At 28 years old, I was around $40,000 in debt, had a credit score in the low 500’s, and had less than a year of credit history. However, before my 29th birthday I decided I was going to make a drastic life change, and the first step was to pay off all debt as quickly possible.
Like many of us, I grew up believing money was a taboo subject. The only things I had been taught about money was “never get a credit card” and “debt is bad”. Not only was it bad, it was shameful. So even though debt and student loans are a normal thing to have for many Americans, I didn’t want anyone to know about it. This caused me to not reach out and talk to anyone about my debt or ask simple questions about how to pay off debt.
Which is why I’m writing to you today. I want you to know that others have been in your shoes. Many of us have had debt, however, it’s not something to be ashamed of. Once you take personal responsibility for it, debt is something we can learn from, and it’s something we can take care of by following some simple steps.
So let’s go ahead and jump into the steps…
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Step 1: Create An Outcome
The first step is to create an outcome or goal you can achieve. Get specific when it comes to creating your goal, then write it down.
This process started for me by doing the math. I wanted to pay off all my debt quickly, to be exact I wanted to pay off my debt before I turned 31. That gave me about 24 months to pay off $40,000.
The Math: $40,000/24 months = $1,667 per month.
That number was a bit intimidating when I first saw it. After all, that was more than my rent, and almost equal to all my current monthly expenses. So when creating your goal, make sure it’s a number that is attainable after going through all the steps in this article, which leads me to step 2.
Step 2: Spending Plan
Most blog posts you read will tell you that you need a “budget”. In my opinion the word ‘budget’ can have a negative or a limiting connotation around it, so I said screw that. I never want to say or do anything to limit myself or others, instead I created a “spending plan.”
As you saw in Step 1; I set a goal and created an outcome that I could see myself achieving which was to pay off $40,000 in 24 months.
I achieved that goal by sticking to my spending plan, even while traveling the world and without having to sacrifice things like staying in nice hotels or eating out at restaurants.
The way I achieved my spending plan was by doing 3 things:
- Drop Unnecessary Expenses. Going through my monthly expenses and eliminating everything that wasn’t serving me. I dropped my cable as I was never home, cancelled unnecessary subscriptions, lowered my cell phone bill, shopped around for cheaper car insurance, and continued to drive a 2011 Toyota, instead of buying a new car like I so desperately wanted.
- Travel Smart. When Megan and I began traveling full-time we looked for Airbnb’s and hotels that were cheaper than our monthly rent in Orlando, FL., which was around $1500 per month. If we found even cheaper accommodations, then even better! Of course, traveling and living in second and third world countries made it very easy to achieve this goal.
- Track Your Income and Expenses. “What gets measured gets results.” You need to visually see the progress you’re making towards paying off debt along with seeing your monthly budget and net worth all in one place. I use a free app called EMPOWER – Personal Capital. It tracks all of your bank accounts, credit cards, and retirement accounts in one place!
Most importantly I want you to know that you can still enjoy life and do things like travel the world. In order to do so you must create a spending plan though, so you can stay on the path to getting out of debt.
Step 3: Create Additional Income To Pay Off Debt
I believe everyone should have a side hustle. But, if you’re trying to pay off debt quickly, you need a consistent income first. A consistent income will help you create a spending plan. This way you can achieve your goal of paying off debt quickly.
For example, I was working as a server all through college. While it was good money, the money wasn’t consistent. I knew there were better jobs and better ways to earn an income.
I started applying to jobs that I knew would have consistent hours and pay. After just a couple months of searching, I was able to land a job that fit the criteria..
The great news is, you don’t have to settle for a job you hate just to pay the bills. Nowadays your options are endless. You can find remote work and live like a nomad or try something you’ve never done. Might as well have some fun while you’re crushing your goal of paying off debt quickly!
Once I landed that job, I didn’t stop looking for other ways to make money. Even with my new job, I wasn’t quite at the income level I needed to be at to pay off my debt in 24 months.
Get Resourceful.
While working my 9-5 I made sure that I brought in an extra $1,700 each month, on top of my income. My 9-5 covered my bills each month, and my minimum down payment, however, I also knew I didn’t want to just pay minimum payments for the next 20 years. I WANTED TO PAY IT OFF ASAP.
I started doing anything I could to make extra money. Selling everything that I no longer needed; clothes, DVDs, a TV, gaming console, and eventually my car. When I ran out of things to sell, I started looking for side hustles; free lance work, affiliate marketing, course sales, etc.
Choosing to create a side hustle, on top of my job is what eventually led me to paying off my debt even sooner. Plus allowed me to travel the world while doing so! Not to mention, it ultimately became my full time income and exceeded what I ever made in a job… if you want to learn more about the methods I learned to do so click here.
Step 4: Choose Your Method To Pay Off Debt
When I first started paying off debt, I started making monthly payments on the highest loan which had the highest interest. However, after a couple months, I had hardly made a dent. That’s when I looked at a couple of my other loans and realized that I could have paid them off already with what I had put down on my largest loan.
So instead of paying more towards my highest interest loan, I got a couple quick wins and paid off 2 loans in a matter of a couple months. It felt good to receive that email from Navient that says “Congratulations, your loan is paid in full!’
Later I discovered that this method of paying off the smaller loans before the bigger loans, is known as the ‘Debt Snowball Method‘.
The way it works is, you pay off the smallest balances first no matter what the interest rate is. Then, you simply take what you were paying towards them and add it to the larger loan balance.
The other option is known as the ‘Debt Avalanche’, which is the exact opposite of the debt snowball. Instead you pay the loan with the highest interest rate off first. This makes sense from a mathematical perspective because you’re saving money. The argument is that it can take longer to see success. Which in turn, makes it easier to lose momentum when you’re not seeing results.
Ultimately, you’ll have to choose the method that you believe in most and stick to it!
Step 5: Pay Off Debt By Consolidating
This step to pay off your debt normally requires semi-good credit.
This option wasn’t available to me at the time. However, it’s a great option if you have multiple credit cards with debt and high interest. Or if you would like to refinance your student loans. This option is known as debt consolidation.
Debt consolidation allows you to gather all your debts together and pay them off with one payment each month.
This can be done by taking out a personal bank loan that has low interest. Another option is to contact a debt consolidation company, but beware! There’s a lot of companies out there that do this and end up charging substantial fees. Do your homework before reaching out to any debt consolidation companies.
Final Thoughts
Debt can weigh you down, and put strain on you and everyone around you. Though it may feel like a barrier that you can never move, it is possible to pay off your debt quickly!
Use the steps above to pay off your debt as quickly as possible, so you can become empowered and in control of your future.
Let me know when you pay off your debt, so we can celebrate together!
