Paying off debt: From 30k in debt to 30k in savings

When my husband and I decided to get married the first step we took was to merge our finances. We both came to the table with our own checking accounts, less than desirable savings, and debt…lots. Of. Debt. $30K in debt, if you can believe it. Marriage is hard enough but to do it with crushing debt didn’t seem fun to me. I had a personal goal of being financially secure.  I suggested we work right away on paying off debt and not accumulate any more. (This meant paying for our wedding in cash!)

My, then, fiancé Alex agreed and we set out to making a plan.  Because of this plan we were able to pay off $30k in debt and save another $30k within 6 years!  All while still living a normal lifestyle.

Learn how you, too, can become debt free and still maintain a normal lifestyle.  You don’t have to sacrifice everything and have debt rule you.

Paying off debt by Budgeting

Creating a budget is the number one tool to use to get out of debt. It’s as simple as

1. Know how much money you have coming in and
2. Assign where your money is going for that month

Some people like to have print outs of their budget and some people like to use digital forms. I have used both and either works so long as you use it.  The main point is to have a WRITTEN BUDGET.

The most important tip to remember is that each month is going to be slightly different.  This was probably the hardest lesson learned. I tried to make each month a cookie cutter month, but it just does not work that way.  Some bills are on bi-monthly cycles, some bills are on quarterly cycles, some bills are only once (medical, taxes, etc.).  Your budget can definitely include “fun money”, too!  Just make sure you have all of your money assigned so when it comes you know where it is going.

Paying off debt by Snowballing

My first Debt Snowball from 2013-2016

I’m not sure at which point I heard about this, but I remember my dad telling me about some guy named Dave Ramsey and his theory on paying off debt called the Snowball method. Basically, you’re going to:

1. List out all of your debts

2. Pay off the smallest debt first
3. Use the money paid to previous debts to pay off the next debt (for example, if you pay $25 to one debt that gets paid off you will then take that $25 and put it towards the next debt)
4. And so on and so forth

I highly recommend reading the Total Money Makeover by Dave Ramsey for probably the best explanation on the snowball effect. Mathematically it doesn’t make sense, but somehow it works. Motivation is stronger than mathematics!

Think about when you have accomplished just one thing and how excited you felt afterwards. Does that make you want to continue working towards that same goal? It’s the same with snowballing your debt. You get to pay off smaller debts faster which feeds the motivation monster to keep you going until you end up being debt free.

Don’t Save

This one may sound controversial, but this one hit me like a rock crashing through a glass window one day.  Remember, your goal is paying off debt. I was writing out how much interest I was paying (upwards of $50, $60, or even $100) each month and was blown away by how much money I was giving away. At the same time I had over $3000 in savings earning me a grand total of $0.03 per month. That $3000 was actually costing me money because I wasn’t using it smartly! If I had been putting my money towards paying off debt instead of putting money into savings I could have saved myself a few hundred dollars in interest.

Now, I do believe in having SOME savings set aside, just enough to keep you afloat while you remaster your finances to get yourself out of debt so if an emergency comes you don’t have to use your credit cards again. However, don’t sit on thousands of dollars that could be saving you money because you won’t be paying interest on your debt anymore.

Paying off debt by Supplementing your Income

Probably my favorite of the tips is to supplement your income. What I was NOT good at was actually using this income to pay off my debt. Instead, I used it to feel like I was still living a normal life and not sacrificing the world just because I was in debt.

Overtime

• If your job lets you take on extra hours DO IT! Once my manager opened up OT I jumped on board! I started with just a couple hours here or there, until I started making almost double a paycheck because of over time. There is nothing like your paycheck being doubled! One of the times I earned an extra $2000 on one paycheck!  What could you do with an extra $2000?

Second job

• This is a path my parents have taken a few times in their lives to help pay for some of their debt. Both of my parents at one point or another worked a second job in order to help pay their debts and keep us six kids fed and clothed. I prefer over time to a second job because you can earn a lot more (most places pay 1.5x rates for over time hours), however, not all companies allow massive amounts of over time, either.The benefits of getting a second job, however, include a refreshing change of scene (and duties). Sometimes being in the same building for upwards of 10-12 hours is more exhausting than being able to go to a new place.

Side Hustles

• Becoming ever more popular are “side hustles” which are ways you can earn a bit of extra cash doing simple tasks like taking surveys, “donating” plasma, writing articles, or even blogging! Some of the side hustles end up being a time investment (like blogging isn’t just write an article or two and viola you earn money!), but if you find something you enjoy doing and figure out how to earn cash out of it, use it to help pay off some of your debt!

Learn to say NO

My in-laws love to take exotic vacations. Every year (sometimes more than once a year) they go on a cruise. We got invited to quite a few of these trips and, heck yeah we wanted to go! However, it wasn’t in our budget. Not when you have to pay off your debt. The phrase “We can’t afford that” slipped out of our mouths more than once. But, it was totally worth it because now we get to say “YES!” when we want to. And now we don’t have to worry about over spending because we’ve budgeted for it AND don’t have extra debt hanging over our heads.

My only regret was using the phrase “We can’t afford that” instead of saying “We choose not to afford that”. Many people thought we were poor and just couldn’t afford anything. Which wasn’t true. We earned a lot of money (back then we were earning almost $70k a year), but we were choosing to put our money towards our goal of paying off our debt instead of towards unnecessary (though totally fun) expenses.

Know your Bills and Debt

Know when your bills come and which paycheck they will be coming out of. We started each month out knowing how much we earned and how much was going to come out of each paycheck for all of our bills. This included non-debt bills like phone, internet, rent, insurance, etc. and our debt  This is part of budgeting!

We had a plan for which paycheck would pay which bill. Anything extra we felt we could spare would go to our smallest debt. Each time a debt was paid off we still accounted for that amount in our bills. What I mean is if we usually paid $125 per month to a credit card but got that credit card paid off then we put that $125 into another debt. (This is the snowball effect).

If you are currently paying $3500 a month in debt then you will always pay $3500 a month until ALL of your debt is paid in full.

I created a digital form in Google spreadsheets to help me keep track of debts. My form wasn’t anything fancy. It had the debt account, the amount owed, and dates bills were paid or interest hit. At the bottom of the form was how much debt there still was. The program did the math for me with some simple excel formulas.

When to start saving

Saving $30K in 3 years

Grand total of $30,379.59 saved!

We only started saving after all our debt was paid off! Once we were finally debt free! we started putting 10% of our GROSS income into a savings account where we have let it build and grow. We have used it for a few emergency expenses over the last few years (medical, car issues, family emergency travel, etc), but we have grown our $30k of debt into $30k of savings.

What about you? What have you found has worked (or hasn’t worked) in your journey to pay off debt? Please leave a comment below!