When I see this word I think deficient, demeaning, sub-par. The federal government has been building one for years, and when I looked this early morning on Labor Day, the total is $11,812,407,462,000. Just last year, the debt clock actually ran out of numbers and had to be expanded in order to fit two more zeroes.

I am not here to talk about politics, just about facts. And the fact is: America is in a huge amount of debt. As a frugal person, debt generally feels like a 100-pound ball and chain dragging me down. In fact, up until 1833 in the United States, debtors’ prisons were common. Could you imagine that, going to prison for your debts?

My Personal Debt

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It may come as a surprise to you, but I also have debt. I came out of four years of college with $36,000 of debt and have paid this down to $11,000 in just three and a half years. I consider it a very wise investment (although when you think about it, I could now have an extra $25,000 socked away…but from what kind of job without a college degree?).

Attacking My Debt

I remember sitting in my exit interview with the financial aid people at college, and looking at my debt folder for the first time. If I paid the minimum amounts each month, then I would also pay an extra $15,000+ in interest and have to make payments for over 15 years! I knew in that moment that I was not going to allow that to happen.

I began by consolidating all of the Stafford Loans in the summer of 2005, when the interest rates dropped. By doing so, I was able to have one loan of $17,125 with a fixed interest rate of 2.625%. I was fortunate enough to have my federal loans subsidized by the government while in college and during the six month grace period you get after graduating, so my interest payments were kept up and did not have the chance to compound while I was still studying and learning what an interest rate was.

I made four different payments at once when I started my first job that totaled approximately $447 per month. Since I was living very cheaply and with no car payment (I had paid for my used car in cash), these payments were not a problem. Each year I was sent an interest statement from each of these lenders that I could deduct from my income tax returns. After two years, and seeing the $1,000+ I had paid in interest, I decided to pay off the higher interest loans. I took money out of my savings and paid off the rest of the private student loan at 9% interest, and the Perkins loan. Next, I focused on paying down the loan from my grandfather. With all of these other payments gone, I began to concentrate more on my consolidated Stafford loans. Instead of paying the minimum $117 per month, I doubled the payments to $250 per month, which was still a savings for me from the original $447 per month I was paying before. After 36 months, or three years, of consecutive payments, my interest rate dropped by an entire percent!

Now, my loan is currently at $10,277 with 1.625% interest.

Different Strategies to Attack Debt

The strategy that I used above is a hybrid of a few debt pay-off strategies. One is Dave Ramsay’s debt snowball reduction plan, which I highly recommend (his book is the Total Money Makeover). Basically, you pay the minimum on all of your debts, and then any extra money you can find you throw towards the smallest debt that you have. Once that debt is paid off, then you throw all of the money that you were using to pay that debt off (its minimum payment, as well as the extra money you found to pay it down), and pay this onto your second smallest debt. Each time a debt is paid off, the amount of money you then use to pay the next in line grows, thus increasing the speed of paying off your debts. By doing this approach, your progress in the beginning is quick, and you stay motivated to continue the hard work ahead.

I call my payoff strategy a hybrid because not only did I start with the smallest debts first, but it turned out that my smallest debts (a $6,000 private loan, and a $4200 Perkins loan) had the highest interest rates. When using this strategy, you continue to pay the minimum amount due on all of your debts, but then line up your debts from the highest interest rate to the lowest, and attack from the top down. This potentially will save you money in interest over the amount of time that it takes you to pay off your debts.

A third strategy to paying off debt that I will mention here (there are many strategies out there) is to consolidate your debts to a lower interest vehicle. For example, if you currently have a debt of $4,000 on a credit card with an interest rate of 14% and you are paying the minimum only, it will take you a little over 20 years to pay off, at an extra interest charge of $4,166.56! Transfer this balance to a new credit card with 0% interest on balance transfers for 12 months. Then increase your monthly payments to approximately $333 per month so that you can pay the $4,000 credit card debt off by the end of those 12 months. This would potentially save you $4,166.56 in interest and 19 years of payments! Play around with this debt calculator to determine what best works for you.

PAYGO—For You and the Government

The US government used to have a rule from 1991-2002 called PAYGO, which basically meant that they could only spend money which they had coming in the door. Furthermore, if they wanted to increase spending, they had to come up with spending offsets through canceling other programs, bringing in more revenue, or spending less on other programs. Unfortunately this rule did not last, although there is discussion of bringing it back to try and get the deficit under control.

For you and me, PAYGO is a great concept to use. While we are paying off our debts, PAYGO will ensure that we do not incur more debts, and that we have the money to put towards payments. After becoming debt-free, it will ensure that we do not find ourselves back to where we were: paying interest on the past.

Now that I am finished writing this article, the US deficit has ballooned to $11,812,594,900,000. Hopefully this will not be true for us, because we are paying down our debts instead of growing them.

Please share with me your own debts, questions you might have, and strategies that you are using to pay them down. I would love to hear from you!

11 replies
  1. BluSky
    BluSky says:

    If you flipped out over $15k in interest payments, you should pull out your Truth In Lending statement from your recent home purchase and look at what y’all’s interest payments will be if you keep the home for the full amortization period. If you want to be further amused, run an amortization schedule for your loan and see what your principal balance will be if you sold your house in 7 years : )

    • FruGal
      FruGal says:

      Hello BluSky!

      Yes…very scary how much interest we would pay if we took the entire period of our loan to pay off the house!! We could buy another house with that money!

  2. Aurora
    Aurora says:

    great job attacking the student debt, I am right there with you!! for a while when we were earning good interest rates (5%!) in online saving accounts it made less sense to pay down our low interest student loans, but now it makes total sense. I still paid a little extra towards my loans back when I was getting a better interest rate on savings, but just recently I took a chunk of money out of savings (earning less than 1.5%) and put it towards my student loans.

  3. EZ
    EZ says:

    Great work consolidating your debt to a lower interest rate. Doesn’t it feel good to close out a debt! IMHO, most folks are into too much debt by purchasing things they don’t need because someone else has them. Our congress seems to spend our tax money solely to get re-elected. Congress could use some fiscal advice from you.

    • FruGal
      FruGal says:

      EZ–Oh yeah–it feels great to close out a debt, and especially when you can get such a better rate by doing so! Thanks for reading and commenting.

  4. Crystal
    Crystal says:

    My first car loan was $217 a month for 5 years. I paid $250 a month for the first 3 payments, and then my husband found a full time job. I then started paying $350 a month for another 2 years. When the balance had been reduced to less than $5000 in 2007, I paid it off in a lump sum.

    I then started putting my $200 “payment” into our Auto and Home Account in ING. That started our first real fund for auto and home maintenance/down payments. We have since used that account to put money down for my husband’s used Prius and fix any issues that arrise with our house.

    When the Prius is paid off, that $300 a month is going towards paying off our 15 year home loan even faster since we already overpay our mortgage by $170 a month. As of now, our house will be paid off in 11 1/3 years instead of 15 (a little more than 8 years to go). With the extra from the car payment, it will be paid off even faster and we’ll save at least a few more thousand. We are saving more than $11,000 in interest as of right now 🙂

    PS I highly suggest the Amortization Calculator at HSH.com to keep up with how you are doing. Just go to http://www.hsh.com/calc-amort.html and you can play around to see how much you are currently paying in interest and how much you can save by overpaying by different amounts.

    • FruGal
      FruGal says:

      Hello Crystal!

      Great job paying off your first car loan early, and then directing that money into an account for the next car payment. I have not done that yet, but it is a good practice, and I think after we get this next car I will certainly start to do so! (Although I am still hoping that we won’t have to get a loan for this car…but we will see).

      Also, thank you very much for the Amortization Calculator! I have not had the time yet to get knee-deep in payoff scenarios, but I am very interested. Keep reading!

  5. Scott
    Scott says:

    Dear All,

    There is a site called http://www.garynorth.com. It tells you how to get a cheap college education. It is a pay site, and he has approximately 4000 articles. Gary is a very smart guy, and has tons of articles on how to save money. One is how to get a college education for $15,000, The site is $15 a month. You could pay for one month, and save every article that you thought worthwhile. I have read every article on the site, and there are many, many articles worth the $15 by themselves. Its probably not a site for a lot of people to pay the $15 every month, but it is well worth one month. You can also subscribe to his free Tip of the Week on the site.

    For those who are frugal, it is well worth it. If nothing else, you can visit the site and get a feel for it without paying.

    • FruGal
      FruGal says:


      Thank you for the clarification on the deficit vs. national debt. And $200,000….yikes! Also, that site on cheap college educations looks very interesting. I think I will give it a look. Keep reading, and thanks for your comments!

  6. Scott
    Scott says:

    Also, regarding the deficit, what you really mean is the national debt. The deficit is what the government spends versus what it brings in every year. Under GAAP (Generally Accepted Accounting Principles) the national debt is over $60 trillion dollars, which comes out to over $200,000 for every man, woman and child in this country.

    And now the government wants you to believe they can create a good health care system. We are already technically bankrupt (can any of you pay your part of the national debt?) The government is a big black hole just sucking our money into it. They nearly let the whole system breakdown six months ago, but they want you to believe in them. Please don’t believe them.

    Be one of those who if the opportunity presents itself, join a tea party and protest them spending our money like it is water.

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