Careers

How this millennial paid off over $100,000 of debt in 6 years

Janet Alvarez
Janet Alvarez

Financial writer Janet Alvarez graduated from Northwestern University with a degree in economics and organizational behavior and a job in hand.

Then the great recession hit, and Alvarez lost her job. She became sick, spending months in the hospital. Without a job or health insurance, Alvarez began to incur medical debt. When she was finally healthy, she decided to get her MBA to ride out the recession.

After graduate school, she found herself jobless and in a seemingly impossible position — $135,000 in debt.

"I wasn't somebody who didn't understand money," she tells CNBC Make It. "I wasn't somebody who didn't understand how to manage my finances. It was just an overwhelming financial situation that I found myself in."

Janet Alvarez graduating from business school in 2010
Janet Alvarez graduating from business school in 2010

Not only was she unable to find work, but her debt was impacting her daily life. Alvarez was unable to get a car, a house or even a credit card.

"That's when it hit me that things weren't going to get better through the traditional paths. I wasn't going to just find a job and pay off everything on a standard repayment term and everything will be hunky dory," she says. "I would have to become much more aggressive and much more creative on how to repay things and how to improve my situation."

Alvarez managed to pull herself out of this dire situation and pay off around $1250,000 worth of debt in six years. Here's how she did it:

Make debt current

"The cardinal rule about maintaining or improving your credit is the first thing that I applied to my finances, which is make all your debt current," she says. Alvarez first applied this financial rule to her student loans.

"The student loan debt I immediately placed on income-based repayment, which is a program sponsored by the federal government which applies to all [federal] student loans that graduates your payments based upon your earnings. So if your earnings are zero, you pay zero," she explains.

By setting up her surplus of $100,000 worth of student loans on an income-based repayment plan, she was able to drastically decrease her monthly payments. "I was paying $50 a month on the remaining debt and I increased that over time as my income increased."

This financial maneuver also helped her credit score. "In bringing my debt current, it also had the unexpected but very salutary effect of dramatically improving my credit," she says. "Now I had over a $100,000 in student loans that were current, so it had the effect of demonstrating that I could actually effectively manage six-figures worth of debt."

Within six months of graduating from business school, her credit score rose from 490 to 550.

Negotiate

Next, Alvarez tackled her medical debt. "What I started doing is actually calling the creditors, calling the hospital directly and trying to negotiate with them about payment plans or financial aid," she says.

By negotiating, Alvarez was able to reduce her medical debt by two thirds.

Alvarez says that people are either unaware of this option, think they will not qualify or think it will be too time-consuming. "Few people realize that private medical entities like hospitals, for example, often can offer significant amounts of financial aid," she says. "A lot of people simply aren't aware of this or if they are aware of it, they think that they may not qualify."

"I was earning maybe $20,000 to $30,000 a year at that point, but I still qualified," she says. "In many cases, families of three or four can earn significantly more and still qualify for some form of financial aid from hospitals."

"It's really a very straightforward process," says Alvarez. "Much easier than applying for financial aid for college, for example."

Janet Alvarez and her family
Janet Alvarez and her family

Be aggressive

Today, Alvarez has paid off over $100,000 worth of debt and has just $10,000 remaining.

"A large part of it I attribute to not only credit management skills, but also the way I manage the finances of my career." Alvarez jumped between three jobs and found herself with a six-figure salary in 18 months.

"I didn't have a job when I graduated school," she says. "But I searched aggressively and landed a job three months later. The job paid about half of what I was making before I got my MBA, but I took it anyhow."

"I used that job to springboard into other positions," says Alvarez. "Six months later, I got a different job paying almost twice as much. A year later, I got a different job paying twice what that one paid. So a year and a half later, I found myself making well into the six figures."

Her advice for all professionals is to be aggressive with the finances of their career. "You don't want to get complacent about your career and especially not your earnings progression," she says. "If you haven't gotten raise or promotion in two years, it's time to either ask for one at your current job or look elsewhere."

This aggression is a necessary part of keeping up with the economy, says Alvarez. "You cannot get complacent because obviously the inflation rate eats away at your earning power and if you're not getting a raise every year or nearly every year, you're falling behind."

"You've got to make the opportunity for yourself."

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