The financial tactics this woman used to pay off $150,000 in six years

Janet Alvarez says negotiating student loan interest rates and tackling credit card bills using the snowball method helped her finally pay off her debt.
Janet Alvarez
For Janet Alvarez, the key to sticking to a budget was finding areas to cut back that didn't feel restrictive. Courtesy Janet Alvarez
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By Julie Compton

When financial journalist Janet Alvarez left business school in 2011, she was buried under a $150,000 mountain of student loans and medical debt.

“It was incredibly stressful,” Alvarez tells NBC News BETTER.

Alvarez lost her high-paying job as a communications director for a financial firm during the 2008 recession, and used the opportunity to go back to school. In 2011, she graduated with an MBA from Arizona State University, but was unable to nab a lucrative job at the time. The first gig she landed was as a finance writer — a job that paid less than 40 percent of what she used to make. What’s more, she lost her health insurance while she was unemployed, and an unexpected illness left her swimming in medical bills.

Combining budgeting techniques with financial acumen, Alvarez slowly started to dig herself out of debt. While it was hard, Alvarez, 40, says the experience has given her the confidence to manage her finances when times get tough.

“There is always something to be done, there are always ways to improve your situation, and no bad situation lasts forever,” she says.

Here’s how Alvarez, now the executive editor of Wise Bread, a personal finance website, climbed out of debt in just 6 years.

She negotiated lower interest rates on her federal student loans

“The first thing I did was start calling all of my student loan servicing companies — federal and private loans — negotiating lower interest rates where possible, putting loans on autopay, and finding other ways to reduce the interest rates for the federal loans,” she says.

Alvarez managed to get on an income-based repayment program, a program for borrowers with federal student loan debt that allows them to lower their payments based on their income, she says.

While these types of programs can be beneficial, she says it’s important to understand that they are dependent on the government.

“Be aware that just because you sign up for public student loan forgiveness programs, you sign up for income-based repayment, they may not be here 5, 10 or 15 years from now,” she says. “So you really need to plan ahead for that possibility.”

Also, be prepared to be taxed on any student loans the government forgives, she says, since these loans will be treated as taxable income.

She took advantage of medical assistance programs

Alvarez became proactive about tackling her medical debt. She called up the hospital and physicians’ groups she owed money to. In talking to them, she learned of a number of medical assistance programs that could help reduce the amount she owed.

“These programs apply even for people who are middle income in many cases,” she says. “Don’t assume that you necessarily have income that is too high to qualify. In my case, it wiped out a significant portion of my debt pretty quickly, so then what I was working with was credit card debt, personal debt, and federal loan debt.”

She took on side hustles

Even after landing her first job out of graduate school, Alvarez never stopped looking for new opportunities. She took on various side hustles, and continued to apply for jobs until she managed to find employment that was higher paying.

“That enabled me to start paying off my debt much more quickly,” she says.

She created a budget that worked for her

“A piece of advice I would give everyone is that like dieting, creating a budget requires you to feel a sense of restriction, and you don’t want to restrict too much all at once, because you’ll go on a binge or you’ll end up on a diet — you’ll give up on the budget,” says Alvarez.

To avoid this, she advises cutting back only on the expenses you aren’t going to miss.

For Alvarez, who enjoys eating out on a regular basis, slashing dining from her budget didn’t seem like a realistic long-term goal to save money. Instead, she decided to cut back on housing. Living in a big, fancy apartment, she says, just wasn’t that important to her.

“For me, it was less painful to reduce my housing costs and to reduce my transportation cost because those things mattered less to me and so it doesn’t feel like denial,” she says.

Alvarez moved from her apartment in Palo Alto, California to a much smaller one about 10 minutes away that cost about $900 less in rent. She was able to use that savings to pay down a significant portion of her debt. She says she also negotiated a rent freeze with her landlord.

“If you have a history of good on-time payments for rentals, there’s no reason why you can’t approach your landlord or your rental agency, and ask them to keep your rent steady once your lease renews,” she says. “More often than not, you’ll be successful. Many management companies and landlords are eager to keep good tenants — people who don’t cause trouble or pay their rent on time.”

She says that slashing her expenses and using her savings to pay off debt helped her build up the confidence to stick to her long-term goal.

She used the debt snowball method

To pay off her debt as quickly as possible, Alvarez says she used the snowball method. The popular technique, created by businessman Dave Ramsey, requires you to continue paying the same amount on your debt even as you pay down your loans. For example, let’s say you have five debts totaling $1,000 a month, and you paid off one of them, bringing the total down to $900. Using the snowball method, you would continue contributing $1,000 a month until all loans are paid off in full, allowing you to pay it off much faster than if you only paid the minimum.

“The snowball method is wonderful because it allows you to start with your smallest debt, and once you pay that off you can use the extra money that you have now that’s not going towards that debt and apply it to your next biggest debt,” Alvarez says.

Once you start mastering your smallest debts, she says, you begin to build the confidence to tackle the larger ones. Plus, she adds, you’ll have more money to throw at them.

“I really found that to be pretty successful in my case,” she says, “because at the time I really needed the motivation. I really needed to believe that I could handle the amount of debt that I was in.”

But she says the snowball method isn’t for everyone.

“If you’re someone who really feels confident in your ability to master debt, if you’re somebody who has mastered debt before, if you’re somebody who’s really pretty financially literate, then it could be wiser to start paying down the debt with the highest interest rate first,” she says.

She layered rewards programs

Alvarez took advantage of various rewards programs — layering the points and rewards on top of each other to maximize her savings.

“I would say that I probably employ dining rewards, transportation rewards programs, cash back rewards, major retailers that I shop at regularly, and then cashback rewards, and then all the points from all of the credit card programs that I use,” she says.

By stacking these rewards programs, she manages to receive about 5-7 percent cashback total on all of her expenses for the year, she says.

“That’s very significant in my case,” she says, “that adds up to $5,000 a year — that’s extra money that I can use for the snowball method and continue applying it towards my debt.”

To get started, Alvarez recommends beginning with a category where you spend money the most. For example, if you’re someone who regularly shops online, you should look for rewards programs from internet retailers. If you’re someone who travels frequently, look into travel rewards and credit cards that give you cash back for travel, as well as hotels and car rental companies that also offer rewards.

“In my case, I eat out a lot, so I started dining rewards,” Alvarez says, adding: “I’m finding that I’m getting something like $150 worth of free dinners a month.”

She created an emergency fund

While Alvarez was paying off her debt, she also built up an emergency fund. She says it's important to have about three months worth of living expenses saved for emergencies.

“It’s better to have $5,000 in savings and $5,000 in debt, than no debt and no savings,” she says. “Because if you find yourself with no debt and suddenly your car breaks down or you have a medical expense, you have nothing in savings to pay it off with, and then you’re in debt again.”

When building your emergency fund, she recommends putting .50 cents of each dollar towards debt and putting the other half in your emergency fund until you have enough saved. She recommends contributing any windfalls to your emergency fund, including work bonuses or financial gifts from family and friends.

Alvarez, who now lives in Philadelphia, says combining these techniques got her out of debt by 2017.

“It felt like I was where I needed to be; it felt like freedom,” she says.

After a recent divorce, however, she has accrued some debt again, and she is still paying off federal student loans, she says. But she’s confident she will be able to pay it off.

“I know I have the skill set, I know I have the tools to handle this, too,” she says.

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