Let me just start out by saying that I seriously hate debt. Yes, hate it. But I didn’t realize how much I hated debt until it slapped me the face. Let me break it down.
I am a millennial. I graduated high school, went straight to college and got a job right away.
I worked hard. I knew that I wanted to work as a Critical Care Nurse at a Level 1 Trauma Center and I knew what I had to do to get there.
My parents didn’t pay for me to go to a University so I worked hard on my grades to earn a scholarship to a junior college.
While at junior college, I continued to work hard on my undergrad courses while holding a part-time job to pay for my books, gas, and food while at school. I also volunteered, a lot.
I earned a scholarship to go to the University of Arizona College of Nursing, one of the top colleges for nursing at the time. I focused on my courses while I held a part-time job at a hospital.
Once I graduated college, I still had student loan debt, $15,000 to be exact. But I didn’t have to start paying until 6 months after graduation! Sweet! Well, that’s where I began to get into trouble.
Bare with me, I’ll get to the good stuff soon.
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How I Got Into Debt
I moved out with my boyfriend (now my loving husband) soon after graduating once I knew I had the job.
Shortly after moving in, and a few weeks into orientation, I found out that we were expecting! Whoa! While it was semi-planned, it still was earlier than I expected.
All of a sudden, the future new mom in me decided that I needed NEW everything. New couches, new TV console, new dishes, new car. Yikes!
I didn’t have money for all these new things but I DESERVED them! I mean, I worked hard all those years, why not treat myself to a shiny new TV and living room set, am I right?
There I was, digging myself into debt.
I applied for an Ashley Homestore credit card and I was approved, go figure. Credit card companies LOVE new grads!
When my son was born, I financed a brand new car. More debt. A new TV on the Best Buy credit card? Yup, more debt.
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The Debt Kept Adding Up
Fast forward 3 years, I found myself scrunched for money. I made a lot of financial mistakes because that’s what “normal” people do. They take out loans and put it on credit when they don’t have money.
We bought a house, did the standard 30-yr fixed rate and there I was again charging that Ashley’s card for a new king-sized bed. Add that to a brand new 60-in Smart TV on the Best Buy card.
For Christmas one year, I bought everything on my Best Buy credit card because I was lazy and didn’t want to shop around.
I stopped paying my main credit card in full like I used to. And I started to miss payments causing me to waste more money.
One month, in particular, I didn’t have money for groceries! I had to wait for my next paycheck.
I never thought that I would be living paycheck to paycheck, but I did and it felt horrible.
It seemed like once I let the debt start piling up, the more freely I started spending without knowing that I really couldn’t afford it.
It seemed like my money was spending me. I wasn’t poor, but how the heck was I broke? I knew I had to take control.
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What I Finally Did to Start Paying Off Debt
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I googled and went to Pinterest to search for tips for saving money when I came across Dave Ramsey. If you’ve never heard of this man, I highly recommend you look him up.
He has a book called The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness. It’s a good read and very encouraging.
Basically, Dave takes you back to the basics of finances and budgeting. If you don’t have the money, don’t buy it. Period.
As easy as it is to say and write, it is VERY difficult. It takes a lot of discipline which most people lack these days because everyone thinks they “deserve” something. Stop it.
Dave gets very detailed about his baby steps in his book and he offers a ton of resources in his Financial Peace University. If you don’t have one available in your town, you can purchase the DVDs and watch them at home with the Financial Peace University DVD Home Study Kit.
I haven’t taken his course but I hear great things about it. I will summarize his baby steps below to get you started.
How to Start Paying Off Debt with The 7 Baby Steps
Baby Step 1: Save $1,000
This will be your emergency fund when you know, emergencies happen like you need new tires after a blowout or something similar.
In my experience in my own finances and helping others with their is that $1,000 doesn’t quite fit for everyone.
This amount will vary depending on where you live, the kind of lifestyle you have, and the resources available to you.
I always tell people to research what a typical emergency would cost in your area. If you happen to need new tires, will that cost $800, $400, or $1200? If your battery stops, will it cost $80, $150, or $300?
Do your research ahead of time an you will be more prepared.
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Baby Step 2: Pay Off All Your Debt Except Your House
The debt snowball is a popular method for a fast-paced and streamlined way to start paying off debt.
In a nutshell, you will begin paying off the smallest debt first. Once that debt is paid off, you will apply that money toward the next debt (plus what you were already paying to keep it current).
What will happen is your payments will get bigger and bigger and the debt snowball rolls.
I used this method to pay off all of my debt within 2 years, on one income, and still enjoyed a maternity leave (that I saved for).
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Baby Step 3: Save 3-6 Months Worth of Expenses
This will be your larger emergency fund, or cushion if you or your spouse happen to lose a job or have unexpected medical bills.
It is meant to be your fallout for large unexpected life events. A job loss, a death in the family, an injury preventing you from working can cause some serious hardship if you aren’t prepared.
What may seem like a tsunami to some, may feel like a small rainfall to someone with a beefed up savings.
Some jobs are easier to replace than others. If you work in a field where job security may be scarce, then you should save more money. Some experts even suggest saving up to 9 months worth of expenses.
Baby Step 4: Invest 15% into Retirement
You want to retire comfortably right? Do you really want to work when you’re retired?
Dave suggests saving 15% of your income for retirement. A lot of people think that this amount is huge, do me a favor, add up all of your debt. How much percentage of your income goes to your debt?
Probably more than 15%, right? If you get paid $4,000 monthly and have a car payment of $395, that’s 10% already. Then you probably have your student loans and some credit card debt, am I right?
All that money you were putting towards debt can now go into retirement. You’ve already made the sacrifice of adapting to a frugal lifestyle so don’t succumb to the lifestyle creep or you might find yourself back where you started.
Baby Step 5: Save For College
Saving for college is one of many parents’ dream. Here, you can turn your dream into reality.
Steps 4, 5, and 6 can be done simultaneously. There really is no right or wrong way to do it. Some parents even decide to forgo college savings until the house is paid off using aggressive savings techniques.
One of the ways that you can start saving for college is to open a 529 plan. Take any extra income and apply it to your tax-advantaged account. Not only are there multiple tax benefits to having a 529 plan, but you also have the ability to grow your account even faster with earned interest.
Baby Step 6: Pay Off Your Home Early
By the end of my current loan, I will have paid over $400,000 for my home!!! That is crazy considering the original loan amount of $160,000.
Interest. Interest. Interest. Paying your house off early can obviously save you hundreds of thousands of dollars.
Once you are debt free, you will be able to start chipping away at your mortgage so that you can pay it off in 10 years, 7 years, or even 5 years if you are determined and aggressive.
Baby Step 7: Build Wealth and Give
With no house payment, no debt, and a large cushion to pay for any emergency, you will have way more money left at the end of the month to do whatever you want!
You can decide to invest your money to build wealth faster than you’ve ever thought. Or you can decide to donate your money to the charities and people you believe in.
Dave Ramsey always says, “Live like no one else, so you can live like no one else.”
The Reality of Dave Ramsey’s Method
Dave Ramsey talks about how you need to go all in. I will admit that making certain sacrifices is a lot harder than you think.
I still “cheat” here and there but life happens right? It’s all about having balance. Take it slower if you need to but know that you could be debt free a lot faster if you dive head first.
My debt story is a bit different than the ones you will hear. I don’t have a miraculous story of how I paid off my $300,000 house in 3 years. I didn’t pay off $78,000 in one year.
I didn’t make extreme choices like sell a car, or sell my house. I didn’t move across the country. And I didn’t drop off the planet.
I was able to take vacations, enjoy my kids, and live my life all while paying off debt and reaching financial freedom. You can too!
If you’d like to read The Total Money Makeover for yourself, you can purchase Dave’s book here. It definitely gave me the insipration I need to change my money money mindset.