Sunday, June 18

One Year Debt Plan: How I Paid off $24,000 in One Year

Tackling debt is no easy matter. It's also a bit of a daunting matter. About a year ago I decided I didn't want to be a slave to debt the rest of my life; I wanted to live in financial freedom but wasn't quite sure where to begin. I am by no means a financial expert or super experienced in the intricate details of finances but I do know what God says about being a good steward. Two verses that really encouraged me to start this journey were:

Luke 14:13-14 | "No servant can serve two masters, for either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve God and money"

1 Timothy 6:10 | "For the love of money is a root of all kinds of evils. It is through this craving that some have wandered away from the faith and pierced themselves with many pangs

God has called us to be good stewards of our gifts and resources. I wanted to be faithful with the finances God has given to me. I wanted to live a life in which I could give where God has called me to and not be stressed out about paying the bills. So I decided to take some steps towards setting myself up for a life of financial freedom. Here are some of the tools and tips I used to help pay off about $24,000 of debt in one year.

1. Moved home
The biggest blessing in my journey has been moving home. My parents were amazing to let me come home and live without paying rent for a few years to help me get on my feet. Now, I know that either that isn't an option for everyone and/or it sounds miserable, but it has been the biggest blessing in saving money. Rent can be incredibly expensive, so being able to move home and save that rent money has been instrumental. 

2. Weekly debt payment
At my company we get paid every week so every Friday morning I sat down and budgeted and paid my bills. I was incredibly aggressive on the payments of my debt (car loan, credit cards and student loans). By paying every week, I was able to cut down on some of the Interest as opposed to doing my previous monthly payments. Even if you get paid once a month, calculate how much interest you would save if you pay once a week smaller increments versus one large payment a month. 

I loosely followed Dave Ramsey's 'snowball theory' on paying off debt. His idea is to attack the smallest debt firsts. Once that debt is paid off, roll that amount you're paying and any extra into the next smallest debt. So lets say you're putting $50 towards your $500 credit card debt a week. Once you're finished paying off that $500, take that $50 you've been paying and start paying your next smallest debt. Is there an additional amount you can add to that payment? Can you spare $55 or $70 maybe? His idea is that you keep rolling your amount towards the next smallest debt. 

I pre-planned in an Excel worksheet what I would pay each week ahead of time so I had an idea of what I would be paying and the projected date of pay off. I found that this was helpful to visualize an end-date and help me strive towards making those payments.

PS: Dave Ramsey is an amazing resource and wrote "Financial Freedom". Check out his website for his classes, curriculum and texts.

3. Live off $100 a week
Speaking of Dave Ramsey, I loosely followed his idea of the envelope system. To learn more about the envelope system, read here. My adaption to his method was instead of budgeting $30 for gas and $70 for groceries and putting it in an envelope, I just lumped it all into one envelope. For the past year I've loosely lived on $100 a week in cash. It sounds strict, and that's because it was. That $100 was cash in my wallet that I allowed myself to use during the week for anything other than my bills.  It included: gas money, going out to eat, Target runs for necessities, gifts or just other spending money. It takes a lot of discipline to live off $100 a week, there are times when I had to say no to going out to eat with friends or stopping into TJ Maxx because I knew I only had a few dollars left. Any extra cash I would carry over to the next week for "extra" money.

Now there were times I would have to use my debit card online for things, but I would just budget that into the following week's budget. If I had to pay $30 for something on Amazon, the next week I would only take $70 out of the ATM. It was a give-and-take.

4.  Cash is KING 
Like I said before, I lived on cash. 95% of the time I used cash for things. I would take $100 of cash out of the ATM on Friday and that would be my 'extra' money for the rest of the week. By using cash I was able to physically see how much I was spending and how much I had left for the week. When you're using a card it's easy to swipe mindlessly; but cash makes you really stop and think if it's worth it. 

I did keep one credit card on hand for emergency purposes. Over the year there were definite times I had to use it because a purchase was over $100 or close to my limit for the week. I just made a point to pay off the card within that week or the next. Again, it just takes discipline to be diligent to not use plastic all the time when we live in such plastic society 

5. Keep the change.
Some people claim they hate to carry cash because they hate the change. What I did was get a large mason jar and every day I'd dump any change I collected into that mason jar. All that change adds up, so don't let it go to waste! I saved up all my changed and cash it in towards the holiday season, viola- a few hundred extra bucks for holiday shopping!

6. Reward Programs
I signed up for basically any and all rewards programs. Bing (the search engine) has a rewards program where you earn points with every search you do, and with those points you can turn them into gift cards. This is how I get my Starbucks fix! After earning 2,000 points (usually takes me about 2-3 weeks) I get a free $5 gift certificate which means a free latte for moi! 

I also signed up for the rewards programs and/or email notifications for all the shops I go to frequently. They send out discounts, coupons and freebie codes frequently so I'm able to still go to Anthropologie occasionally and purchase a cute top but I just do it when I get the 20% email. 

7. Plan for special occasions
You know when birthdays, holidays, and anniversaries are coming--- put them in your calendar and plan ahead! You know your best friend's birthday is going to come around every March, so plan ahead! Buy her card when you have a coupon to Hallmark and a birthday gift a few weeks before. Spread the spending out over a few weeks so you're not cramming it all into one week.

Again,I am by no means a financial expert but these are some of the tricks and tips I implemented into my life that really made a difference. It's been a learning curve, trying to save and pay off debt in such an aggressive manner. Lord willing, I will be 100% debt free in the next year. I want to be able to use my talents and gifts for the Lord and not have to worry about the financial aspects. As one of my favorites, Lara Casey, always says... little by little, progress adds up. So start today! Start small. It's okay to grow slow as Lara says. I pray that this helps you take a small step towards your own financial freedom path. Comment below with any questions you may have and I'll try to point you in the best direction!