Small Income, Big Debt: How Kara Paid Off $30,000 in Debt on a $20,000 Income

Kara Perez is the founder of Bravely Go, a financial education company based in Austin TX. You can find her on Instagram and TikTok, and find more articles dedicated to helping you get better with money on her website, bravelygo.co.

Want me to blow your mind? 1 in 4 Americans have student loan debt. 1 in 4! That's 44.7 million people. 

And I was one of them.

I graduated college in 2011 with $25,302 in student loans, no job, and a degree in English. 

My fellow 30-something millennials will remember that 2011 was a dud of a job market for most new grads, especially ones like me with English degrees. 

The job market was still grappling with the effects of the 2008 financial collapse. (Solidarity to all my 2020 graduates!) Full time, salaried jobs that came with benefits were scarce, but my student loan debt didn't care. Payments had to be made within six months of graduation, and my minimum payments were about $400 a month. 

Right away, my debt defined my adulthood. For the first three years out of college, I waited tables since that was the only job I could find. It was not a lucrative job. I made enough to make my loan payments, and I could pay my Austin rent. I got by. 

But financial progress remained out of reach. I wasn't saving money, I wasn't investing money, and I certainly wasn't making much headway on my debt. 

My life felt kind of like a fog; I worked, I went out occasionally, but mostly, I worried about how I was falling behind my friends in life. By June 2014, I was three years out of college and depressed as hell. My life felt beyond stuck; it was like I was going backwards. My debt hung over my head every day, and I felt like I would never pay it off. I was watching my friends move forward with their careers; getting raises and promotions. People were beginning to get engaged and talk about buying their first house. 

And I was about $20,000 still in debt, working as a caterer 10 hours a week and watching Netflix that one of my roommates paid for. 

The debt had to go. I had to learn about money. To me, it was clear that money was the biggest problem in my life. So I figured, "If I can just learn about money...the rest of my life will get better right?"

The First Step to Debt Freedom

My first step to debt freedom was to actually sit down and look at my financial life. 

Because I didn't make very much, I didn't budget. I didn't have an investment account or a mortgage, so my financial life was as simple as "Get a bill. Stress about it. Pay it a week later when I had worked a weekend shift."

I sat down and listed out how much money I would earn on an average weekend catering and then listed out everything I was spending money on. I did this in a notebook, but I suggest using a spreadsheet. Seeing all my spending in one space showed me two things: I went to Target ALL THE TIME, and I was going out to bars kind of a lot. 

For someone making under $20,000 a year and crying about how broke she was, these two spending habits did not add up. 

Now, when I say a lot, I don't mean those people who are spending $1,000 a month on food without knowing it. I mean I was spending about $20 a week at $2 Tuesday at my favorite bar.

BUT AGAIN - I made under $20,000! $20 a week, or $80 a month, was a relatively large part of my income! 

Listing out all my spending was the first step to creating a budget. And that's why I include a 31 day spending tracker in our values based budgeting workbook. Looking at some of your own spending will truly blow your mind!

Step 2: Cut Back

Next, I decided to cut back drastically. Since I was so low income and since work was hard for me to find, the more immediate solution was to cut back my spending. 

I decided to put myself on a Target ban - I wouldn't go into the store AT ALL until I had paid off my debt. I also decided that I was going to cut way back on my time spent at bars. 

I also completely cut out any clothes shopping, gifts for friends and family, eating at restaurants, and any "just because" purchases. 

(You know, things like an extra bottle of wine at the store "because it's been a long week" or a new book "because I've been meaning to read it.")

By getting clear on what I wanted to spend money on and what I would eliminate, I created my first budget! I now had a monthly spending plan that I could follow. 

Step 3: Take Advantage of Perks

From my budget came the ability to start thinking strategically about debt payoff. I logged into my lender's website and found out that if I signed up for automatic payments they would reduce my interest by .25%

That wasn't a huge reduction, but it motivated me! If I could pay the lender one single penny less in interest, I was excited. 

My minimum loan payments were also pretty small - in the $40-$70 range for each loan. I changed the payment due dates so that they were all due on different days, which gave me more of a chance to insure that I had the money in my bank account for the automatic withdrawal. 

Check and see if your workplace has any loan repayment perks or if your lender offers an interest reduction!

Step 4: Earn More

That was all I could do for myself...what I really needed was more money. $20,000 in income would only take me so far!

My next big step was to bring in more money. At the time, I was still getting nowhere with full time job applications, so I decided to simply piece together part time jobs. 

I worked as a social media manager, a high school coach, a freelance writer, a non-profit fundraiser, and a caterer. I did other random things for money too - once I waited in line for someone for hours to get $150 in cash. I nannied on occasion. 

Basically, if it paid and I had the time for it, I did it. 

Since I had slashed my expenses to the bare minimum, all the new money I was earning could go directly to my loans. 

In 2014, I earned $18,423 before taxes. By picking up this assortment of jobs, I increased that to $32,249.63 by the end of 2015. 

Reaching Debt Freedom

Working those five part time jobs, sometimes seven days a week, I paid off my last $18,000 in student loans in ten months. It was a debt SPRINT- I've never worked harder in my life. 

The day I paid off my student loans, I felt reborn. I went out with all of my friends to my favorite bar (that $2 Tuesday bar!) and got absolutely sloshed, and it was amazing. I woke up the next day hungover but DEBT FREE. 

If you're working on paying off any type of debt, I hope my story helps you see the light at the end of the tunnel!