Between credit cards, vehicles, housing, medical expenses, and families, debt can add up fast. Personally, I have $60,000 in student loan debt, and I only made it through 3 semesters. That combined with everything else, I would estimate my debt is near $75,000. All that said I have found a way to not only reduce my debt but also pay it off in 3.5 years. This is how you can, too.
Know Your Budget and Make a Spending Plan
- Figure out where your money has been going and where it should be going. Take the last three credit card or bank statements you received and categorize your purchases; housing, groceries, eating out, transportation, clothing, insurance, medical, debts, gifts, entertainment, and miscellaneous. This will help you identify where your weaknesses are. I discovered that $100 a month was being spent on eating out alone. Mint.com is a great free resource for sorting your purchases.
- Determine your needs and your wants – nothing in between. For example, I placed the gym as a “need” and eating out as a “want.”
- Your budget should be as follows:
50% on needs (rent, utilities, groceries, bills, etc.)
30% on wants (eating out, shopping, vacations, etc.)
20% on savings (retirement, emergency fund, future purchases, etc.)
- Cut all spending on wants. You get to determine what sacrifices you are willing to make to wipe out your debt. However, the more sacrifices you make, the better off you will be. Use that 30% towards paying your debt.
- Prioritize your debts. You should try to pay off the debts with the highest interest rate first, and make minimum payments on the rest. If you are like me and have a few loans under $1,000 – make those a priority, too. I decided to get them out of the way so they were one less thing to worry about.
Get Organized and Get Saving
- Set financial goals – short (0-3 years), medium (3-7 years), and long-term (7+ years).
- Calculate the monthly amounts needed to achieve the goals you set in place.
- Your first financial goal should be to save $1,000 in one month – even if you already have that much saved. This was a struggle for me because I did not want to save money at all. Things I did:
- Went on a “spend fast” – set very strict needs and wants.
- Worked extra hours
- Sold items I don’t need/want on eBay and Craigslist
- Used DietBet – where you get paid to lose weight
- Squirreled away $1 and $5 from cash purchases – also discovered I accumulated nearly $100 in change since I made a coin jar
- Consolidate and refinance student loans. Look into the possibility of fixed interest.
- com/everygirl is a great place to start – plus you will get $100 towards a payment.
There are hundreds of resources and thousands of ways to reduce debt. If nothing else, just remember that you can get through this. Step away from self-sabotaging thoughts like, “I’ll never get out of debt,” or “I don’t make enough to save.” I am as guilty as anyone is when it comes to that. I am going to give up $75,000 worth of my time and hard work for a degree that does not exist. I had to learn to forgive myself without forgetting the mistakes I have made. That is the only thing that helped me truly appreciate and learn from it. In the end, the sacrifices you make will seem insignificant to the reward that is financial freedom.