The auto shop owner stood in front of me laughing in disbelief that I didn’t grasp my own debt situation.
“You are broke. You have nothing.”
Well, yes, technically I had much more debt than I did income or assets. But broke? I was from an upper-middle class family with a fancy private school education. Surely I wasn’t broke.
And then it hit me. The quizzical look on the auto shop owner’s face said it all: I was responsible for my own life. No one was coming to save me. I was broke, and I had nothing. I was entitled to nothing. It was going to be up to me to get out of this debt and start earning a better income.
Rock Bottom: A Partial Inventory
So how did I do it? This post will explain how I crushed my debt. First, let’s revisit my situation circa 2011 described in my last post:
- At least $21,500 in credit card debt. I am not sure exactly how I got this, but I believe it was from online poker, and also spending more than I was bringing in.
- Taking out loans for grad school at an expensive private university.
- Making $40,000 a year for a part-time job while I was in grad school.
- Living in a condo I bought at the height of the real estate market in 2007.
- Lost my car because of an outstanding class I was supposed to take as a result of a DUI in 2001.
Step 1: Get pissed.
Okay. Nobody gave a shit where I went to school or who my parents were or what neighborhood I grew up in. I had to be my own person now. My debts made me a broke person. But I was pissed. I didn’t want to be broke anymore. I focused all my energy on not being broke, which meant getting out of debt.
For me, it was imperative to get pissed at my debt. It was the enemy. The interest is the enemy. Paying it off is a long, disciplined campaign full of small victories.
Step 2: Get organized.
I had to acknowledge who I owed, in what amount, and at what cost. This meant putting each creditor in a spreadsheet with the balance owed and the interest rate. You can see and download the exact setup I used to organize my debt by clicking this link.
Step 3: Refinance Your Debt.
Once you are organized, find ways to refinance your debt. If you have good credit, this should be easy. If you do not have good credit, don’t worry. Paying off your cards on time each month and reducing your debt utilization will improve your credit over time.
Here is how to refinance three common debts:
- Credit Card: You want to take advantage of 0% introductory and balance transfer offers. Depending on your timeline to pay off your debt, transferring may or make not be optimal. Google “debt refinance calculator” to determine the cost/benefit of transferring balances. You must stop the bleeding on high-interest, large balance debt to pay it off quickly.
- Student Loan: I refinanced over $40,000 of student loan debt with Sofi. I went from over 6.5% to almost 3%. Getting your student loan debt refinanced will likely raise the monthly payment. However, you will no longer be treading water paying interest. You will finally be paying down your student loan fast with a lower interest rate.
- Auto Loan: If you don’t need your car, I suggest you sell it and pay off your loan. Get a bike, walk, or use public transportation if practical. If you cannot feasibly sell your car, look into refinancing with a credit union or traditional lender. You likely did not get the best rate at the dealer.
Step 4: Throw every extra dollar at the highest priority debt.
I viewed this as a war. I wanted every dollar I could spare going to paying down the debt because that was one less dollar the bank would be able to charge interest on. In order to feel confident bringing my checking account balance to zero, I needed to understand my cash flow.
I set up this spreadsheet to understand my outflows and exactly how much debt I could pay off, down to the dollar. The spreadsheet is set up to account for income on the 15th of each month and the last day of the month. It also includes regular monthly expenses. In this way, you can determine how much you can pay off on your debt each month. Make sure to put in the minimum payments for all debts that are not your number one priority. Knock out priority number one (highest interest rate debt) and then keep moving down the list.
Step 5: Track Obsessively.
I looked at my sheet and graphed the total debt number each day. I knew that when I was buying something I was adding to that number. When I refrained from a purchase, I was going to be able to make that graph go lower.
The graph kept me laser focused on my goal. I would get a big dopamine hit each time I made that line go down via a payment. The steeper the better. Tax returns and bonuses were the best because I’d make that line go vertical when the payment cleared. Here is my debt tracking sheet for your use with my actual numbers. Here is the graph from my credit card debt payoff. You can see there were some bumps in the road; it was challenging. I focused obsessively for two years and got it done.
This graph made me very proud (but not as proud as when I started to build wealth and make lines go up instead of down).
Step 6: Increase Income.
I worked my ass off at my job to learn and to be more valuable. I asked for raises each year based on the number of clients I was handling, and when I finished my graduate degrees. Additionally, I looked for other opportunities to make money. Back then (2013), I could go out for an hour and make $40 driving Uber in an hour. I’d make several hundred a weekend. Unfortunately, it’s difficult to do that now because the market is saturated with drivers and rates have plummeted. But the point is, find a way to make extra money while continuing to kick ass at your main job.
Step 7: Don’t Beat Yourself Up.
You are allowed to have fun during this process! Do you think you have to be a hermit and not date? No! I found that being so determined to wipe out my debt was actually an attractive quality. I would show dates my sexy graphs to demonstrate what I was working towards. Cooking dinner in and hikes were great, affordable dates. You can continue to have fun without compromising your mission.
Summary of Steps I Used to Pay Off Debt Quickly
To repeat, the simple steps I took to crush my debt where:
- Get pissed. Make up your mind that you are no longer going to be someone who is broke.
- Get organized. Make an honest accounting of what you owe and at what cost. Prioritize the highest cost (interest) debt and ATTACK it.
- Refinance Your Debt. Get your debts to the lowest interest rates you can by transferring credit card debt and refinancing student loans and auto loans.
- Throw every extra dollar you have at the debt. That’s right! I’ll say it again. ATTACK your debt. Every dollar counts and the battle is to get the debts to zero one-by-one as quickly as you can
- Track Your Debt Obsessively. I tracked my debt balances daily in a spreadsheet. Each time you make the line go down, it should build the confidence that you can do it again and again. Make that line go to zero at all costs. Celebrate each time you make it go downward.
- Increase Your Income. Work hard to make yourself valuable. Find a new job if you cannot earn more at your current job. Get additional work, and remember that no work is beneath you.
- Don’t beat yourself up. Allow yourself to have fun. The past is the past. Use your debt destroying mission to your advantage to boost confidence that you can competently work a plan with focus and discipline.
And once you crush your debt and have pretty graphs to show for it, you can really start the fun by actually building wealth toward financial independence.
The FIIntrovert’s goal is to help 1,000 introverts reach financial independence through his blog. Extroverts and ambiverts are welcome too, but he knows they didn’t need a special invite. When he’s not writing about personal finance and career advice, he enjoys making his wife jealous by spending copious amounts of time with his dog, consuming non-fiction, playing guitar, and skiing.
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