Debt Diary: A Combination of Debt Repayment Methods Helped This CEO Pay Off a $48,000 Student Loan

A third of adults aged 30 or younger have student loan debt, with a median burden hovering around $17,000, according to the Pew Research Center. In Debt logs, we present to you those who went into debt and left with a better knowledge of themselves. Their testimonials offer hope – and tools – to show that you, too, can overcome your debt.

Carmen Perez, 35, is the founder and CEO of MUCH, a banking app for millennials and Gen Zers. university. She was able to pay off her debt in two years and nine months using a combination of different debt repayment methods.

Debt Diary: Carmen Perez

ABC News Photo Illustration

How His Student Loan Debt Started

Early in my college career, I remember taking out a loan of $5,000 to $10,000. And then finally, I ended up signing up for a $20,000 loan, which grew to $30,000 once I paid it off. I took out loans because my mother was a single parent and there were no savings for college. So it was really up to me to guide myself and fund my college opportunity. The majority of my loans obviously went to cover tuition and then housing.

living with debt

Living with debt turned out in a very interesting way for me in that I was earning enough money working in various financial companies – but behind closed doors I was drowning in debt.

I was basically not gaining a sufficient amount to really make a dent in a way that would be effective for me. For example, my car loan — I was paying 18% interest on it and it was all because of bad credit. Typical people might spend $200, I was spending $450, over $500 every month just on my car loan. I felt like I had golden handcuffs at work. I was just keeping my job so I could pay off my debt.

Eventually, in 2016, I was sued for my student loan. I had this mark under my belt, which I didn’t understand at the time, and I had no idea it was going to cause so much damage.

PHOTO: Carmen Perez, 35, poses for a photo with her car.

Carmen Perez, 35, poses for a photo with her car.

ABC News Photo Illustration

Before that, I had a job offer rescinded by one of Wall Street’s major investment banks because it looked like I had defaulted on my student loan, and in theory that’s what I ‘have done.

Every time after that, when I applied for a job, I had this fear hovering over my head that I couldn’t work in my profession.

Tired of living under the stress of debt

In 2016, I decided to organize my finances. I was like, it’s time, I make enough money. I should be able to get out of this debt in a meaningful way, save more. I made an assessment of my life and where I was and just where I wanted to be, and it just didn’t line up. So I said, hey, it’s time to tackle my debt.

I was sued three months later for my student loan, so I really had to look into paying off my debt and just getting my finances together.

His plan of attack

At the time, when I started trying to get out of debt, I was living in New York. I made enough money. If I remember correctly, I was making around $90,000 to $100,000 at the time.

Fortunately, I had my partner, who I am now married to. We were sharing a one-bedroom, one-bathroom apartment in Queens, which made me [being] able to pay off my slightly more manageable debt.

Carmen Perez on her wedding day to Elise Young.

Carmen Perez on her wedding day to Elise Young.

Tara Beth Photography, ABC News Photo Illustration

I also had a scramble to be able to bring extra cash. I stopped contributing to my 401(k), which I don’t recommend to anyone else [do]but I was obviously being sued and needed every penny I could to pay off that $30,000 loan.

I had less than $3,000 in the bank.

I picked up a side scramble. I was doing photography – any type of random gig I could take to earn some extra money, I was doing. I stopped eating out, started making my lunch every day, cooking meals, doing all those things. We cut the cable, we kept our rent very, very low – as low as possible so that I had as much money as possible to start paying off these debts.

PHOTO: Debt books: Carmen Perez

Debt Diary: Carmen Perez

ABC News Photo Illustration

I used several different methods to get out of debt, and it felt like a combination of budgeta zero-based budgetcoupled with a cash envelope system and a debt repayment plan.

The first thing was a zero-based budget. Before you get paid, you write your take home pay at the top of a sheet of paper, then spend all that take home pay on paper until you reach zero, so you don’t have to spend anything else. And that’s a good way to find areas where you’re wasting money, or you can start setting limits on yourself to just squeeze a little more out of your budget to invest more in your debts or your savings or whatever be your goal.

The next thing I used was the cash envelope system, which is tied to my zero-based budget. Basically, after sitting down every month to see what areas I could cut or cut a little more, I would mark one of those categories in my budget that I could take money out of. For example, if my food budget was $400, I would go to the bank every two weeks, withdraw $200, and use it for the next two weeks until I got paid again. And that was literally the only money I used, in those cash envelopes. It really helped me manage my debt in a meaningful way because I wasn’t spending too much.

My debt repayment plan, there are two methods.

There’s the debt snowball method, where you organize your debt from [the] lower balance to higher balance, regardless of the interest you owe. You put the most money on the smallest debt while making the minimum payments [on] all the others until the slightest debt is repaid. And then you transfer that money into the next debt and continue the cycle.

The other method is the avalanche, where you settle your debt [and] repay from the highest interest rate to the lowest interest rate, regardless of your balance. It’s the most mathematically sound way to tackle your debt because you’re taking care of the interest. Again, you’re paying as much money as possible for this debt at the highest interest rate while paying the minimum for all others.

PHOTO: Debt books: Carmen Perez

Debt Diary: Carmen Perez

ABC News Photo Illustration

The big reward

After being debt free, the coolest thing is that I was then able to choose what I wanted to do in terms of a career.

I wanted to learn to code, especially for the company I’m building now, to learn how to do that. I just didn’t know what it was like, couldn’t afford a developer, none of that. Luckily when I paid off my debt I was able to switch careers to learn to code specifically for the purpose of starting my own business but more so it gave me another skill and got me out industries that [weren’t] necessarily serve me, and in something that was just different and could offer me a lot more money if I wanted to.

PHOTO: Carmen Perez, 35, poses for a photo after paying off her debt.

Carmen Perez, 35, poses for a photo after paying off her debt.

ABC News Photo Illustration

How it handles current price hikes and inflation

Inflation has gone crazy, as we all know. I’m already on a tight budget so this has led me to make sure I’m much more careful with my money and the skills I’ve learned to get out of debt are the same ones I use now.

When you form a habit over two years, it stays with you. So I’m still budgeting.

The best thing you can do is really focus and focus on what you’re spending and how you’re spending it, and be a little more intentional about it.

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