How We Paid Off 50K+ of Debt in ONE Year and Changed Our Life | Part One
What would your life look like if you had no debt? Seriously, think about it. You could:
- stop living paycheck to paycheck
- take a vacation you always thought was out of reach
- work less and be home more
- save for retirement
- save for your children to go college – debt free
- save to send yourself to college – debt free
- stop worrying about bills and start enjoying your life
According to a Gallup survey in February 2016, roughly two out of every three Americans have consumer debt (excluding a mortgage) and one in five have student loan debt totaling 48K or more. In addition, many people (including us until recently) only pay the minimums on their debts, while continuing to use the remainder of their disposable income for either entertainment or accruing more debt in the form of car, furniture, or other misc. purchases.
Debt is easy to ignore at first. Monthly payments on furniture can be as low as $15/month. However when you start to stack payment on top of payment, you can end up in a situation where most, if not all of your disposable income goes towards paying your debt. Once you are in that situation, it’s not easy to make payments larger than the monthly minimums. Then the anxiety sets in once you realize you are locked into payments for the next 5-10+ years.
OK. Now that I’ve mentioned the doom and gloom part, let’s take a look at the positive side of the situation. Having debt isn’t an entirely bad thing. After all, it can allow us to pursue things like an education, purchase a home, or provide comfort for our family.
The problem starts when we fail to recognize our debt as just that: money that is owed or due to a person, bank, or company.
So what do you do when you find yourself overwhelmed and overspent by debt?
In the hopes of providing help, motivation, conversation, whatever - I’d like to share with you my family’s story + outline some basic steps we took to get our heads above water. Warning: It was not an easy task. In our experience, getting out of debt has no quick fix, get rich quick, or any other instant gratification techniques associated with it. But more on that below…
I graduated from a private, four year university in May of 2010. I was a first generation college student, came from a single parent household, and had no money saved for college. Despite receiving a presidential scholarship, I still had a large amount of tuition to cover each semester, so I did what most millennials my age do. I took out student loans.
After graduating, the job market was tight. It was right on the heels of the 2008 recession and most places who were hiring in my field only wanted individuals with experience. So I joined a full-time volunteer program as a way to gain experience and put off paying back my student loan debt.
If you aren’t familiar with volunteer programs, they place individuals in positions with nonprofits in their field of interest. However, instead of paying a salary or benefits, they provide you with housing and a small stipend each month for food, clothing, etc. In my particular program the stipend was $100 a month. I volunteered for a whole year, during which time my student loan debt was collecting interest.
I also had credit card debt from helping pay for food and gas while I was in college, so on top of an already low stipend, I wasn’t saving any of it because I was using it to pay the monthly minimum on my credit card.
Meanwhile, my future husband was still in college. He too had taken out student loans and had a small debt on a credit card.
We eventually got married in June 2013, shortly after my husband graduated. We had entry level jobs at the time, credit card debt, and student loan debt we were paying off. Being the naive young things that we were, we decided to buy a house and add a mortgage on top of everything else.
After purchasing our home we started to feel the buckle tighten. Our disposable income was next to non-existent and we were constantly ending each month with the question, “where the heck did our money go?”
We finally decided it was time to take a good hard look at our lives and spending habits when two major life events occurred: (1) My dad was diagnosed with Lewy Body Dementia and (2) I got pregnant with our son Ezra.
The first event caused us to look for ways to get help with caring for my father. Up until that point, I was using a large portion of my paycheck to help pay for things like medication, doctor visits, and hospital stays (he was falling a lot).
The second event made us realize that our finances were no longer going to just cause us anxiety. We were now going to have a child who would be affected by the outcomes of our choices.
So what did we do?
After making some serious habit and money management changes, we were able to pay off almost all of our student and credit card debt in ONE YEAR. Now, the same timeframe may not be attainable for some people. It really just depends on your situation, priorities, and how much of a change you are ready/willing to make. We were blessed to be in the right place and the right time, while also being diligent about our spending habits.
Our path to eliminating consumer and student loan debt was simple and straightforward. The hard part was undoing a lot of bad habits we’d built over the years and then replacing them with positive, wealth building ones.
If you are tired of feeling overspent or like your debt is keeping you from living the life you wish to lead, there is hope. In my next post I’ll list the steps our family took, as well as the resources we utilized, to become (almost) debt free - we still have one student loan to pay off. Hopefully, if you are in a position like we were (living paycheck to paycheck, little to no savings, and spending all your free time working) this will provide you with some motivation and guidance on your path to financial freedom.