5 Steps to Paying Off Debt / How We Paid Off $30k in 1 year

In November 2015, my husband and I purchased a brand new SUV that was well over $30k in value. All things considered, the vehicle was a pretty good deal and were able to shave off some of the cost by trading in an old car. Purchasing a brand new SUV was not a wise financial choice, per se– brand new cars lose a majority of its value in the first couple years of owning it. I learned this from Dave Ramsey’s Total Money Makeover after the fact, and in all likelihood, our next car purchase will most likely be used.

Regardless, we suddenly had about 30k of debt to pay off. Just some background: My husband and I are not fans of debt. We were both fortunate enough to not have student loans or credit card debt when we met each other, and managed to pay for our wedding out of our own pockets. I learned from my childhood experiences that credit cards are a bad idea until you have the self-control and ability to pay off your balances every month.

So how did we do it?

5 steps to paying off debt - pinterest photo

Step #1: Write down your total monthly income and necessary expenses each month

How much money is coming in each month? If you are not on a predictable salary schedule, look at the last few months of bank statements and make your best estimate. Once you have figured that out, make a list of all necessary expenses you have each month: rent or mortgage, utilities, cell phone, home/car insurance, groceries, internet, child care, any loans you are paying off, etc. These are things that don’t automatically come out of your paycheck.

Step #2: Figure out where else your money is going

This can be a hard pill to swallow. Look at your past bank/credit card statements and calculate how much money is being spent on unnecessary things. How much money are you spending on eating out and entertainment? Impulse purchases? When we made the decision to save money more aggressively, we discovered that we were spending upwards of $300 some months on things that were not as important as paying off our debt.One of the biggest problems with people who are not able to pay off debt is that they spend more than they take in. They live beyond their means and wonder why they don’t have the money when an emergency pops up. Figuring out your biggest money-sucks is absolutely critical to your financial health.

Step #3: Set a monthly savings goal

How much money are you trying to pay off? Is there something like a wedding or down payment on a house that you are working towards? Maybe both? Calculate how much you need to save on a monthly basis in order to get there. It’s also important to be realistic. If your house is living on one income and you have 10k in debt to pay off, it’s going to be hard to reach that goal in 3-4 months without gaining another income.

In our case, we had a $30,000 car loan and a two-income household. We knew anything under 1 year would be nearly impossible to pay off with our incomes, but if we started to pretend as though we were living under one income, we could reach our goal in about a year and still have money for vacationing and high quality of living. Keep your goal written on the fridge or bathroom mirror so it’s always visible and easy to remember!

Step #4: Create a budget and plan each month before it begins

Now that you know your monthly income, necessary/unnecessary expenses, and savings goal, it is time to create your budget. Tools like Every Dollar and You Need a Budget make it very easy to create an online budget that automatically links to your bank and credit card accounts. Of course, you could always do it the old fashioned way and create a paper budget or an Excel spreadsheet, but in my opinion, non-electronic methods require more work and are therefore harder to follow.

budgets
EveryDollar.com

All these steps are important, but this step requires the most work on your part and is most critical you follow — particularly if you are the type who easily forgets where their money is coming and going from. Revisit your budget throughout the month, and more importantly, at the end of the month. Get in the habit of monitoring where your hard-earned dollars are going and hold yourself accountable when you don’t stick to your budget!

Step 5: Get creative!

It’s possible to pay off debt quickly simply by religiously sticking to the steps I talked about above, but what if you live in a one-income household where it’s already hard enough to make ends meet? Get creative! There are tons of amazing Frugal Living blogs such as Frugal Florida Mom that provide tons of helpful information in budgeting and saving money. Aside from staying away from unnecessary expenses, you can also…

  1. Sell things you no longer use or need – host a garage sale or sell online!
  2. Create DIY projects and sell them on Etsy or Facebook Marketplace
  3. Teach yourself a skill, such as graphics and web design, and charge for your services
  4. Teach or tutor online if you have a skill, language, or subject you know a lot about (I did this when I was scrapping by during my 1st year as a poor teacher)
  5. Buy more expensive items, such as meat and certain produce, when prices are lowest and freeze
  6. My favorite: CROCK POT MEALS. Make these in bulk and thaw/cook as needed!

I’m just scratching the surface here. Financial wellness and literacy is a huge source of interest for me, and I can’t wait to share more information with you as I become better versed in the world of investments, retirement accounts, and next-level saving and budgeting! Tune in for more!

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8 Comments

  1. Fantastic advice – and well done to you. It takes real diligence and discipline to not only save, but to pay off debt and get creative!And so clear to follow too!
    Thanks for posting!

    1. Thank you Fliss! I just try to write about what I know and what will help people. Hope it doesn’t come across as I’m showing off 😛

  2. Congrats. These times are not good for debt. Interest rates are likely to go up. Well done. (Muy bien) (Para tu clase de español)
    😉

    1. Haha thank you! Nice Spanish! I totally agree with you about the interest… now it is more important than ever to avoid credit cards and loans if you can 🙂

  3. Very helpful information. I feel like I am drowning in student loans and it’s not getting any smaller. Ever since I pretty much sold everything last year to move to Italy, I was able to get rid of a lot of bills, still paying my loans, but it’s hard and discouraging when you barely see the number decreasing but the information you provided above has been very helpful. Thank you!
    http://www.lacasabloga.com

    1. Yes, the cost of going to school is ridiculous and discouraging for many people. If it wasn’t for teaching in a poor school for so long, I would still be paying off student loans. But I’m glad this was helpful! 🙂