Several years ago I had accumulated around $28,000 in debt. Most of this debt was student loans at about $12,000. I also had an $8,000 car loan and about $8,000 in credit card debt. I had worked several part-time jobs after college but also had kids so paying off debt hadn’t been a priority. When I finally got a secure full-time job, I decided it was time to tackle the debt.
The first thing I did was make a commitment to not ADD to my debt. If I didn’t have cash for it, I didn’t buy it. I had to really evaluate a “need” vs a “want”. In order to stick to this commitment, having a budget and planning for expenses was hugely important. I used an Excel spreadsheet to keep track of all of my money and debts every month (see my Budget Help Center page). At the beginning of the month I wrote down on a piece of paper all of my bills for that month and any extra expenses that I expected. I also left a small cushion for unexpected expenses, which came up often. Then throughout the month I checked off the bills as I paid them. I also put all of my spending in the Excel spreadsheet which helped me see trends over time. I also used the spreadsheet to keep track of my debts. At the end of the money I checked all of my balances owed and put them into the spreadsheet. This visual of my progress over time was so helpful and motivating.
Having a small emergency fund in savings is very important. How much you put in your emergency fund will vary. I was renting and had a pretty reliable car, so I didn’t have a lot. I had $1,000 that Dave Ramsey recommends. I don’t really think that’s enough for everyone. For example if you own a house, you may need a bigger cushion since you might have house repairs and maintenance. Or if you have a lot of health issues you may need more for unexpected medical expenses. If you’re handy unlike me, you may not need as much because you do your own house and car repairs. Each person has a unique situation. I think something in the $1,000-$2,500 range is fine while paying off debt. The idea behind having the emergency fund is so that you have money there in case of unexpected expenses and don’t have to add to your credit card debt.
To increase my income, I took on second jobs regularly. I was teaching full-time at a community college so on a teacher’s salary. Despite people thinking I made a lot of money because I was a “professor”, reality was my salary was pretty much in line with a high school teacher. I’m also in NC which is known to not pay teachers well. I used all of my extra time off as a teacher to my advantage. I took on extra classes for extra pay at my full-time job. I worked in the Advising and Registration center at my college during the summer. I taught as an adjunct instructor at other colleges when work was available. I got a job in retail and was able to work more hours during Christmas and summer break. I taught online classes over the summer. I did anything and everything I could to make extra money to help my debt payoff efforts.
I had always been relatively frugal with my spending. Eating out can add up quickly so I rarely ate out. I packed my lunch at work every day. In fact once I forgot my lunch and didn’t have any money to buy anything, so I went without. That was the one and only time I forgot my lunch! I stayed away from vending machines at work. I made my own coffee every morning. I would pack my lunch and set up the coffee pot the night before to make my mornings easier. Later I got smart and bought a second coffee pot for my office and kept food at work. For recreation, I kept it simple and cheap. Trips to the park, beach, library, pool, etc. are cheap or free. I didn’t cut cable completely but stuck to the cheapest plan. To save at the grocery store, I set a monthly budget and tried to keep that in mind as I was shopping throughout the month. I tried to plan meals for the week and make a grocery list based on that. I bought generics as much as possible. I was always on the lookout for cheaper products. I did most of my shopping at Walmart because their prices tend to be much lower than grocery stores.
The order in which I paid off my debts was:
1. some credit cards
2. car loan
3. rest of credit cards
4. student loan
Most people say to pay off the debts with the highest interest rate first. I tend to agree with that for most people. I believe that Dave Ramsey says to pay off the debts with the smallest balances first, which I think can be a good idea too. If you have a debt that is less than $500 and you pay that first, I think it helps simplify things because that’s one less bill to think about. Plus it’s very motivating to see “progress”. I think each situation is different and you should do what works for you and motivates you the most. I started with my credit cards because they had the highest interest rates. Then when those were down to a reasonable level I finished paying off the car loan. Then I paid off the remaining credit card debt. Lastly I paid off most of my student loans. I honestly didn’t follow any specific protocol. I just focused on paying off as much as possible as quickly as possible.
Once the credit cards and car loan were paid off, I started aggressively saving for a house for a while. I bought my first house about 5 years after I started my debt payment plan with about $4,000 in student loan debt left to pay off. I bought with a USDA 100% financing loan, but I obviously advocate for a 20% down payment if you are able. On a teacher’s salary and as a single parent, I probably never would’ve gotten to 20%. Even though I bought with 100% financing, I needed the savings for things like closing costs. Once I bought the house, I started again working towards paying off the rest of the student loans. It took about another year or so to pay off the rest of the student loan debt. I worked several side jobs one summer to get it done. So in total it took about 6 years go pay off $28,000 in debt.
Paying off debts takes a lot of patience! You have to be very dedicated and keep going even when you feel like giving up. Your hard work will be worth it in the long run!
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