trying to get out of debt,’ and half, ‘I still want to spend money.’ You have to sacrifice.

My hopes for the future

Once I become debt-free, I plan to build up my emergency fund and then start actively investing and saving for retirement.

Then I hope to get my kids off to a better start.

My daughter will go to college soon. We’ve talked about student loans.

The main reason I joined the military was to obtain my college degree for free. I earned my degree in business administration from the University of North Carolina-Wilmington last year. But while I was there, I saw so many kids taking courses for a second and third time because they were failing and they weren’t going to class.

So I told my daughter, you’ll pay for that first year, and we’ll see how you manage. Then I’ll assist you with your second, third and fourth years. But first, I need to make sure you’re dedicated.

After I retire from the military, I want to become a certified financial counselor so I can help people break the vicious cycle of being in debt and dying in debt. My passion is to put together financial classes for non-profit organizations like women’s shelters, churches, and organizations for military service members. There aren’t that many in this area, and I see a real need. I see so many people struggling to survive, living paycheck to paycheck.

I’ve already started counseling some people who ask for help.

Every now and then, I get a message on Facebook from someone I helped that says, ‘I just paid off another credit card’ or ‘I paid off my car.’ That’s my motivation now. I don’t want to stop – the need is out there.

Are you climbing out of debt? Share your story of getting Out of the Red.

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