Over the years I've never really been someone who spends large amounts of money, but if I'm completely honest I haven't exactly been frugal all the time either. When I was younger I never really denied myself the things I wanted, even when I didn't necessarily have the cash on hand to buy it. If I could put it on the credit card and pay it off within a month or two I'd do it. I had fallen prey to the idea that using credit is normal and acceptable, and that saving up and paying cash was for suckers. Over time, however, smaller purchases have a way of adding up.
When I was at college I can remember walking through the student union on campus, seeing the multiple tables set up by credit card companies to sign up unsuspecting students to their first credit card. Some of those tables actually had lines of people waiting to sign up and get their free t-shirt, school blanket or cheap school frisbee – in exchange for taking on a credit card, and starting their financial lives on the wrong foot. Most people probably didn't have those free t-shirts or frisbees for more than a year or two, but in the end those credit cards followed many of us around for years to come.
While at school I also amassed what felt like a fortune in school loan debt. In the end I had about $23,000 or so in school loans. Today that doesn't seem like much, but at the time for me it seemed like a lot.
While I was busy building up my debts in school through school loans, credit card debt and irresponsible spending – I always had an uneasy feeling in the back of my brain that told me I was doing things I was going to regret later. Many in society tell us that debt is necessary, and that debt is the only way to get ahead, but it just isn't true. Living a cash only lifestyle is possible, and will allow you to get ahead that much faster. Living on debt will leave you broke and borrowing to live.
A Financed Lifestyle Is Fun For A Season.. But You Have To Pay Eventually
My thoughts on debt and money didn't really start changing until after I married my wife Maria. She was a bit more fortunate than I in that she came to our marriage with no debt of any kind, except for the mortgage on her townhouse which her parents had helped her to buy. Even the townhouse wasn't purchased the traditional way for young folks – with no down payment and unaffordable payments. They had helped her to put 30% down and keep the payments affordable.
“Debt is the slavery of the free” – Publilius Syrus, Roman author, 1st century B.C.
When I looked at her finances and then at my own, I quickly realized that it was my own debts and obligations that were the proverbial anchor holding us back as a couple. It was my credit card debt, my car payment and my student loans that were our only debts. I knew then that if we wanted to get ahead I had to make some changes and starting living a cash only lifestyle. No more financed fun!
The last big debts we signed up for before we started getting things under control were our two wedding rings and our honeymoon to Hawaii. All of them except my own ring were purchased on credit. So now we had to find a way to get out from under over $32,000 in credit and student loan debt.
That early in our marriage I wasn't following any specific plan to get out of debt, I was just following a haphazard plan of making extra payments on our highest interest debt (the credit cards) when I could. While i was working towards paying off the debts, I really didn't have a solid financial plan or a budget. I also didn't have any sources of extra income.
Despite these facts we were fortunate in the fact that we were able to pay off over $32,000 in debt in about 4 years. While I'm glad we were finally able to rid ourselves of all debt except our mortgage, if I could do things over I probably would have done a better job of making a financial plan and a budget, and of trying to find some temporary extra sources of income to help pay off our debts faster.
Steps For Getting Rid Of Debt
If I had it all to do over again, here are some steps I would have taken right away to get out of debt.
- Save up for a rainy day: One thing we never did at the beginning was to save up a small emergency fund of some kind. Because of that, whenever something would go wrong – a car repair, or some home maintenance bill – we'd end up putting it on the credit card and incurring new debt. Instead of allowing the debt cycle to continue indefinitely, save up an emergency fund of $1000-2000 so you don't have to worry about small unexpected expenses – and worry about losing ground on your debt reduction plan.
- Make sure you track your money: Get together as a family and do a zero based budget where you allocate every dollar of income to either a spending, saving or giving category. Actually tracking your money can be a seriously eye opening experience. We were shocked to discover just how much we were spending on eating out every month! We currently use a great zero based budgeting software called You Need A Budget. Check out my YNAB review here.
- Make extra income: Sometimes when trying to pay off debt the only way you'll get ahead is to create extra income of some kind that you can put towards your debts. While your part time work doesn't have to be a permanent thing, if you can swing it, it can be a great way to reduce your debt that much faster.
- Have a plan to pay off debts: Put together a plan of some sort to pay off your debt. At our house we used Dave Ramsey's debt snowball to pay off our remaining debts because it has been proven to work, and it made sense to us. If you don't like the debt snowball, find another debt reduction plan to use, but find something!
- Save up a larger emergency fund: After we paid off our debts, the next step we took was to save up a larger emergency fund for bigger contingencies like a job loss or major medical event. That meant saving up about 10 months of expenses in a saving account. Now that we've reached that amount of savings, we're also planning ahead for other expected life events like new cars, kids education and other things. We're saving up cash for those things because we would prefer to live with cash now!
Getting out of debt isn't easy, and there is no magic bullet. Like anything worth it in life it just takes hard work, perseverance and a bit of self control. If you make the choice to ditch the financed lifestyle and switch to a lifestyle where expenses are budgeted and planned for, in the end you'll be happier -and wealthier.