9 Steps to Crush Debt & Reach Debt Freedom
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Student loans continue to be on the rise, and are one of the biggest issues millennials are currently facing. Over 70% of college graduates finish school with student loans, which average between $25,000 to $40,000 depending on which sources you use. I’ll spare you any more dire statistics, but it’s clear that student loans are a big problem for our generation.
My wife and I both graduated with student loan debt as well, combining for about $40,000. I guess you could consider us better than average with that amount, but it still felt like a huge burden that would take many years to successfully pay off.
We also found ourselves in need of a vehicle, and fast, which was one the factors that led us to take out a $15,000 car loan.
Needing a Change
In total, we found ourselves in $55,000 of debt, feeling stressed and weighed down. After finally landing a salaried role in August of 2015, I decided that it was time for us to start getting serious about our finances. We needed a plan, and we needed to get these debts paid off as quickly as possible so that we would have more options in life.
Our student loans felt like a big weight on our shoulders, like a burden needing to be lifted. So we started on our debt payoff journey. With each payment that we made, and the closer we became to having the loans paid off, the more freedom and peace we felt.
Fast forward a few years, we made our last student loan payment in March of 2018, and killed off our car loan in July 2018. Despite a number of obstacles, including being laid off from my job, we had reached full debt freedom!
But how did we get to this point? What plan did we put into place? What steps did we take to reach these results, and can you do it too?
There are obviously a lot of people out there with student loan debt, and I think a lot of times it can be incredibly daunting on how to get started. It can feel hopeless when you’re bogged down with debt payments, yet struggling to get by every month.
There’s no instant solution, and everyone has different circumstances that they’re dealing with. Hopefully some of these methods can be applied to your particular situation and help you reach debt freedom sooner.
9 Steps We Took to Crush $55,000 of Debt
1. Determine Your Why
Why do you want to reach debt freedom? Without determining this, you won’t have the motivation necessary to power through the tough times that are inevitably going to come. We wanted to reach debt freedom to remove the weight off our shoulders, increase our options, and have more freedom in our decision making.
What really sparked us to ramp up our debt repayment was attending Financial Peace University, a financial class that teaches the methods of popular financial teacher Dave Ramsey. Ramsey’s methods helped get us “gazelle intense,” which means attacking your debt with the intensity of a gazelle fleeing a hungry cheetah! While some people may not agree with all of Ramey’s philosophies (me included), viewing our debt with this level of seriousness was paramount for us to speed up the process. I’m a huge believer that motivation is the single biggest key to paying off debt quickly. You HAVE to make it your number one focus in your budget to start seeing the most progress.
2. Build Up an Emergency Fund
Building up an emergency fund was our first main money goal. After experiencing some inconsistent employment, we wanted to be sure we were protected from future hardships. This also helps you avoid going into additional debt if an expensive emergency comes your way. Many financial advisers recommend at least $1,000. Since we live in an area with higher cost of living, we saved up more than that before fully focusing on our debt. Also, when times got hard during our debt re-payment process, we were able to look back and realize that we had already accomplished one goal together and we just had to continue pushing forward. Put this money in a high-interest online savings account for safe keeping (we use Ally Bank).
3. Track Your Spending
One of the biggest keys to managing our money better and paying down our debt quickly has been a result of being more aware of where our money is going each month. We utilize Mint to track our expenses and set up a monthly budget. This helped us avoid spending too much in any particular area. This way we could be intentional with how much money we allocated towards debt repayment each month.
There are plenty of methods to tracking your expenses, including Mint, Personal Capital, You Need a Budget, an Excel spreadsheet, and plenty others. Pick a method to test out, and get started! This post talks about ways to get started with turning your finances around.
4. Challenge Everything
This step is all about identifying areas in your budget where you can improve, and challenging all your regular expenses. After tracking our expenses and budgeting for a few months we found areas where we were spending more money than expected. I went through every one of our bills to see what we could cut back on. This included switching companies for our car insurance, cutting cable, switching cellphone providers, paying less for entertainment, finding cheaper dog-sitting, cutting down on food costs and cooking more, and selling unwanted items. All of this freed up money went straight towards paying off our debt.
There are a ton of ways to cut back on your expenses, but be sure to cut back on the spending that you care about LEAST. Don’t cut out the areas of your spending that bring you the most joy, focus on the expenses that are most forgettable. For example, we’ve still been setting aside some money every month for a “Travel” fund because we value getting to explore new places together.
5. Increase Your Income Through Your Day Job & Side Hustles
The wider the gap between your income and expenses, the more money you can throw towards your debts. Cutting your expenses is key along this journey, but the other side of the equation is income. When we started out, I was only making $15/hour. Over the years both of us have grown our income, and there’s no denying that it greatly accelerated our progress.
There are various ways to grown your income through your day job, including working overtime, negotiating a raise with your employer, earning a promotion, switching to a different company, taking additional courses to build your skills, and more. We focused on providing as much value to our employers as possible. This led to us both receiving promotions and raises during our debt payoff journey.
I also work a second job with a minor league baseball team during April through September. There are many benefits to having a side hustle. The biggest benefit is that all money you make from a side hustle can be considered “extra.” Presumably, you’re already making ends meet with your full-time job, so you don’t “need” the side hustle money to get by. For us, we resisted lifestyle inflation, and kept our budget exactly the same as it had been the rest of the year. Every time one of my paychecks came in from my second job, it went right towards attacking our debt.
6. Automate
Before the month started we set up our monthly budget on Mint, and allocated as much as possible towards debt repayment. Then I broke down that amount into four automatic payments and scheduled them one per week. Scheduling a month’s worth of payments before the month starts, meant there was no way of talking ourselves out of it. Psychologically, it felt really bad to cancel a payment, so we avoided doing so at all costs. Automation helps take some of the burden off your plate, and let you live your life with less worry. For more about what this looks like in practice, check out what our money map looks like with all our accounts.
7. Small Rewards and Celebrating Progress
The road to debt freedom is often a long and arduous one. Take the time for some small indulgences along the way. We made sure to recognize the progress we were making and celebrate our big milestones. It’s also important to not sacrifice what you find the most joy in. Yes, paying off debt is difficult and requires a lot of dedication, but it’s also necessary to avoid making your life miserable at the same time. Your celebrations don’t have to mean spending a lot of money. The point is to take a step back and appreciate the progress that you’ve made!
8. Patience
Debt feels like a big weight on your shoulders. It can be overwhelming and stressful, and if progress doesn’t appear to be happening it can get really discouraging. During debt repayment it’s extremely important to remain patient and focus on taking small steps forward. Running a marathon starts with taking the first step. While I was anxious to get out of debt as quickly as possible, I also recognized the importance to appreciate the journey. One bad month doesn’t undo all the progress you’ve made, let it go, and get back on the right track. Progress, not perfection.
9. Accountability
My wife and I couldn’t have reached debt freedom in such a short amount of time without the support of each other. Encouraging one another and continuing to push towards our long term goals has helped us when times were tough. It helped us stay on course from an emotional standpoint, but also having two incomes to work with has made a huge difference. If you’re married, I’d encourage you to lean on your spouse during your debt repayment journey. If you’re single, find a support group of family members and friends to help check in with you throughout your progress. Accountability is key to keeping your motivation high when times get tough.
Final Thoughts
None of these steps are groundbreaking or difficult to comprehend. However, going through this process is life changing. I’ve experienced firsthand that they work! I’m confident that anyone can take a few of these principles and improve their finances. It all starts with gaining awareness of where your money is going, and having the motivation to improve.
I don’t feel like my story is all that unique or out of the ordinary, but that’s why I choose to tell it. My message is that you can do this too. You don’t need to have a radical debt payoff story, you just need to make small consistent progress over time. If you’re reading this and you have student loans that feel like they’ll never be paid off, just know you’re not alone.
Get started, throw every spare dollar at the debt and keep chipping away at them slowly over time. The progress may not feel like much, but keep pushing forward, every small bit makes a difference. Eventually that you’ll have climbed that mountain that seemed insurmountable and your student loans will be defeated. I’ll be rooting for you along the way.
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Very useful post, thanks for sharing