Paying off all of your debt is a seriously big, audacious goal. Most people don’t become debt free until late in life. Many people will never get there. It was probably naïve, but I set a bigger more audacious goal: Become debt free by 24.
Before I get started, I want to make sure to invite you to learn what I wish I knew before I started on my debt freedom journey. I've bundled all of my top tips that will lead you to financial success into a 6-Day Money Management Mini Course. You can get access for FREE! Just enter your e-mail below!
At first, I didn't realize what a pickle I had gotten myself into. I was still taking college classes because I changed my major at the start of my senior year. But I only had 3 classes left, so I decided to move back home.
I was still a student, so I didn't think I could find a “real job”. Instead, I asked my dad if I could have my summer job back at $12 per hour.
I don't know about you, but there's something about working with family that just makes a job too comfortable. It's too easy to get into a routine and not push yourself. And so I dragged my last three online classes on for 8 months.
If you've ever had student loans, you know that there is a 6 month grace period after you are no longer taking 12 hours (full time student status). Well, those 3 classes didn't total to 12 hours, so around Thanksgiving of 2011, I got a notice from the bank that I owed them back $28,000, and my minimum payment would be around $250/month.
I panicked… I was spending every dollar I earned on the college classes, eating with friends, my gym membership, and a pesky shopping habit. There was no way I would have $250 sitting around at the end of the month.
But I wasn't about to give up. There must be a way to learn what I needed to get myself out of this bind.
I started by prioritizing my debt.
I didn't really have any set bills when I found out about my student loans. My parents were gracious and let me move home and live for free… until my student loan payments came in. Then, my parents gave me the option of paying them $500 in rent or paying $500 to student loans.
At the time, it seemed like tough love. I thought “why do they want me to pay them rent all of a sudden?” But the math was clear, it would be less expensive to pay $500 in student loans versus $250 in student loans (minimum payment) plus rent of $500. They were clearly pushing me to pay these loans off.
Also, I heard nightmare stories about paying late fees for student loans. I did not want any part of that. So I decided that I would pay a month in advance. To be very clear, this is not the most optimal way to pay down debt because you're still accruing interest until the payment is applied to the loan balance. But, this was just what I needed to make debt payoff be the VERY FIRST thing I paid when I got my paycheck.
My family had put away $1,000 for me when I was born into a gift-trust account, and by 2011 it was worth about $10,000. I figured as part of my ‘prioritization' I would cash in this trust and pay back my debt.
In hindsight, I think it would have been better to leave the fund. A year or so later the trust would have been worth significantly more because the US was recovering from the recession. Also, I didn't have an emergency fund, which was very risky. If I had held the gift-trust, I wouldn’t have needed to panic when unexpected expenses came along, for example, my first ever tax bill, and missing a few days of work for family emergencies.
Then, I learned to trim my expenses.
One of the main reasons that I made debt payoff be a priority was that I was literally managing my money all in 1 checking account. That meant that I deposited my paycheck and then started spending until it was all gone… just in time for the next paycheck. To say the least, it got messy at the end of the month.
At some point I downloaded my first budgeting app. Now I'm using Personal Capital because it has all the capabilities of a budgeting app and it tracks your net worth over time. This way, I can see my debt payoff and my investments grow.
When I first started out on this debt free journey, I was shocked at how many people actually budgeted every line item and meal. I knew that was not for me. Instead, I needed a much more practical way to manage my money.
I started building a budget based on fixed expenses and variable expenses. At the time, my only fixed expense was the $500 toward my student loans and my gym membership. Those costs recur every month at the same amount.
Variable expenses were things like food and shopping. I calculated my expected paycheck every month (I was hourly, so it would sometimes vary based on the number of days in the pay cycle) and determined how much was left over after I paid my fixed expenses.
Then I worked backwards to figure out how many meals I could eat at restaurants vs cooking at home and whether I could get a new outfit that month.
You may think that with only $500 in bills to pay I would have been totally OK, but this part was not easy. For the first time of my life I said “No” to doing whatever I wanted. Even with the limitations, I didn't live the most frugal lifestyle.
What I did love about this method is that I was in control of my finances. I could decide whether I wanted new outfits or to eat at restaurants. If I couldn't fit both in the budget, I could choose which one was most important.
Motivation and Progress
After a month or so of being on this budget, it got a little bit easier to ‘cope' with my budget. But my motivations didn't change until I got a new job. In February, about 3 months after my first student loan repayment, I finally finished my classes. I guess the reality of the debt lit a fire, and I really buckled down on the classwork that I had been dragging on.
I didn't like being hourly, and not having a firm idea of what each paycheck would bring in. Also, I didn't like earning less than I could have made as a college graduate. So I applied for jobs. I decided to apply for 3 jobs per day, and after 6 weeks and some serious resume work, I had 2 offers.
After I started collecting my new salaried paycheck, I wasn't feeling so pinched. My lifestyle hadn't changed much, so, at the end of the month, I had a few bucks left over. If anything, the new job and commute drained me enough that I didn't want to go out to dinner or shopping on weekends. I started applying those extra dollars to principal on my student loans. In fact, I never missed the leftover money.
I started paying over $1,500 toward my loans each month. If I had a good month on expenses, I'd apply any extra toward the principal. I was pretty excited by how much the balance had dropped after 3 months.
One morning, close to my 23rd birthday, I woke up with a silly chant in my head “Debt Free by 23”. Right then, I made my goal to become debt free before I turned 24. It rhymes, it's cheesy and it's straight to the point. I loved it. I sang it in my head every morning in the shower. And even I told a couple of friends (who probably thought I was crazy).
I had some major setbacks.
With this new catchy jingle, I thought I could conquer the world. But just after my 23rd birthday, I was informed that I needed to buy a car. Ugh. I was going to breeze through this “Debt Free by 23” with no problem… but now I was going to have to take on another debt.
I did a little math, and I realized that at the pace I was going, I would have been debt free around Christmas. That left me just a little bit of wiggle room to buy a car. I calculated that if I could stay under $10,000 I would have a chance at paying it off before my 24th birthday.
I had been dating my future husband for just barely a year, but luckily he was a ‘car guy'. He knew a lot about buying used cars. I talked with him about my $10,000 budget and we looked at a lot of cars. I was tunnel-visioned on that number, and we ended up buying a base model 2007 Jetta for $9,999.
This payment was about $250 per month. And, of course, that took away from the principal payments I could make on my student loans. I had forgotten to calculate that in, so I was more behind than I thought.
I did some soul searching and decided to cut down on weekend trips to visit my guy, reduced my gift budget and really buckled down on spending. But by Christmas, I could tell, it wasn't going to be quite enough.
The home stretch
I had been talking with the future hubs about moving closer for a few months. He actually received a great job offer in my city, and we thought we were golden… until he got a counter offer where he was currently employed. I was proud, because he is particularly talented in his field, but frustrated because the long distance relationship was wearing on me.
We decided to look in his small town for jobs for me. I was skeptical, my parents were skeptical, everyone was throwing around doubt. How could moving from a big city to a medium town give me any career advancement?
Within 1 month, I found a great job at one of the few companies in town that was better than where I already worked. Oh yeah, and I got a raise. I was shocked. Because I didn't raise my expenses along with my raise, I was able to roll off all of my debt before my 24th birthday. I was only paying on my car loan by this point, and once you're back to one final loan, I will admit it goes very fast.
So what's the moral? I think there were a few keys to my success. First, I didn't accept that my current spending habits were the only way I could live. I found a way make debt payoff a priority. And I stayed committed to the goal. (seriously, create a catchy jingle, it works!)
I found a lot of amazing tips along the way, and I've actually bundled them all into a FREE 6-Day Money Management Mini-Course. You can sign up for it here and learn my outline for financial success.