How I Paid off My Debt in One Year
Read Time: 10 Minutes
I never expected to be the one that got into trouble. I never thought to myself, “I’m so bad with money.” I learned how to balance a checkbook in grade school and I understood what was right and wrong when it came to finances. I was just never mindful about my money.
My first credit card had a low limit, something I could use for business purchases. After a while, I switched to one with better rewards, one of those ones I could use to fly for free.
And then I just stopped paying attention.
You could probably call me compulsive. An obsessive shopper. Addicted to traveling. Self-medicating, in a way.
The credit cards were like my security. If I didn’t quite have the money to pay for that conference registration, that was okay. I could just put it on the card and pay it off next month.
But next month never came. I never wanted to look those credit card statements in the face. A quick glance at the total but not enough to let it sink in. Just long enough to know it was more than I had.
I ended up having to take a deferment on my student loans, and the monthly payment was barely $50.
That's when I knew it was bad. A few years ago, when I realized I had $14,000 in debt, I finally decided it was time to make a change. These are the steps I took to get out of debt for good.
1. I took an honest look at my financial situation.
All I knew is that I didn’t have enough money to pay off the heaping pile of growing debt. But I wasn’t really paying attention to how much money was coming in and going out.
I had a vague idea of how much I was making, and I knew I was spending a lot— but ignorance is bliss, right?
I did the thing I was avoiding. I finally took a long look at my finances. I worked through a few months worth of bank and credit card statements and was shocked by how much money I was spending. I compared them to my paychecks and extra income. It’s funny what happens when you’re not paying attention. You rob yourself.
It stung, a lot, to see such a wide gap between how much I owed and how much I owned.
I figured out about how much I was making each month. Then, I recorded the transactions that were only spent on necessities, so I could understand an average cost of living for a month. And you know what?
It was far less than I imagined.
2. I tracked all my debts.
This is where it really hurt. I know people have much more debt than I did, but I was appalled by how much I had gained in such a short amount of time.
I had a car loan that was nearly paid off. My two student loans were very low compared to the average. But the credit card debt was killing me.
When I started really studying the statement and transactions, I realized that the amount I was paying every month was barely even covering the interest charge I was also being slammed with every month.
Dave Ramsey wouldn’t recommend this, but this is what I did.
3. I opened a balance transfer credit card.
A balance transfer card allows you to transfer some or all of the balance from another card, either fee-free or for a small charge. Most transfer cards have at least a 12-month 0% interest rate period.
Getting another credit card is never the preferred option, but this seemed like a good way to help me battle that crazy interest rate.
My thinking was this: Transfer as much as I can off of the high-interest card, let the transferred amount sit interest fee while paying only the minimum, and then slay the high-interest card as fast as possible.
I wouldn't recommend this to everyone because it takes crazy discipline and planning. I knew I had to pay off my high-interest card AND the balance transfer card within one year. But I also knew that by doing this, I'd be saving myself hundreds, probably over $1,000, in interest charges. And being a single person with an irregular income, I was taking all the savings I could get.
I was also able to pay the minimum on that card while killing the rest of my debt, knowing that this particular card wouldn't start charging interest for 12 months.
And I knew I could have it all paid off by then.
4. I cut out some of my expenses.
Money was coming out of my bank account and I wasn’t really aware of it. Like I said, I wasn’t paying attention.
But when I finally realized where my money was actually going and how much I actually had leftover (negative, mind you), I figured it was time to make some hard cuts.
So, I cancelled Netflix. I realized I’d been paying for Hulu. What? I don’t even watch TV that much! I canceled most of my subscriptions — magazines, online forums, etc (except Spotify, this girl has to have music). I stopped getting my nails done every two weeks. I rarely got my hair done.
Obviously, I was blessed because at the time, I was living with my family, rent-free. I still paid for groceries and other expenses, although I had health insurance through my day job. Eliminating or lessening living expenses will look different for everyone, but there are plenty of options to explore.
Downgrade your phone, carpool more (or bike!), get a roommate, shop at Aldi (my fave trick — saves me so much), rent rooms or your whole home on Airbnb. Even looking around for better rates on insurance or subscriptions like trash services could make a difference.
5. I did a 3-month contentment challenge.
If you’ve never heard of this, you can read about it here. This looks like not spending money on the extra and only spending money on what is absolutely necessary.
This means I couldn’t go to Old Navy every other weekend to buy a new wardrobe and I couldn’t stock up on online sales. My Amazon Prime habit had to be kicked and I didn’t eat out for 3 months. No coffee runs. No nights at the movies. No boxes delivered to my door.
And you know what? It was amazing. It was like a challenge to figure out the least amount of money I could spend. And all of those things I couldn’t buy? I was fine without them. It wasn't just about not buying either. It was about looking at my heart and cultivating contentment.
Our culture is obsessed with more. We have been trained to believe we need new things every season — new clothes every time the weather changes, new Christmas decor every year, new belongings every time a new product line is released, which is about every week.
But cultivating intention in our purchasing decisions can be life-changing. Take an extra minute to ask yourself: Do I really need this? Do I have a place for this? Do I already own something similar that I could use instead?
After my three month challenge ended, it actually hurt to spend the money and I realized I "needed" a lot less than I thought.
Try it — you may surprise yourself.
6. I took Financial Peace University.
I’d already started getting financially fit right before I took this course, but there’s so much wisdom in this course. Dave Ramsey has created the 7 Baby Steps to Financial Peace and I started following them.
Step One is to create an emergency fund of $1,000. So even though I was ready to kill the debt, I started here. It's amazing how fast you can build savings when you're only spending the money you absolutely need to spend. The emergency fund acted as a cushion while I was throwing so much money at debt (I didn't even have to dip into it).
Step Two is all about the Debt Snowball and how to pay off your debt wisely. You can read more about it here, but the idea is that you pay your debts off starting with the lowest balance debt first. Every month, pay all of your bills and all of the minimum payments on your debt. Then, any money you have left that month, you put toward your smallest debt. You keep doing that until your smallest debt is paid off, then you move on to the next one.
I actually made a spreadsheet with my debt snowball so I could know just how much I would have to pay and how long it would take to pay off. Undebt.it offers an a debt snowball calculator (pictured above) that works even better than my sorry attempts. Now that I'm married and have a few more things to pay off, I still use this tool!
I entered my debt from then into the calculator now. The image above really puts it into perspective—I could have not continued to not pay attention and taken nearly 9 years to pay off my debt. NINE YEARS and a $5,000 difference.
7. I made a budget using Every Dollar.
Thanks to looking at how much money was coming in, how much debt I had to pay, and what my expenses were, I was able to officially make a well-informed budget.
BUDGETS ARE CRUCIAL.
Really, just telling your money where to go and giving it a name is a game-changer. When you assign all of your money to different things upfront, it’s make you a little less inclined to “steal” funds from any given category for things you have already planned for.
My favorite tool that I still use today is Every Dollar. It can be accessed online or through an app, and it helped me understand what it looks like to budget.
Everydollar already populates your budget with standard categories of income and expenses. You can delete the ones you don't need and add as many as you'd like.
After putting in your income, your expenses, and any debt or savings you’re working on, it automatically calculates how much you have left to budget. Since I had an irregular income, this was so helpful for me. I was able to tweak as I went.
After entering only the essential expenses, I loved seeing that number. This is what you realize from that number:
You have so much more than you think you have.
You will need to manually add your transactions from various bank accounts or credit cards. However, if you sign up for the Premium plan, your accounts will be linked and the transactions will automatically sync to Everydollar. I don't pay for Premium— manually adding transactions feels a little more weighty to me. I want to feel the purchases I make, for better or worse.
Extra tip: The best thing I've done in Everydollar is add a group called "Long Term Bills." This group is for anything that I get charged for yearly or quarterly— renter's insurance, garbage fees, Amazon Prime, license plate sticker, etc. I break each expense down into the amount I would need to save monthly to pay it in full when the time comes. That way, I'm not hit with hundreds of dollars of unexpected expenses. GAME CHANGER!
8. I set goals and wrote them down.
This is so important. Early on in my journey, I was ready to kill as much debt as possible. I wanted to see my finances be a bit more robust. How great would it be to have some extra income to throw toward that debt?
So I made some goals. I wrote them down.
And I told other people.
I started my journey in January. My goal was to make an extra $1,000 in the month of February and $1,500 in the month of March.
And guess what? It happened.
Dream big and make concrete, solid goals. Write them down, plaster them on your walls, and definitely tell someone about them.
Then, go after them.
9. I made extra money whenever I could.
I began to look for ways to make extra money. Since I'm a photographer, I started looking for gigs as an assistant shooter for weddings—facebook groups are the perfect place for this. I sold clothes on Poshmark. I sold clothes to Plato’s Closet. I opened a Etsy shop to sell prints. I took on a few freelance commercial photography gigs.
Which brings me to a side note: When you take on the beast that is slaying your debt and you get ballsy enough to demand that extra money come to you, the opportunities will come to you. And you may feel unqualified for them, but do it anyway.
Look at the skills you have. How could you monetize them with just a few extra hours a week? Look around your home. What do you not need that you could sell with just a few photos and a Facebook marketplace post? Are there areas you've been too scared to step into?
If you look hard enough, I promise you'll find more than you think!
10. I gave myself grace.
It's easy to mess it up. It's easy to spend more than you planned or not make quite as much extra as you wanted. The goal is progress, not perfection. Honestly, my debt being paid off was great, but the best part is the change that happened in my thinking. I became more disciplined and more aware, which should have been the goal all along.
Have you tried any of these before? What are some of your favorite financial tips?