How We Got Out of Debt in 36 Months
This was my facebook status on my personal page a couple of days ago, "HOLY MOLY! We are completely out of DEBT! $75,000 paid off in two years! Hard work pays off!" My phone was blowing up the rest of the day with all sorts of questions, so I decided to write a blog post about it.
I am not going to go into details about how long this took and when we started paying it off and things like that, because honestly, I have no idea. We sold and bought a house and bought and sold four cars in the midst of all of this. We now OWN two of those cars and none of those purchases helped us get out of debt faster, lol.
So where did it all begin?
It was very important to Barton that when we have kids, that I will be able to stay home. We knew that would only be possible if we paid off all of our debt and lowered our monthly bills as much as possible. When we first added everything up, we were paying about $800 a month in student loan and car payments. We had NO idea we were paying this much every month, so it was time to get down to business.
We started by listing all of our debt. We listed what the loan was, the interest rate, the remaining balance and how much we paid to the loan each month. We evaluated the list and whatever we were paying extra to, we stopped. Ex: If the minimum that was due was $30 but we just paid $100 just because, we bumped that back down to $30. We took that extra $70 and put it toward the loan we were paying off . This is what our debt looked like:
Student loans: $51,000
Our student loans were broken into 7 smaller loans and our cars were two separate loans (his car and my car). So after we listed everything out, we organized them from smallest remaining balance to biggest. We didn't even look at interest because it was going to be paid off so fast that it didn't matter. We didn't know about my loans until later, which I will talk about.
What about Credit Cards?
The day before we got married, we got our last financial aid check and paid off the $700 I had on my credit card. I used my credit card to get me through college. It only had a $700 balance so every time I got my financial aid check, I would just pay it off. Not the smartest, but I had to! Since then, we have never had credit card debt. If you have credit card debt, pay that off FIRST. Put those at the top of the list.
I truly believe in the saying "it isn't how much you make, it is how you spend it." You can pay off debt with any income. Trust me. I think we were making $45,000 a year or less when we started paying it off.
So after looking at our income, we made a challenge to only live on my husbands salary. Every penny I made would go to debt. We kept our checking and savings account total at $8,000 and at the end of the month, any extra money above $8,000 would go to student loans. It was around $2,500 every month (just one big payment that included my months salary). Our tax returns and any extra money would go straight to debt.
Here is how we actually paid it off one by one:
After a loan was paid off, we snowballed that payment into the next loan. For example, if the minimum payment was $100 on a loan, we rolled that $100 to the next loan because we knew we freed up that amount of money each month. Then, by the time we tackled my car loan, it only took about 5-6 months. Ella was born 2 months later.
Right before I had Ella we thought we were all out of debt, and then I got a bill for my student loans that we didn't know we had! I panicked because everything was going according to plan and then BAM, a $12,000 loan. Yikes! We planned to just eat away at it the best we could and knew it would take at least two years. Well, January after Ella was born, I started working for my previous employer, but from home! So for a year, all of my income was going to debt, again. I was so thankful for this!! This allowed me to pay it off in one year.
We got rid of cable and we switched our phone plans to the cheapest we could. I have straightalk now (uses AT&T towers) and I pay only $45 a month for unlimited everything. My husband has a cheaper plan because he never uses his phone.Here is what our monthly budget looked like other than utilities and bills:
$40/each for spending money.
You probably think that is NUTS. $200 a month on groceries? WHAT? It can be done! Now that we have Ella, it can't, lol. She eats like a teenager (If I had a child at the time, I would bump this up to $250).
We took $280 out of the ATM on the 1st of every month and that was it! We tested this out and found out that it was easier to buy groceries at the beginning of the month and only go back for produce every week. Our money lasted longer. We would go to Costco and get chicken breasts and a bag would last us a month. We would also buy ground turkey. It was interesting coming up with meals, but it was fun! We had lots of rice and beans and frozen veggies! We were never the "couponing" type so we would just go to the store and see what is on sale and make meals around that.
And that is it! It was so tough and took so much diligence and self-control. It was nice to have someone partner with me and work toward the same goals.
I hope this all makes sense. If you have any questions or need advice, don't hesitate to e-mail me! We get questions like "here are all of my loans, which should get paid off first," to "we need a budget!"
*You have to start with the mindset that you are putting all of your needs and wants aside and tackling this debt. No more clothes shopping just because or going out to dinner and ordering a glass of wine and dessert with your meal. Sacrifice now so that later you won't have to. You can tackle it now and sacrifice a couple of years or you can continue to rack up debt and keep paying on it for 30 years.