First, How We Got into Debt
I grew up in a fiscally conservative family. My parents ran a small business out of our home. The seasonal fluctuations in the business taught them to save in times of plenty so that they’d make it through the times when the money wasn’t flowing as much. This carried over to how they ran their personal finances and I learned from their example. Thanks mom and dad!
Even though I adopted my parents’ conservative way with money our society and culture teaches another approach.
This approach could be summed up to something like this: Spend money you don’t have to build a credit score so that you can borrow more money to spend. After all, you NEED credit for all the important and good things in life.
This is, of course, a bad approach to building wealth.
But, I bought into it for a short while. One morning I left our apartment to head to work. As I approached my car in our parking garage I could see that my driver side mirror was missing. Well, missing isn’t the correct word. It was in a thousand little pieces on the ground next to my car. One of our wonderful neighbors had hit the mirror and forgot to leave a note. Yes, they forgot the note, I’m sure of it.
Long story short, what should have been a couple hundred dollar repair turned in to about $23,000 in debt on a new car!
The longer story is that we innocently started test driving new cars... just for fun. Then we started justifying a more fuel efficient car that would almost “pay for itself”. Then we got suckered into zero-percent financing. Suffice it to say that we bought a new car in just a couple weeks after the mirror was broken.
Oh, and the financing did NOT end up being zero percent. Imagine that.
Not too long after that we wanted to replace our second car with something a little larger and more practical. At that time my husband was in school getting his bachelors degree. We had access to what everyone told us was the lowest interest and easiest to get loan there is, a student loan. What?
People use student loans for something other than school? Yes, it happens quite often and it is exactly what we did.
Now we didn’t go crazy, but we took out a small loan of $4500 and put that with some cash to purchase a nice used SUV.
A couple months down the road, no pun intended, the debt started to bother me. Our car payment of $399 had to be paid every month.
The student loan wouldn’t hit us until after my husband’s graduation. Yet, that bothered me too. Just knowing it was there in the future taking away, or delaying, our ability to grow and save made me feel uneasy.
This uneasiness carried over in to our relationship.
You’re probably thinking that money doesn’t ever affect relationships, right? Just kidding, I’m sure you know it does.
In fact, if you are in a relationship I’m one-hundred percent sure you’ve had at least one argument that involved money.
Money has a way of weaving itself into most aspects of life.
In our case, it started causing me stress. Nobody wins when Devin is stressed. So that wasn’t fun for my husband.
Something had to change. We had to get rid of the debt. Which is exactly what we did.
How We Paid Off $27,500 of Debt in 7 Months
We Made the Decision
It may seem like a silly first step, or perhaps a little cliche, but it is absolutely essential.
The decision to become debt free had to be made. It started with conversations about life, our future, family, etc. Like I said before, money intersects with almost every aspect of life.
So when you discuss money you are really discussing what you value in life.
Some of the conversations became heated, but we did our best to keep them fair.
In the end, be decided together that handling our money the normal way wasn’t for us.
Normal is always having a car payment. Normal is having consumer debt on credit cards. Normal is not having an emergency fund. Normal is stressing about money. Normal is waiting for every paycheck and being screwed if it doesn’t come in on time.
Normal is scary. We decided that normal wasn’t for us.
We Shredded the Credit Cards
For most, this may sound crazy. For us, they added an unnecessary layer of complexity.
To be clear, we were the people that paid off the credit cards before the end of every month. We never paid any interest.
Don’t take my word for it; look it up! In the marketing world there is a term called “friction”.
Basically, the easier the transaction is mentally, the more likely you are to make the purchase or spend more. A credit card purchase has less mental friction than a cash purchase.
Mobile pay options (think Apple Pay or Google Pay) are the newcomer for an almost frictionless purchase. You simply wave your phone or watch to make the purchase like freaking Harry Potter!
If you think you can outsmart a multi-billion dollar industry you are wrong!
If you think you are going to get rich or travel the world on you points, you are also wrong. Again, there is a reason the credit card companies are able to give out all those perks; they are making more money off of you than they are giving back.
Credit card companies are not charities!
We Got on a Detailed Budget
Winning with money means telling it where to go. Telling it where to go means having a budget.
I know that budgeting doesn’t sound fun (for me it is, but I’m crazy like that) but you can’t win without one. The fact is that a budget is far simpler than most people expect. The first few months can be hard. You’ll undoubtedly forget to budget in an important event or category. You’ll under budget on some essential category. I know we made these errors and more.
Now that we are experienced, our budget takes us all of 10 minutes to do each month… seriously.
During our “Get Out of Debt” phase we used a cash envelope system for many budget categories.
Yes, like real cash… dollar dollar bills ya’ll. We had envelopes for personal spending (blow) money, an envelope for groceries, and an envelope for entertainment.
After the cash was spent in a category we simply didn’t have any more. I highly recommend the cash system while eliminating debt.
Learn How to Create a Successful Budget
We Learned the Word "No"
Sacrifice is always required to achieve something great.
If you see someone that has succeeded and think it came easy, you don’t know the whole story.
For my husband and I, we wanted (and still want) to achieve something great in life. We want to be able to help people. You can best help people when you yourself are taken care of. Having money gives you more options to serve and make a difference.
We decided that this was worth sacrificing for.
What do I mean by learning the word "no"? I thought you’d never ask.
We skipped on dinners out with friends. Or we went AFTER eating at home and only shared a drink or a dessert to save money. We were invited on many weekend trips that we couldn’t attend.
We watched movies at home instead of in the theater. Our personal spending allowances were tiny and our grocery budget was small. Suffice it to say that steak was not on the menu.
We were able to do this because we knew it was temporary.
Now that we are out of debt we don’t have to say "no" as often. No will always be part of our vocabulary, but now we get to say "yes" more.
Our personal spending (blow) allowances are larger. The grocery budget is a little larger. We have done many weekend trips with friends. We have traveled internationally. We have paid cash for a Masters program. We have upped our giving tremendously.
The word “no” got us to this point.
Where We Are Now and Where We Are Going
We are debt free. We have an emergency fund. We have the proper insurances to cover what our emergency fund wouldn’t. We have fully paid for my husband’s Masters program that he’ll be finishing up next year.
We are saving for a house. In Southern California this is no small feat. We are working toward some of the most expensive real estate in the country, if not the world. Rent is outrageous in the area and slows down the saving process.
We are grinding and working hard. We are enjoying some travels and trying to have a little fun. We are giving and living in the moment. We are loving our debt free life!
You Can do it Too!
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