How We Paid Off Over $90k of Debt
First off, it is very important to note that at the start of my debt attack I was married with no kids. I feel it is important to mention that, because the Internet is full of debt payoff stories with no real understanding of the person's financial climate or situation. I want to lay out my situation because it is really relative to the amount I was able to pay off in the timeframe I did while still enjoying life to the fullest. That being said, the principles I will highlight do not require a certain amount of income to be able to help reduce your debt amount.
Before I highlight the principles that help me become debt free, I have to dive into the debt I accumulated. If you have not heard this already, I am sure you will hear it again. There is good debt and bad debt, but I am here to tell you nothing is better for your stress level then NO DEBT! In America, it is very easy to assume people are well off based on the material things they have or the pictures they post on social media. The crazy thing about it all is you can not decipher who is really well off or who is maintaining a lifestyle off of debt.
The numbers suggest that roughly 80% of Americans are in debt. It is totally apart of the American culture. Today, you can find hundreds of “influencers” pushing trendy topics like buying real estate all from using credit! I do not know about you, but honestly, I would rather be debt free than to try to be rich off of credit. Not saying you should not take the risk, but I personally would rather chase my dreams with no debt than with debt cloud over my head constantly. To be clear, I support business debt (I just do not want it), but I am definitely against the consumer debt cloud, like a car payments!
What is our infatuation with cars?!?
By the end of the 1st quarter of 2019, Americans financed over $1.16 trillion dollars in car loans. That is CRAZY!!! The invention created to get us from point A to point B faster, is one of the highest percentage of consumer debt by category. I remember reading “Letters to a Young Brother” by Hill Harper. One of the things I pulled from his book is the need to only pay cash for cars. Even with that only point from the book sticking with me, like most of America I financed my cars. Growing up, I always wanted an Audi. With about only month of salary in savings, but the income to pay for it, I convinced my wife into letting me buy one. My car payment ended up being $200 less than my mortgage! Now, that is a comparison of good debt vs. bad debt. On top of all of that, you are probably thinking the Audi was part of the $90k I paid off. It was not; I had to trade it in when my daughter was born. My backseat was too small. LOL!
Cars and Furniture were my bad debt!!!
Our initial debts were our cars. My wife is a little more frugal than I was initially. She only financed one car and it is the same car she drives today. On top of that, she financed it with a 0% interest rate. I wish I could say the same; I financed three cars since we were married. Cars were the majority of our debt. The next big ticket item was education. That one should not be a shocker, especially with the politics around student loan debt today. My wife had over $30k in debt from her Master’s degree. After that, you could sprinkle in a couple financed furniture and entertainment loans, all of which were at 0% interest rates. Even though a lot of those required no interest paid, debt is still debt when the cloud is over your head.
Now that I painted the picture of my debt background, we can jump into the principles that helped me stay on track during my debt attack. Keep in mind, during this period I still managed to go on vacations and have fun, but these principles allowed me to remember the big picture while still enjoying life.
Readjust Your Budget
There is no way I could have paid off any of my debt faster than expected if I did not know how much extra room I had in my budget to use towards the debts. The very first step at attacking debt is to readjust your current budget if you have one, and if you currently do not budget your money, you need to start NOW!
The main goal of readjusting your budget is to free up as much extra cash currently coming in to place against your debts. You will have to look at the expenses that you can totally give up to open up the extra cash in your current budget.
Forecast Your Payoffs
I am not sure what you use to budget your money, but on this step you need to pull out the spreadsheet if you can not find an app to help you. You want to create your own payoff schedule for all of your debts. Each debt can be in its own table or sheet in the spreadsheet. You will basically create an amortization table, so you can actually see how long it will take you to pay the debts off.
Initially, create the amortization tables with no extra cash included. You want to create them so you can visualize how long it will take to pay off completely, and hopefully get fueled up to attack them in a orderly fashion.
Pick a Payoff Method
There are basically two methods to pick. Snowfall and Avalanche are the two main methods. Snowfall will have you attack them in order by the total principle. You will pay the minimum on all debts but allocate the extra cash to the smallest principle until it is paid off. Once it is paid off, you will then apply all the extra cash towards the next smallest principle.
The Avalanche method will have you attack the debt by the interest rate. You will pay the minimum on all debts, but allocate the extra cash against the highest interest rate debt, and once paid off you will then pick the next highest interest rate debt and apply the extra cash towards it.
I personally used a mix of both Snowfall and Avalanche methods, but leaned more towards Avalanche overtime. Basically the debt that was small enough to cover with one month of extra cash, I paid off initially. Then, I attacked the remaining debts using the Avalanche method.
I ordered my tables on my spreadsheet from the highest to lowest interest rates. On the highest interest rate, I add the extra cash towards the debt on the spreadsheet. This allowed me to see when it could be paid off, and when I could start attacking the next debt. I did not stop there; I forecasted all of the debts with the extra cash from there. This allowed me to see when I could expect to pay off all of them. If I wanted to enjoy something outside of my current budget, I could then readjust the extra money and see how much it would of pushed me back. This helped determine if the activity or clothes were actually worth it.
Did I always pay off the loans on projection? No, because life will happen causing you to pay for things outside of the things you want to pay for. You just need to keep rolling with your plan. Readjust the projects and continue towards your goal.
Produce Extra Cash Flow
This is where the side hustles come to play! I did not start my side hustles to pay for the activities or clothes that I could not buy in my current budget, but I used the money to apply towards my current debts. There are tons of ways to create extra cash flow. You could rent out a room in your apartment or house on AirBnB. You could start a side business selling t-shirts. You could get a weekend part-time job.
I personally started my own side business. I became a part-time travel agent. This allowed me to produce extra cash along with tax benefits for my current traveling. Another way I created extra cash flow was by renting out a room in my house on occasion. One time, it was a friend who had an internship in the area and needed a place to stay for the summer. Another time, it was a family member who needed a place to stay for a short amount of time while they were transitioning to the area. I am currently renting out a room in my house to a family member who is trying to pay off debt and realized it was cheaper to stay with me than to pay for an apartment.
It is time to attack your DEBT!
All of these principles will have a common theme of sacrifice. That is the main principle besides patience to have on your journey to debt freedom. You will have to sacrifice what you currently consider a normal lifestyle to reach a better one. I can totally attest that living debt free will allow you to live a better life both financially and emotionally.
Paying off debt totally reduced the stress in my life !!!
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