I could not believe it. I just sat and looked down at my worksheet. There were multiple zeros behind one number! How could we have accumulated so much debt? Yes, we used credit cards, but mainly for medical bills and the loss of a job. But then there were our restaurant splurges, the dresses that I caught on sale, and we had to go on a vacation, right?
Thinking back to the countless times we just “whipped out the card” to just buy stuff, now has afforded us the opportunity to be in a such a low place…DEBT! And although thousands of dollars of debt were legitimately based on needs, I had to acknowledge that a good portion of it was based off of wants as well. So, after much discussion and my husband and I being tired of us being in this place, again, we decided to take control of our finances, once and for all!
Before, when we had consumer debt, it was just the two us and we paid it off. Now, we had three times the amount of debt and we have children. We decided we wanted to break the cycle of debt, and leave something other than bills to leave to our kids. So, we created a plan to start moving towards financial freedom. Here are three steps we took to work the plan.
Here are some other great debt payoff stories:
- How This Family Moved To The “Hood” and Paid Off $120,000 in Debt
- How My Wife and I Paid Off $62,000 in Debt in 7 Months
- How We Paid Off Almost $10,000 in 10 Weeks
- How I Paid Off $40,000 In Student Loans in 7 Months
- How This Couple Paid off $204,971.31 in Debt
We cut the cards
According to NerdWallet.com, the average U.S. household credit card balance is $16,425. And although, we had much more credit card debt than that, we knew something drastic had to happen; therefore, since credit cards were the main reason we had accumulated so much debt, it was only fitting that we cut off the thing that was contributing to our financial chaos. We had to cut the cards!
Was it difficult? Yes! Did it hurt? Yes!
Were there days when I wanted and even needed to use it? Yes!
But, in not being able to readily swipe, I came face to face with the emotions I had surrounding using it. Credit had become my safe haven. If I was hungry, I used the card for food. If I caught a sale, I used the card for clothes. If I knew I did not have money in the bank, it was fine because I had the card. So, in not using them, we were forced to break bad spending habits and come up with a plan to create new ones. Instead of leisurely window shopping which would lead to spending, we had go to the park. Instead of going on an expensive vacation, we planned a less expensive one only an hour away.
Not using the card allowed us to become conscious of our spending forcing us to become creative with our spending. Next, we were able to…
Examined our Monthly Expenses
We looked at what was going out each month and determined which expense we could reduce or completely eliminate. Did we have to have the $100 cable plan? Could we downsize? Did I have to get my hair done every two weeks? Could I temporarily go to the local Beauty School once a month for a tenth of the price?
In looking at our expenses, we were able to see not just where we were overspending, but where we were unnecessarily spending! We were buying “stuff” because we could not because we should.
By drilling down in our expenses, we were able to examine the emotion behind our spending. I learned that I did not spend when I was depressed, upset or angry? I spent when I was happy, excited and felt accomplished? So, I began noticing these “triggers” and addressed it when they sparked.
After, we reduced our expenses and came to grips with our spending habits, we realized the quickest and easiest way for us to dig our way out of debt was not just using the “process of elimination” on our expenses or reducing the number of mall trips, it was creating additional income. So, I…
Found a better paying job
Or in my case, I had to go to work full-time. At the time, I was working part-time because I had three young boys and wanted flexibility. And although the part-time job worked well for our family’s schedule, it was not working well for our financial outlook.
We realized, if we wanted to quickly get out of debt, we had to temporarily choose finances over time. Although, this was difficult for me, I knew our family would be in a better position overall if we were in a better position financially. So, I left my lovely, flexible, part-time job to work full-time at a place that was nowhere near as flexible as I had grown accustomed to; however, when your finances are a mess, you do what you have to do.
So, I went to work full-time, doubling my income plus sought out side-hustle (contract) opportunities (which I have always done) to bring in even more income. And what we did next kick-started our goal towards our journey to attaining financial freedom.
Tackled One Debt at a Time
Although our new schedule did not grant us the downtime we had previously enjoyed, we knew if we worked hard for the next few years, our hard work would indeed payoff. So, instead of spending the money were getting from the new full-time gig and the side hustle, we decided to list out all of our debt and tackle one debt at a time.
Some financial personalities say, start paying your highest interest credit cards first, while others say start paying down the smallest balance first. I just say START and that is exactly what we did. We paid the minimum on each bill and the extra funds we had leftover each month went towards one debt. For us, we started with my husband’s car. After his car, we paid off my car. After my car, we began to tackle one credit card at a time.
Side Note: Although we were adamant about paying down debt, we still budgeted “play money” for each of us. “Play money” was the money we were each allotted each paycheck to do whatever the heck we want to do. If I wanted to use it as lunch money, I could. If I wanted to put it in my personal savings account, I could. If I wanted to use it for clothes, I could! We each had play money and we could use it however we deemed fit. This helped us have balance, so we could enjoy the journey while paying off debt (my husband had to teach me this).
So, after 21 months of creating additional income and putting it towards debt, we had paid off $40,000 of debt. It felt great! Finally, we could see the light at the end of the tunnel.
But, we still wanted to ensure we had adequate funds for those emergencies, therefore, we were able to…
Fund our Emergency Savings
Using credit cards for purchasing a new auto transmission or other unexpected emergencies is what catapulted our use of credit cards from the start; therefore, in order to nip the need to use them for emergencies, we wanted to ensure we had the cash for it instead. Plus, we did not want to be part of the nearly 70% of Americans having less than $1,000 in their savings (according to Forbes).
So, in paying down our debt, we took a portion of our additional income and put it into our “Rainy Day Fund”. We knew that rain would come because it had so many times in the past, but this time, we wanted to be prepared for it. This last step was critical for us because it would eliminate the need (and excuse) for us getting back into credit card debt.
We have learned and we are still learning how to effectively and efficiently handle money. After paying off debt, saving, and creating more opportunities to bring in additional income, we’ve learned:
To save 30% of our “side-hustle” money for taxes. We did this the first year, but when we saw we only owed 20% to Uncle Sam that year, we only set-aside 20% the following year. Big Mistake! Since we made a lot more the second year, we ended up owing 30% of our side-hustle income in taxes. Since we had only saved 20%, we had to stop paying down debt and quickly save the additional 10% for taxes. Lesson learned!
We also learned that our unique skills are valuable to someone. I love numbers, data, research and statistics. And I used those skills to “get my side hustle on”. Determine how your skill, trade or gifts can meet a need or solve a problem and monetize it.
We also learned not to forget to give. Sometimes when we are on a mission to reach personal financial goals, we forget about others. We wanted to ensure we planned to give financially, as well as giving of our time. I truly believe our avid quest to give opened up so many doors for us to receive.
Although, we are still digging our way out of debt, I am elated that we are over $40,000 closer to financial freedom and have an Emergency Fund. The journey has not been an easy one, but it has been worthwhile. As we are learning, growing and traveling down the path to financial freedom, the biggest lesson we learned is to do it one debt at a time.
Author bio: Petrina Turner is a Financial Stewardship Coach and Blogger who enjoys educating and equipping other families to obtain financial freedom while blogging about their journey. Her goal is to motivate families to get out of debt, save for a rainy day and create multiple streams of income so they can not only build a financial legacy, but leave one.
What steps are you taking to get closer to your financial goals?