We were making good money but had no idea where it was going. We were in student loan debt up to our eyeballs after financing a good part of two MBAs while living in NYC with two kids under two. Shamefully, we financed our rent, eating out, a full-time nanny, taxi rides that took us only ten blocks, oh you name it – we were paying interest on it.
After graduating and having our third child a few years later, we knew something had to change. The bills kept getting larger, and we had financial goals that we wanted to achieve, but our cash was tied up making debt payments. After taking a budgeting class, we got serious and created monthly budgets. Over the course of two years, we funneled every unspent penny to the bank. Here’s how we paid off over $190,000 in debt.
Month 1: Cut the Credit Cards
The first month we attended a budgeting course, made a final credit card payment of $200 and the rest of our unallocated funds went towards student loans. We were paying the minimum payments on more than ten different loans, ranging from Sallie Mae to Citibank to Discover. We cut up the credit cards and closed the accounts so we wouldn’t be tempted. I heard somewhere that you spend 40% more money when you can swipe, so we did plastic surgery and cut up the cards.
Month 2: Start a Debt Snowball
After we stopped swiping, that freed up a huge chunk of change to add to our student loans in addition to the minimum payments we were already making. We started with the lowest balance and put all the “extra” fund towards it. Some of the “swiping” was for food and gas, so we did have to reduce our eating out quite significantly. As a result, we shifted most of the money we were charging towards our “debt snowball.” It’s a term used when you focus on eliminating one debt at a time by sending in an extra payment above the minimum payment. You keep paying the minimum balances on all your debts, but drill down every unspent penny towards the bill with the lowest balance. This is key, because it builds momentum. As soon as you can see the light at the end of the tunnel for one bill, it motivates you to keep going.
Month 3: Sell the Car
The third month, we really got serious about eliminating debt much faster, so we decided to sell one of the cars. When we first heard the idea we both brushed it off as a universal given that a two-parent working household needed two cars. Period. But we were desperate to get out of debt and selling the car would surge us towards being debt free. We marched into Carmax and sold our Hyundai Veracruz. In addition to getting rid of the car note, we also saved money on auto insurance, gas, tolls and oil changes. The result was an additional $900 ($600 car note, $160 in tolls, $100 in gas and oil changes and $40 in insurance savings) a month to put towards our student loan debt snowball.
Use Savings to Pay Off Debt
In addition to selling the car, we redirected money sitting in savings we agreed was better off going towards student loans. We made sure to keep some savings, but the interest rate we were paying on our debt was HIGHER than the interest rate we were gaining on our savings. So in effect, we were paying to stay in debt. That was a no brainer for us, so we took a wad from savings and immediately paid off three student loans.
Month 4: Keep Budgeting on Vacation
We planned a Thanksgiving trip to Colorado and purchased plane tickets before we took the budgeting class, so we did our best to minimize expenses while on vacation. We made a special “vacation” tab on our budget and created the following categories: transportation (even include airport parking, tolls and checked luggage fees), food which includes groceries and eating out (don’t let airport food prices drain you so pack some traveling snacks), entertainment and souvenirs, lodging and any location-specific items (think winter clothes for skiing or extra sunscreen at the beach).
Month 5: Embrace the Envelope System
We were getting better at budgeting but found that we kept overspending in the food category, so we started using cash. We took out cash once a week and stuffed it into an envelope. It including money for groceries and eating out. The first time we went to Costco is was a real awakening. I shopped like I normally do, throwing items into the cart. Well, if you’ve ever been to a club store you know you can easily rack up $100 of groceries with just a few times. We got to register and as the cashier was scanning items, Hubby mentioned that we’d be over and asked what was I going to put back. Excuse me?! Put back?! Was he serious? There were people in line behind us that would see me ask to take things off. How embarrassing. This was when I realized we were serious about the budget, and feelings didn’t matter anymore.
Month 6: Create Sinking Funds
We quickly realized it was hard to keep a consistent budget when every month something really unexpected happened. It was someone’s birthday, or a baby shower invitation showed up, or the dishwasher broke. We decided to set up four saving accounts each with a specific purpose: gifts, healthcare, maintenance and travel. We set up automatic transfers from our checking account to fund these “sinking funds.” This meant when someone’s birthday came around every few months we had a nice chunk of change already accumulated so that we didn’t need to put another unexpected dent in our snowball.
Month 7: Ignore Your Bonuses
As bonus season approached, we looked forward to completely ignoring our bonuses as additional income and putting them towards our debts. In the past, we splurged during bonus time and made a few big purchases, but this time we earmarked some money for donations and taxes, put a little back into the travel sinking fund and the rest went towards Sallie Mae.
Month 8: Turn off 401K Contributions
At this point, we’d knocked off another student loan, and we were hungry to find more cash to add to our debt snowball. We had reduced everywhere we could find, until one day I was looking at my pay stub and saw I had money going into my 401K. Now, I grew up with the idea that saving for retirement was mandatory, so deciding to turn off our contributions was a BIG decision. We knew it wouldn’t be forever, in fact just one year, and we would continue to receive interest and invest the money already in the account.
Month 9: Open a Joint Account
At the beginning of our journey, we had two bank accounts, and it was hard to keep track of everything when we both didn’t have visibility to the expenses. We pooled our incomes together into one account and used direct deposit from our jobs to fund the account. We paid our bills from this account and set up most of the bills (including tithes) to come out electronically. Once we merged accounts we found a few expenses that were coming out that the other person wasn’t aware of.
Month 10: Ask for a Raise
If you’re performing well on your job (documented by excellent marks during a recent review), and you have a major project that you just nailed, it may be a good time to ask for a raise. When this combination occurred I asked for a raise, and to my surprise, I received one!
Month 11: Start Using EveryDollar
Summer rolled around by this time, so our child care expenses went up for summer camp. We also switched budgeting software and started using EveryDollar. It allowed us to link our bank accounts so that we could drag and drop cute little icons to file each expense. We didn’t have to keep track of receipts anymore which made for an easier budget review. We had monthly meetings where we adjusted the budget and reconciled our spending. If we went over in one area, we reduced a line item somewhere else.
Month 12: Splurge A Little
In our pursuit of debt-free living we had already cut corners everywhere. We were renting videos for free from the library, we still had no cable, and we were packing our lunches. But some time this month, I’d decided it was time for a little break. We bought some furniture for the kids room and it was a nice treat.
Month 13: Keep Tithing
You may wonder if it makes sense to give when you’re trying to spend less, but for some reason the equation worked for us. When our hearts were open to give and be good stewards, it helped us keep a generous spirit which is always better in the long run.
Month 14: Stay Home & Unsubscribe
After over a year of strict budgeting and sacrifice, we were really picking up speed. We realized that when we stay home we tended to spend less. When I was out running errands it was easy to rack up a few hundred dollars between Target and Costco, so I stayed put a lot more. It was also much easier with one car. When we reached the end of the gas budget, we literally stopped going places. Another huge way to decrease your spending is to unsubscribe from every store email loyalty program you’ve signed up for. If you’re bombarded with marketing campaigns and pictures of beautiful things you may want, you’re more likely to make a purchase.
Month 15: Negotiate Bills
I finally started using the art of negotiation. When our internet service provider’s promotional period ended, I immediately called to cancel. They transferred me to the retention department, where I informed them that the new amount was outside of my budget. They were able to extend the promotional period another year.
Month 16: Set a Significant Purchase Limit
Hubby and I set a spending limit, and anything above that number we put a few guardrails in place. We set our significant purchase limit at $100 which means we need to chat about the purchase before it can be made and wait 24 hours. One evening, while I shopping for a black evening gown for a corporate gala I found the perfect dress AND it was on sale. Of course, it was more than $100, but I figured since it was related to work I would side step our rules. I snapped a photo in the dressing room and texted it to Hubby, and he reminded me that we agreed to have a budget committee meeting for these instances. I was ready to leave the mall with the dress in tow. Extremely reluctantly, I left the only remaining dress in my size at the mall, and the next morning after our budget meeting (we ended up moving some money from Dry Cleaning that we weren’t going to spend) I hustled back only to learn that black dresses were an additional 10% off that day. Sticking to the plan saved us even more money again.
Month 17: Say No to Some Really Fun Things
When Beyoncé came to Dallas I was so excited. A group of coworkers were headed to see her, and they wanted good seats. After they told me the ticket price, I disappointedly shared that it was waaayyy too expensive (plus it would require a budget committee meeting and I really couldn’t justify $300-$400 on a concert when getting out of debt was our top priority). We were also approached to join an exclusive parenting association, which after learning the dues were in the thousands, we also said no to. We even declined to attend two weddings that we really, really, really wanted to go to.
Month 18: Give the Kids a Budget
The kids even had a line item on the budget. They had $25 every month to spend on whatever they wanted. If they were invited to a birthday, they had $25 to select a present. If there was a really shiny new toy all three kids wanted, they had to collaborate to determine who got what.
Month 19: Don’t Listen to Everyone
People will tell you that you’re crazy, that it doesn’t take all that. That you should be doing this or that with your money instead. But keep your head down and stick to the budget.
Month 20: Use the Frontage Road
When you’ve shaved off pennies everywhere you can think of, you can still find more ways to grow your debt snowball. We still didn’t have cable since air antennas and Netlix were so reasonable, so we started taking the frontage road instead of the highway to save even more. In Texas, we have tolls and at one point we were spending $240 a month on tolls. Every dollar counts! We also reviewed our insurance policies and adjusted them. We were able to increase our deductible, which resulted in a lower monthly bill.
Month 21: Do Your Own Nails
There were a few ways I liked to pamper myself, and one was getting my nails done. This habit could run upwards of $80 a trip for a manicure, pedicure (with extra message time) and tip. So, I decided I would do my own nails weekly. They ended up looking better than the salon, and for the price of one manicure I could purchase several different nail polish colors.
Month 22: Shop Second Hand
When back-to-school shopping came around, I refused to pay store prices for clothes the kids were going to stain, lose, or grow out of in the next ninety days. Instead, I marched into the nearest consignment store. I learned I could drop off gently used clothes for a store credit and then shop to my heart’s content. I ended up spending $50 on back to school clothes and got everything we needed from the consignment store. Oh, and the kids had no idea they were wearing used clothes.
Month 23: Stop Saying You Deserve This
Throughout the entire two years it was really easy to say, “I worked hard, I deserve this purchase.” But that mentality will keep you in debt. We were excited to “deserve” a debt-free life, so we elevated the importance of sacrifice for these twenty-four months.
Month 24: Finish Strong
The last debt payment was really big, but it was worth it! Other than basic necessities (food, shelter, transportation and utilities) we did not spend a dime. After we sent in the final payment, we hosted an “In the Black” party where we toasted to no longer being in debt or being “in the red.” We invited all the nice people who gave us rides during the two years, and we had a chance to thank everyone that played a role on our road to paying off a total of $190,698.17!