Paying Off Debt

In my opinion Baby step #2 is the most challenging but trust me it will all be worth it when it is all said and done.  Once you complete this step you will be well on your way to financial independence.

My Story

I accumulated all of consumer debt between the ages of 18 and 23.  I received my first credit card during high school, this meant I was a cool young adult right?  I’m pretty sure my mom co-signed for my credit card and was told to only use it for emergencies.   I listened of course and only used it for emergencies but it wasn’t long after that I started to receive my own credit card offers and that’s where it all went downhill.  No college savings meant (4) student loans.  Then came the grown up job after college which meant I had to look the part and get a new car.  The only “smart” thing I did there was finance it through my credit union which ended up “saving” me money on interest.  Of course I use the term smart loosely, very loosely.  Here’s a breakdown of my debt:

  • Student Loans – $10,000
  • Credit Cards – $7,000
  • New Toyota – $19,895

I remember having a conversation with my younger sister about my credit card debt.  Her solution: take away all my cards (credit and debit) and get me on a cash only budget.  My YOUNGER sister had to take hold of my cards to keep me from spending, this is already embarrassing itself but go ahead and add to the fact that I was majoring in accounting.  Pretty sure money management  is something I am supposed to be good at.  So embarrassing!!  Without my credit cards in tow, I now had to pack my lunch for work and could no longer go clothes shopping unless I had actual cash set aside for this.  If I ran out of money then I was toast and had to wait until my next paycheck.  This cash budget enabled me to payoff the $7,000 within 2 years.  That sounds like a long time and it is but at the time I was an intern at a CPA office working about 15-20 hours per week and money was pretty scarce.  I didn’t start paying on  my student loans until AFTER college (well that was stupid), since they were subsidized I figured I had a whole 6 months where I could “save” the money.  Till this day I have no idea where that “saved” money went, pretty sure I spent it on stupid stuff too.

Right after college I started working full time with a decent salary and that’s when I discovered Dave Ramsey.  Dave is a strong advocate for used cars however that didn’t stop me from buying my brand new Toyota.  Sigh.  The payments on these loans where annoying and I finally got fed up with it and managed to pay them all off by the time I was 28.  That’s 5 years!! I know it too sounds like a long time and it is, however, during this time I was saving money for my first house (another stupid mistake).  I should have listened to Dave:  payoff your debt, buy a used car and then save for a house.  Live and learn!  And so this is why I’m sharing this with you.  I have already made these mistakes so you don’t have to.  And if you have already made them then know that there is a way out.

The Plan

First thing  you need to do is make a list.  You will need all your debt (except your home) with balances, minimum payments and interest rates.  Write this down on a list so you have a visual picture of what you actually owe.  I had no idea I was $37.000 in debt until I wrote it all down, it was not a good day for me.  Dave recommends you pay off the smallest balance first and then work your way up, his reasoning is that this will keep you motivated as you will start to see some of you debt disappear.  This is the Debt Snowball.  Others choose to pay off based on interest rates, the loan with the highest rate is first to go, this is know as the Debt Avalanche.

Personally I have used both.  I started by paying off the smallest balance first which were all credit cards (I had about 7 cards) then switched to the avalanche method for my student loans and car loan.  Discuss this with your spouse (if you have one) pick one and get started.  I don’t care which one you use so long as your debt is paid off.   As you start paying down your debt, you will be able to roll money that was going to pay off credit card #1 into credit card #2.  So now your monthly payments towards credit card #2 are twice as much and you will be paying off debt at a much faster pace.  Pick a debt that you want to tackle first and send in as much as possible every month then make the minimum payments on all other debts.

Dave recommends cutting up your credit cards.  Since my sister held mine hostage for a long time, I never cut them up.  Now I still use my credit card to pay for expenses (convenient plus travel miles) but I pay this card off every week and I never carry a balance on it.  Dave would NEVER advise that you do this, he wants you to get rid of your cards once and for all.  You don’t need to hold onto them in case of an emergency because you already have your emergency fund for that.  Be honest with yourself and if you think you cannot handle these cards then close the account and cut them up.  There is no sense in working so hard to pay everything off only to fall back into old habits, if it’s tempting, get rid of it.  Looking back if my sister had not taken my credit cards hostage I know 1000% that I would have kept using them and I would probably still owe Chase money today.


How long this will take is dependent upon you .  Do you budget?  What is your monthly income?  Are you willing to pick up a part time job?  What do your expenses look like?  Budgeting is the number one thing that will determine how much money you have left over at the end of the month.  Make your budget and stick to it.  Paying off your consumer debt may take months or years depending on how much you owe.  Rest assured, the light is at the end of the tunnel and you will get there with perseverance.

How long did it take you to pay off your debt?  And if you are still working on it, how long have you been paying?

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