Until last year, I didn't think it was possible for us to ever become debt-free. How could regular people do it without winning the lottery or only eating ramen for five years straight? Even now, I'm still a bit shocked that we managed to pay off over $20,000 in debt in under a year without doing anything too crazy.
Most of my life was spent living paycheck to paycheck. Growing up, we didn't have a lot of money. Savings were something dreams were made of. When my parents managed to tuck a chunk of money away, Murphy's Law always seemed to come knocking. Extra money was a rare treat that either burned a hole in our pockets or was eaten up by yet another emergency. Despite living paycheck to paycheck, my parents didn't have a lot of debt.
I thought I had a good handle on money until I went to college. Student loans, a car payment and credit cards all seemed perfectly normal to have. You needed to have them, or so I thought at the time. I misunderstood "living within your means" to mean you could use credit as long as you could pay your minimum monthly payment. I fell down the plastic rabbit hole in order to buy tickets to a concert I wanted to attend with my friends. I was getting approved for credit cards I shouldn't have been applying for. When I graduated college, I had three or four credit cards and a ton of student loans.
Fast-forward to wedding planning. My idea of sticking to a wedding budget was not to spend money extravagantly, but not based on money we actually had. Without thinking twice, we financed our wedding and let's just say, we're still paying it off nearly 10 years later.
In the summer of 2014, I stared at my computer screen and wondered how I maxed out one of my credit cards for the umpteenth time. It felt like we were riding a debt carousel. Around and round we went, never making any real progress toward paying our debt off. Earlier that year we stopped making purchases with credit cards, but we still couldn't seem to make a dent on the balance.
With over $80,000 in debt (not including the mortgage), I knew something had to give. There had to be a way to become debt-free. It was frustrating to realize how much of our hard-earned money went toward debt each month. We needed to change our mindset about money, change our spending habits, and follow a realistic budget. It was scary at first, but it worked! In one year we've paid off over $20,000 in debt without doing anything too extreme.
It was frustrating to realize how much of our hard-earned money went toward debt each month.
The first step was to develop a plan. A real plan that we could follow and see progress. We read "My Total Money Makeover" by Dave Ramsey and took his course. Through that we learned how to set up a small emergency fund and how to work together to create monthly budgets that assign every dollar to something before the money arrives. It's much harder to spend it frivolously when it is already spoken for.
We also listed all of our debts and put them in order from smallest to largest. We pay the minimums on everything and apply any extra money from the month to the top debt. When the first one is paid off, then that monthly payment is rolled onto the next one in line. It's called a debt snowball and focusing our payments in this way made it possible to pay off four credit cards in less than one year. We have two more to go before we can knock out my student loans and pay off our car.
Here are 11 other things we did to help chip away at our debt.
- No new debt! If we don't or won't have the cash for it, then it's a no-go. We cut up our credit cards and close the accounts once they're paid off.
- Simplified our bank accounts with one checking and one savings.
- Reviewed services and plans (such as life insurance, cell phone, car insurance, etc.) and shopped around for better coverage.
- Set up auto-scheduled payments on nearly all of our bills. No more late fees to worry about.
- Sold things we don't use anymore.
- Set up Amazon Subscribe & Save for basic household items, such as toilet paper. Fewer trips to the store means less gas used and less likely to buy things we don't need.
- Shop consignment sales, price shop and use cashback shopping apps.
- Menu planning, bulk shopping and freezer cooking.
- Budget for extra spending money. It's easier not to blow the entire budget if we build-in fun money. The limits made us plan better.
- Created sinking funds. Each month we set aside money for certain expenses (i.e., house repairs, car repairs, gifts, etc.) to have when needed, rather than scrambling when something needs to be fixed or the kids get invited to a birthday party.
- Posted our debt progress in the living room where we can see it. It's motivation to keep lowering the balance, bringing us closer to our debt-free date!
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Sometimes it is hard not to go on a shopping spree or go on lots of outings with the kids. When we first started focusing on improving our finances, we had a lot of momentum. It's a bit slower now, which can feel discouraging at times. When that happens, I like to think about what we will be able to do once we're debt-free. All the money that goes toward credit bills and loans will eventually be available for other things, like a down payment on a bigger house or a nice family vacation. Starting was scary, but sticking to it is paying off.
And if we can do it, so can you. Good luck!