How We Paid Off $40,000 of Debt in 18 Months with Low Income (2024)

Earlier this year, my husband and I celebrated a big milestone: We paid off $40,000 of my student loans (50% of our total debt). We made it in only 18 months, despite having low income, no side hustle, and a newborn (!).

For years, we kept telling ourselves that we couldn’t start paying down debt until we have a much higher income. And we kept waiting and trying for new earning opportunities, while the loan interests kept on pilling. However, almost 2 years ago, we decided to stop waiting and start putting money toward debt every single month, regardless of our income and how small each payment might be. We never look back.

The Snapshot

The team: Husband and wife, aged 32 and 30 respectively

Paid off: $40,000 of debt (all in wife’s student loans; husband has no debt)

Time: 18 months (July 2018 to January 2020)

Income: Ranging from $34,230 to $60,000 before tax (Read the chronicle of our income here)

Here is how we did it:

1. Create a “Debt List”

Believe it or not, this was the hardest part! Because all of our debts are from my student loans, I felt a lot of guilt and shame when thinking about debt. That’s why I didn’t want to even look into it, to see who I owe money to, how much I owe, and how the loans’ interests and principals work out. It was horrible!

Eventually, I got myself together and sat down to list all of my debts. Since my student loans consist of multiple bank loans and personal loans that I used to pay for my college, it was extremely helpful to see them all on a single sheet of paper. Although I was still terrified about how much I owed, I gained a better understanding of my situation from this exercise.

When I created this “debt list,” I sorted my loans both by their sizes (smallest to largest amount) and by their interest rates (highest to lowest rate). I started paying off some of the smallest loans first. Then, when I gained momentum, I switched to prioritize loans with the highest interests. In financial terms, I applied a combination of debt snowball and debt avalanche approaches. This worked wonderfully for me.

2. Combine Income

Before paying off debt, our incomes were separate. We split 50/50 on shared household expenses (rent, food, insurance, etc.) and kept the rest for our personal spending. We tried to put money on our shared savings account, but it never worked. There was always little money left in the bank and we often argued over one another’s splurges or questionable purchases. It wasn’t a good financial model for us as a married couple.

After getting on the same page about money and debt payment, we decided to combine our incomes. We used a budget app called Every Dollar with the same login, to keep track of all income streams and expenses. The app is free on both desktop and mobile devices; however, we paid for the plus version that syncs the app with our bank accounts. That way, both of us can monitor every transaction and organize them in the budget. We check our budget on the app almost daily.

Honestly, we could have never paid off such a large amount of debt if we hadn’t combined our incomes. The act of combining incomes did not only bring more money to pay off debt but also help us get on the same page, manage our money better, and work hard toward our goals. It has been an incredible journey!

3. Implement a Zero-Based Budget

We are big fans of zero-based budget, which is fundamentally based on a simple equation: Input – Output = 0. This means that in order to balance your budget, your income must equal your expense (including regular spending, debt payment, saving, etc.). If your expense is larger than your income, then you’re spending more than you make. This is called “over budget” and it’s bad. If your expense is smaller than your income, then you’re spending less than you make. This is called “under budget” and it’s good; HOWEVER, you need to allocate the extra money in your expense to make sure it goes to savings, debt payments, or investments.

The zero-based budget has helped us tremendously in structuring our monthly budgets and keeping track of our spending. We also like the Every Dollar app because it’s built upon the zero-based budget model.

4. Have Sinking Funds

The scariest thing about hyper-focusing on paying off debt (to me at least) is large expenses that can throw off the entire debt payment plan. Luckily, most large expenses are expected and can be prepared for, such as Christmas, weddings, insurances, and car repairs. We plan for these expenses ahead of time and set aside a designated amount for them in our monthly budgets, which are known as “sinking funds.”

For example, at the moment, we have a sinking fund of $100/month toward future car repairs and insurance (see our latest budget/income report). We got this number by dividing its annual cost (around $1,200) to 12 months.

These sinking funds are really helpful in protecting our budget against inevitable expenses and keeping our debt payments going strong.

5. Live Frugally

It goes without saying, paying off debt with a low income requires a lot of personal sacrifices. In order to pay off $40,000 in 18 months, we threw about 50-70% of our combined income to debt. This meant almost no vacation, no fancy restaurant outings, no new clothing, and absolutely no more “just charging it on the credit card” type of things. We live very frugally.

However, it wasn’t as bad as it seemed. We actually learned a lot about money along the process and genuinely enjoy the frugal living lifestyle. We also create space on our budget for “fun money” for both of us, where we can “splurge” without feeling guilty or judged.

I will continue sharing our tips about money saving and frugal living on this blog.

6. Keep Busy and Stay Motivated

When you’re paying off a large amount of debt, especially with a low income, the process can feel really slow and frustrating. Trust me, I know. There were so many nights that I stayed up late because I was so upset about debt. Why did I get myself and my family in this situation? Why didn’t I start paying off debt sooner? What can I do to increase my income so that I can fasten the process?—I asked. Self-critique is not always helpful and most of the time unhealthy during your debt-free journey. It can really drain your energy and make you feel defeated.

To stay motivated, I keep myself busy with my work, my family, and other hobbies (blogging is one of those). I often read personal finance books and blogs, join debt-free and financially independent communities, listen to financial podcasts, and talk to people I trust about money. I am blessed to have my husband as an accountability buddy and cheerleader throughout this journey. He often reminds me of why we are doing what we do and that our sacrifices now will be all worth it in the end. I also tried to visualize my debt payoff progress by coloring our debt-free charts or making debt-free estimations and countdown (like this one).

I hope you find this post helpful and it gives you some new ideas and inspirations to begin or continue your journey to pay off debt.

The best is yet to come!

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