In my earlier twenties I received my first credit card. As a college student, working full time to pay my way through college, I still didn’t make enough to cover my books and tuition. I qualified for student loans and took advantage of those as well, adding to the debt I was already creating. By my last year in college I had close to $40,000 in credit card debt and $60,000 in student loans. I admit, I wasn’t smart with my credit cards. I went shopping for clothes, I couldn’t afford at the time. I went on trips, all on plastic. I got my hair done, ate out, got gas… everything on the card. Soon I couldn’t afford the minimum payment, which the interest was causing that to increase at an alarming rate. I had never been educated on debt and coming from a childhood of having nothing, being able to shop was exciting to me- until I had a breakdown. I remember sitting on the bed with all of my statements, bawling my eyes out and then deciding it was time to do something about all my debt. I contacted a credit counseling company and worked out a plan with them. For a small fee, they reduced my interest on most of my cards, consolidated my payment and for the next 8 years I paid them about a thousand dollars a month until the credit card debt was all gone. What a great feeling it was, to make that last payment! I still had my student loans and a line of credit I kept (they allowed me to keep one card), but the $40,000 I had hanging over my head , was gone.
Here I am, ten years later and I still have my line of credit and student loans, plus a Jeep payment. I think I have been comfortable having a little debt, for it hasn’t bothered me as much, since it has been manageable. Each month I make the minimum payments and have money left over for saving and spending. But, just recently, it hit me: I could have so much more freedom, being debt free! I could take a job that pays less, but maybe is more fun. I could travel to the places I say I want to go to. I could work less. I can save up, so I can retire early.
By being debt free, I could pay for my future, rather than my past!
This time around, I do not need the help of the credit counseling company. I know what I need to do and now it is finally time to do it. Starting with the line of credit, that I have had since my early twenties, I am tackling it full force and paying it off! Any extra money I have, after bills, savings and my three cash envelopes (food, fun and spending) will go towards that line of credit. Once that is paid off, I will attack the Jeep balance and then my student loans. My goal is to be debt free (besides the house, which will be tackled last) by time I am forty, which is in 3.9 years. The debt totals around $90,000 between the 3, making it about $30,000 a year; which is actually doable on my salary. If you need help with paying off debt, I found Dave Ramsey’s Baby Steps a good place to start:
- Baby Step 1 – $1,000 to start an Emergency Fund
- Baby Step 2 – Pay off all debt using the Debt Snowball
- Baby Step 3 – 3 to 6 months of expenses in savings
- Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
- Baby Step 5 – College funding for children
- Baby Step 6 – Pay off home early
- Baby Step 7 – Build wealth and give!
Baby steps is doable for me. I like to be social sometimes and being totally deprived of life, won’t work for me. Last night I went out with girlfriends and looked at the menu to find something in my budget. I went with a cup of tortilla soup, that was $7, compared to the $25 carne asada everyone else got. I was full after my cup of soup and every else complained of being too stuffed. Maybe, being on a budget will help with my fitness goals as well! When one of the girls talked of a weekend getaway, costing about $350 a person, I thought, even though it sounds fun, it doesn’t align with my goals right now.
Deciding to be debt free is a tough decision. It demands commitment and better choices. But, I see the freedom that it can give me and the lifestyle I want, so I am going for it!
What ways have you found to pay off debt or become debt free? I would love to hear it! Please comment below.