I still remember the day distinctly: looking at my credit card statement and thinking of all the things I would do if someone gave me a check for that amount. Only it was the balance I owed, and it wasn’t going away.
I always thought of myself as a frugal person, but I was also prey to the temptation of big purchases. That balance worked out fine, until I left my full-time job to start my own business, and began to put everything on a credit card without thinking about it. Except with no steady income coming in, I now owed nearly $30,000 in less than a year – much more than I had in my bank account. All of a sudden those big splurges became devastating, but so did every penny going out.
It was time to change everything if I wanted to get out of debt, the way I thought about money and about buying things, and time to realize that almost everything I did had a cost attached to it. And once I started paying attention, I was able to pay off debt in two years. It took time, but now I sometimes open my credit card’s app just to look at that zero balance.
I’m proof that these strategies work – and you can be too.
Make A Budget
I didn’t understand how much I was spending until I created a budget. A few dollars here and there seem like nothing but quickly add up.
Because I was starting my own business, I didn’t know what I was making until I sat down and looked at it. Once I calculated taxes and expenses, I realized my income was not what I thought. If you have W2s, this step is much smoother, as you’ll know both gross and net income.
Once I had my income, I used Mint to categorize expenses from both my checking account and credit card. From there, I saw what was left over after my spending to put towards paying off my debt, and there wasn’t much.
I played with the numbers to find a place where nearly all of my money after rent and necessary costs went to debt payments. It was Spartan, but my anxiety was only getting worse and doing something proactive to get out of debt helped.
A recommended budget that helped me devise my strategy was the 50/30/20 plan, in which half of your income goes to necessary costs, 30% goes to discretionary spending, and 20% to paying off debts or building savings. Those last two numbers are the ones you’ll want to adjust when creating a budget to help pay off debt.
I needed to address my biggest problem: carrying a significant balance and adding to it with big, irresponsible purchases. It took me three days before I was able to remove my card from my wallet, and three more after that before I snipped it and dropped the remnants in a drawer.
That meant all of my spendings was restricted to cash or my debit card, making it harder to buy something without thinking about the money.
Now, I didn’t give up on fun altogether. I still went out with friends, but found that because I was paying attention to every outgoing penny, these activities didn’t have to be as expensive as they used to be.
Make Extra Payments
In fact, whenever I felt like I had enough money to make a splurge purchase, I started to put that money towards my balance instead. I felt the immediate reward of shaving dollars off my debt, and even $100 felt like a huge success.
Cut Living Expenses
When I made my budget, it highlighted all of the regular costs I didn’t think about that could have gone towards paying off debt. I took steps to start living more frugally.
1. Downgrading: Could you handle living in a smaller space to pay less rent? For just one year, downgrading from a one bedroom to a studio could save you hundreds each month. I was able to find a smaller unit in my same building for $200 less each month. It turns out I didn’t need that extra space after all.
2. Getting rid of cable: There was a time that if you told me I wouldn’t have cable, I would have laughed in your face. But then I realized that $100 a month could be $1,200 knocked off my debt in a year, and I cut the cord. For $7.99 a month I have more than enough options with Netflix.
3. Make your home eco-friendly: One small change that made more of a difference than I would have thought was swapping out all my light bulbs for LEDs. Not only did I use less energy, but I still haven’t replaced most of the bulbs, saving me any additional costs.
Food is a necessity, and as I learned from my budget, an expensive one. I like to cook, so I took immediate steps to make this work in my favor:
1. Stop eating out: Going to restaurants is probably one of my favorite social activities, but those outings had to end. I stopped running to the local deli for a sandwich or ordering delivery on a gloomy day. When friends would extend an invite, I’d be frank about saving money, and we all started eating in together more.
2. Plan out meals: After a long day, I’d swing through the grocery store to find something for dinner. More often than not, I’d come home spending more than I wanted to on unhealthy choices. So I started planning meals for each week in advance, strategizing ways to use the same ingredients several times. Leftovers from dinner became lunch the next day.
3. Comparison shop: I also started to pay attention to how stores present food. Before the change, if a pack of organic strawberries was marked as on sale, lazy me would grab those without realizing that they were $2 more than regular ones, even with a markdown. If I wanted apples, I looked for the most economical options, and then came up with ways to use them.
Pay Off High-Interest Balances First
I was lucky to have a single, high-interest debt to focus on, but reducing the interest I would have accumulated allowed me to get rid of debt faster. If you have multiple loans, consider consolidating them, so you only have to prioritize one balance. Getting out of debt is easier when you are just keeping track of due dates and balances for one account.
Save Your Windfalls
Like many of us, I used to think of tax refunds as free money. But when used to help pay off debt, they became a chance to make an immediate dent in my balance. Whenever you get unexpected money, put it towards your debt payments.
Get A Side Hustle
My first thought when thinking about picking up a side-hustle was, when? Then I broke down each day and looked at the hours spent on social media, watching TV, playing games, and other mindless activities that were taking up my free time.
I decided to put a price on that time and started working as a freelance writer. I had experience in the field, so I wasn’t starting from the beginning, but those hours turned into dollars within weeks of getting started. Whatever your talent or passion, find a way to spend your empty hours doing that for pay, rather than wasting them. Just taking surveys for money can start adding up.
You can also find work closer to home as a gardener, dog walker, house sitter, or any other need that you can fill for your community. When getting out of debt is your goal, that extra job won’t feel like as much of a burden.
No matter what type of debt you hold, it’s time to regain control of your finances – and it is possible. Make these money saving tips part of your lifestyle going forward, and you’ll help make sure once your debt is gone, it’s gone for good.