Tax season is here and if you’re like me, you probably use this time each year to take a deeper look at your finances. It’s nice to be in a stable and positive financial position, but not all of us are or have always been in a good place. In fact, the average U.S. household carries more than $15,000 in credit card debt and nearly $130,000 in total debt. As someone who has paid off massive amounts of debt twice, I’ve developed a good understanding of how debt happens and what it takes to overcome the obstacles that keep us financially underwater.
In both instances, I fell into debt because I was living outside of my means and didn’t have savings for emergencies. My first experience with debt was a couple of years after college. I was living in an apartment of someone else’s choosing that I really couldn’t afford, and then disaster struck in the form of a car accident. Between those unforeseen expenses and general living costs, I maxed out my credit cards and ended up in about $24K in debt. My second experience was similar, with limited room for error and misguided expectations. I was in a serious relationship where I was the sole provider and the only one earning income. I put everything on credit to provide for myself and my significant other. By the end of the relationship, I was about $15K in debt. While these experiences are both in the past, they left me panicked about money and forced me to get myself out of debt as soon as possible, and implement better money habits to improve my long-term financial health.
If you’re not careful about how you spend and save your money, debt can creep into your life and control your spending. It can force you to live paycheck-to-paycheck, and never have leftover cash for things you really want. The slim margins we provide ourselves get even tighter when unforeseen issues or speed bumps come up. I battled debt and overcame it using a methodical approach combined with hard work and determination, and I now live debt free and love it. Here are four strategies I used to pay off my debt and to maintain a debt-free life:
1. I track my spending.
Paying off debt is impossible if you don’t know where your money is going. If you don’t track your spending, you’re at risk for living way above your means and not meeting your financial goals. Tracking your spending also forces you to determine how to make debt-free living a priority. I use an old-fashioned paper planner and spreadsheet to track my expenses and evaluate trends in how I shop. The meticulous entry of information and tracking acts as both a motivator and a constant reminder. If you prefer a digital approach, there are plenty of apps like Mint and Simple that are great resources for tracking and budgeting.
2. I keep a budget.
Once you start tracking your spending, create a budget that fits your needs. Compare two months side-by-side and average how much you spend on groceries, entertainment, and eating out. Add up how much you spend for everything, and then compare it to how much you have coming in each month. If you spend more than you make, you’ll have to decide what to cut out. For me, I did this by determining which of my expenses are needs and which are wants. (Do you need an HBO subscription if Game of Thrones isn’t currently airing?) Focus on being proactive about trimming back your bills. Cable, phone, and credit card companies will usually give you better rates if you ask. They are interested in keeping you as a customer, so it’s worth it to see how much they’ll work with you to keep your business.
When you set up your budget, make sure to build in a buffer. Unexpected things happen all the time and having a buffer each month can save you from pulling out a credit card in an emergency. I allow myself some extra money for “miscellaneous spending” because things come up, and you don’t want to be forced to forgo buying your mother a birthday present or buying yourself new shampoo when you run out. Also, if you’re the type of person who will overspend if they cut every splurge out of their life, try to plan out some “treat yo’self” expenses beforehand, if you feel like you can afford it. I schedule a massage for myself every month, which isn’t a necessity, but it makes me happy and it fits into my budget. I call this “sanity spending.”
3. I chose to snowball my debt.
In most cases, debt is scattered around in a bunch of places. You may have a car loan, credit card payment or student loans to pay off. While some people prefer to pay down the debt with the highest interest rates first, I found snowballing my debt was the easiest way to make progress toward what I owed.
I started by taking a comprehensive look at all of my debt and the regular payments I made. Every time I had extra spending money —even if it was just $5 — I put it toward my smallest debt. It took time, but once I paid off my smallest debt, I applied the payment I was making to my next largest debt. Eventually, I was paying way over the minimum amount to eat away at my debt, as opposed to just meeting the interest, which allowed me to pay off the debt much sooner. It takes time and discipline, but if you’re diligent, you’ll start to see real change.
[Editor’s note: The debt snowball method is a debt-payoff strategy that TFD does not necessarily endorse over others. However, to learn more about the method and benefits, visit this article.]
After analyzing your income and expenses, you may have to find a source of additional income. I sorted through my old books and DVDs and sold what I didn’t need anymore. Resources like OfferUp or Poshmark can help you declutter your life while bringing in extra cash. Next, I moonlighted in my own industry, working extra hours over the weekend to help bring in extra money. Then I started to do freelance voiceover work on Fiverr. While there are a number of options for side gigs, such as delivering food on Postmates or driving on Lyft, I found Fiverr enabled me to create a brand and start my own business. It allowed me to experiment and grow professionally while offering flexibility and control over my professional destiny. I could work toward paying off my debt and build a business in tandem. And once your debt is paid off, you’ll have a side hustle that you can keep up with for extra income. (If you start freelancing, remember to set aside money for year-end taxes.)
Paying off debt isn’t a mystery; it requires hard work, discipline, and planning. Hard work always pays off, but harder work pays off debts. Be conscious of how you spend your money, track where it goes and eliminate extra expenses where you can. Save an emergency fund so you don’t have to bust out your credit card for emergencies. And as I learned, it’s best to keep following these practices once you’ve gotten rid of your debt in order to maintain your debt-free life.
Redd Horrocks is a Las Vegas-based freelance voiceover artist. She loves cooking, snowboarding, gardening, drinking wine, reading and hiking. She’s a proud fiancé and dog mom.
Image via Unsplash