After being let go from my job at a small New Hampshire newspaper in 2013, I made the decision to move to a city I couldn’t afford and had no savings in, just like any other person facing unemployment.
Everyone has heard the well-known tagline for New York City, “The city so nice they named it twice,” but let me offer an updated interpretation: Everything in this city costs twice as much.
My exciting life as a 28-year-old, college-educated individual in the modern era meant that I also brought along a ton of student debt when I first moved to New York.
“How did I get here?” I pondered, while I attempted to sleep on a couch that wasn’t mine.
Well, it all started when I decided I would go to college. Ah, yes — it started when I decided to educate myself.
In this guide I’ll share the exact steps I took to become debt-free. I’ll also address some common questions about debt payoff, such as how to cut back on spending and prevent debt in the future.
Here’s a sneak peek at what you’ll learn:
- How to identify your biggest spending categories
- Tips for creating a budget that works for you
- The snowball method for tackling debt
- How to live a fulfilling life without breaking the bank
- Strategies for preventing debt in the first place
Ready to get started? Let’s dive in!
Step 1: Take a Look at Your Spending
The first step to paying off debt is understanding where your money is going. This can be a daunting task, but it’s crucial. Without knowing where you’re overspending, you can’t make informed decisions about where to cut back.
Here’s how to analyze your spending:
- Gather your bank statements and credit card statements for the past 6 months.
- Organize your spending into categories. Some common categories include housing, transportation, food, entertainment, and personal care.
- Be specific with your categories. For example, instead of just “food,” break it down into groceries, dining out, and coffee shops.
- Use a budgeting tool to help you track your spending. There are many free and paid budgeting tools available online.
Once you have a clear picture of your spending, you can start to identify areas where you can cut back.
Step 2: Analyze Your Spending
Now that you know where your money is going, it’s time to take a closer look at your spending habits. Ask yourself these questions:
- Which categories are costing me the most each month?
- Are there any categories that are higher or lower than I thought they would be?
- Are there any subscriptions I’m not using or don’t need?
- Can I downgrade any products or services?
- Can I find cheaper alternatives to things I’m currently buying?
By analyzing your spending, you can identify areas where you can save money and free up funds to put towards your debt.
Step 3: Identify Where Costs Can Be Cut
The first and easiest thing you can do is find any obvious places you can cut costs immediately. This could be things like monthly subscriptions you’re not using or don’t need, canceling cable, downgrading a product or service, etc.
Here are some specific tips for cutting costs:
- Cancel unused subscriptions. Do you have a gym membership you never use? A streaming service you haven’t watched in months? Cancel them!
- Downsize your living space. If you’re renting, consider moving to a smaller apartment or finding a roommate. If you own your home, think about refinancing to a lower interest rate or downsizing to a smaller home.
- Cook more meals at home. Eating out can be expensive. By cooking more meals at home, you can save a lot of money.
- Shop around for better deals on insurance. Your car insurance, homeowners insurance, and other insurance policies may be costing you more than they need to. Shop around for better deals from different companies.
- Use coupons and promo codes. There are many ways to save money on your everyday purchases. Use coupons, promo codes, and cashback apps to get the best deals.
You can set aside a significant amount of money to pay off your debt by making minor adjustments to your spending patterns.
Step 4: Make a Plan to Tackle Your Biggest Money Losses
You should be able to identify two to four areas where you’re overspending after reviewing your spending categories. You need to make a goal to cut this down. The idea is to have some extra money each month that you can apply to debt.
Often we get stuck not paying off debt because we believe we’re already “living paycheck to paycheck.” I know my husband and I thought this. But I almost always find by closely analyzing your monthly spending everyone can find places where they can save. It often requires cutting back, making sacrifices, and giving up certain things, so it’s sometimes hard to admit or face. But, these steps are necessary if you truly want to take control of your finances. And, I can tell you from experience that giving up some of these things seems like a big deal at the time but within a month or two you stop missing them.
Determine which areas of your spending are excessive, and make an effort to reduce the amount you spend in these areas so you can apply the money you save to your debt. A portion of this could be as easy as setting up a monthly budget for a particular category (which we’ll discuss in the following step). In other cases, it might be a little different and necessitate a few adjustments to lifestyle.
Maybe you realize your transportation costs are very high between your car payment, insurance, and gas. Did you purchase a car that’s frivolous and has a high monthly bill? Does it guzzle gas and you drive 90 miles round trip to work every day? You may need to consider selling your car and getting something more practical.
Or, maybe you realize you’re spending a lot on shopping. I got a lot of questions in IG Stories about how to stop overspending on “fun” shopping and so I wrote an entire post on How to Stop Overspending. But, a quick suggestion is to identify if you’re overspending on shopping for products/things and then make a goal to cut that back each month. Try to cut it back by 20% one month, then 20% again another month. Another tip that worked for me was to try a “no buy” month. It can help you break your shopping habit. You almost always find that the following months after a “no buy” month you spend less than usual because you’ve sort of reset your shopping habit.
Or, are you spending a large chunk of money on going out to eat for dinners and weekend plans? Dining out can add up very quickly. You may need to shift your lifestyle to accommodate eating out less. If you were eating 6 meals out a week, try cutting it down to 3 and then 2. Force yourself to cook at home more, invite friends over instead of meeting at a restaurant, etc. This can feel difficult at first, but when you stick to it it’ll become easier. You’ll actually find you enjoy time at home more and more as you shift your life to spend more time there. I actually wrote an entire blog post all about why you should stay home more often, if you need some inspiration.
Step 5: Create a Budget
It’s time to make a budget now that you are aware of your expenses and the areas where you need to make savings. I’ll go over the essentials of creating a budget you can stick to in my blog post, but first
Your budget should be category based, just like we did in step one. You should have a set amount to spend for each category. Certain things, such as your rent or mortgage, insurance, etc., are fixed. Since some of these items change every month, you’ll need a reliable estimate, which is why step one is so important. At this point, you should consider the places you’re spending too much money and cut back. Setting a monthly spending cap for particular categories will help keep you more accountable. This is the key to maintaining your budget and finding success.
Obviously, if your goal here is to pay off debt, you want to be factoring in a surplus each month to do this with. Say your net income each month is $2,500, you want to set a budget that doesn’t surpass $2,000 or $2,200 (these numbers will vary on your specific situation) so that you can use that extra $500 or $300 towards your debt each month.
Tips for setting your budget:
- Be realistic: If you currently spend $500/month on groceries don’t say you’re going to only spend $250/month right off the bat. You need to set yourself up to succeed with this budget and unrealistic goals won’t get you there. Start by trying to cut back to $450/month and then $300 the next month.
- Be specific: Setting your budget by specific categories is very important. Being too general will make it hard to stick to your budget and track if you’re doing well or not. For example, don’t say you’re going to spend $450 on food for the month. Break this down. Say it’s going to be $25 for coffee shops, $50 for lunches out, $250 for groceries, and $125 for dining out. This will make it much easier to track and stick to. At the end of the month, you’ll be able to look back and see if you overspent in the food category, which subcategory of food is it coming from.
- Check-in every week: At the start of a new budget
How I ended up with debt
I continued to live at home, paying my parents’ rent, and working a third shift at a gas station in a small rural Tennessee town a few years after I graduated from high school.
I decided I wanted a change. I realized that if I kept going in this direction, I would never be able to lead the life I had always wanted.
Few in my family went to college and my high school didn’t exactly push higher education. I remember my guidance counselor telling a friend of mine to just leave and get a factory job, because college would be too difficult. So, incredibly late in the game, I stumbled my way through the Free Application for Federal Student Aid, or FAFSA, and received some money in the form of grants. My parents couldn’t help me with tuition and couldn’t even qualify for PLUS loans (federal loans for students’ parents who meet certain criteria).
Based on a “estimate” from the college’s website, I took out my first student loan with my limited knowledge.
It’s no secret that higher education is expensive, but I wasn’t prepared for how much my degree would end up costing me. Let’s start with the fact that the basic cost of college has gone up dramatically — in the past 20 years, according to U.S. News & World Report, in-state tuition and fees for the average public national university have increased 221%, while the average tuition and fees have gone up 154% at private national universities.
My Stafford Loans, which I obtained in 2006, had one of the highest fixed interest rates of any federal student loans issued in the twenty-first century. The total made it incredibly hard for me to keep up every month.
My first job after graduating didn’t pay well, so whatever money I made went toward paying my rent or my enormous debt, which consisted of $1,500 in credit card debt, $57,000 in school loans, and the remaining balance on my car loan. Sure, I was more educated (thanks, college!), but I was still ignorant about finances.
I put off paying down my debt for a few years, living off of income-based repayment plans and deferments, since I couldn’t afford it. Without paying my interest, my debt ballooned up to $66,307. (Whether or not Albert Einstein said that “compound interest is the most powerful force in the universe” is up for debate, but whoever did so was right on.) ).
Of course, I wasn’t alone.
Eighty percent of Americans have debt, according to a report by the Pew Charitable Trust. Seventy-three percent of Americans die with an average debt balance of over $61,000, according to a study by Experian and Credit.com. You hear a lot about the 1% but the 20% was always super rich to me.
Thankfully, through luck, connections and a little determination, I managed to land higher and higher-paying gigs. Side hustles became full-time jobs, which led to new career paths — and even more side hustles. I rarely had a day off of work, and if I did, I picked up more work. I was concerned that work would stop coming in, so I sold my car, paid off my credit card debt, and managed to save up a little money.
After I got out of my consumer debt, I wanted to tackle my student debt with full force.
I took a pen and wrote down everything I could about my loans: the initial balance, the interest that was outstanding, the current balance, the interest rate, and whether the interest was variable or fixed. With the use of all of this data, I was able to determine the minimum monthly payment I would need to make as well as the daily interest that would accrue, giving me an idea of the daily cost of my student loans.
It was $11. 76 a day, by the way, so, yeah — that daily coffee seemed crazy expensive at that point.
With all the information I gathered, I plotted a course to pay off everything in two years.
How I Paid Off $70k In 18 Months – Debt Free Journey
FAQ
How to pay off 75k in debt?
How can I pay off debt faster?
Most people like the feeling of being debt-free and, when possible, will pay off debts earlier. One common way to pay off loans more quickly is to make extra payments on top of the required minimum monthly payments. Borrowers can make one-time extra payments or pay additional amounts every month or year.
How do I get Out of debt fast?
If you’re looking for ways to get out of debt fast, but don’t know where to start, Bankrate’s debt calculator can help. With just a few details about your income and debts, our calculator will craft a personalized payment plan, complete with a paydown schedule.
How do you deal with big debts?
Here are 11 strategies from Harzog, Pizel, Nitzsche and other experts on how to attack big debts. Calculate what you owe. List all your creditors, including the minimum payments and interest rates. Plan to attack one debt at a time, making minimum payments on all the others. Some advocate the “snowball” method, starting with the smallest debt.
How can I reduce my debt?
If your goal is to reduce debt, take inventory of your financial obligations, as well as your assets and monthly gross income. This will allow you to see where there’s room for improvement and help you determine which paydown strategy is the best for you. Use this free debt calculator to determine the fastest and easiest way to pay down your debts.