How I Started and My Plan to Pay Off Everything
I’m no financial guru. I don’t have millions stashed away, nor the secret to getting those millions. What I do have are mistakes and the lessons I’ve learned from them. I want to explore those mistakes and my plan to rectify them in order to show my path to the debt-free life I want.
Florida, 2020: In order to tell the full story of how I started on my debt-free path, we’re hopping back in time to my college days. In the infant months of 2020, before the scourge of COVID left its mark on the world, I discovered what a budget is.
Not that I was completely unaware of the phenomenon of putting together numbers on a monthly basis to track income and spending, but rather that I was unaware this was something I should be doing. That is until I started watching clips of Dave Ramsey on YouTube.
Whether or not you agree with all the principles of this bald, Southern man, (I personally don’t), I was able to use his philosophy to begin laying a foundation for financial literacy. Having not learned any of this information in school nor from my parents, I absorbed the knowledge like a thirsty plant.
At that time, I didn’t have debt besides my student loans, which weren’t much of a concern to me since I was still in school. My parents were helping me pay my living expenses, but even still, I created my first ever budget. I could feel my brain lighting up as I created tables on my crisp new spreadsheet and my fingers flew across my keyboard as I plugged in numbers.
That spring, I sat by the deserted pool and read Rich Dad, Poor Dad which gave me even more insight into managing my money. Not that I had much to manage, mind you. But it definitely got the wheels turning in my brain about what I wanted my life to look like.
But, as we all know, life happens. Which takes us to:
New York, 2022: After a bad breakup, I quit my job in marketing and moved back home to New York. With my college days behind me, I was looking for a career that would really engage me, but not having much luck. I worked part-time babysitting to help make ends meet while I searched.
Before I knew it, my savings were gone and I needed a car. And I was conflicted. I was trying so hard to find a balance between getting the car I wanted and enduring monthly payments for years versus a cheap car I could pay off quickly. Somehow I was able to justify purchasing a great car for $28,000 that I didn’t have at 11% interest, bringing my total monthly payment to $560 just to try to stay ahead.
For six months I enjoyed my car. I loved the look and feel of driving it. I loved the heated seats and steering wheel through the cold New York winter. But internally, there was a weight crushing me. I genuinely had a hard time sleeping just thinking about how much I owed on that car. When all was said and done, I would have paid a total of $40,000 for a vehicle that was worth less than half of that.
I couldn’t go on like that. My own peace of mind was at stake. In May of 2023 I made drastic changes. I was fired up and ready to go. Having finally reached the point of no return, I got serious about paying everything off and getting out of the jail cell I built up around myself.
I’ve found a lot of freedom and peace of mind in knowing where my money is going every month and just simply having a plan.
I sold my car for half of what I paid for it, and bought a less expensive one for $7000. In order to make this work, I had to take out some loans to cover what I owed on my Charger (yes, a Charger). However, just by selling the first car, I was able to eliminate about $7000 in debt. I won’t lie, it stung a little to say bye to my Charger, but I knew it would have been so much more painful to keep it.
I got a rush, a release of so much pent up stress that I knew I had to keep going. I would commit to paying everything off as fast as possible. I completely revamped my budget and played around with numbers to make sure that I accounted for everything. Around this same time, I started working full-time again and my income went up, relieving a lot of pressure.
I was able to take this new income and start putting it towards my loans. That was almost 8 months ago and I’ve already paid off thousands. I still have a lot to go, but I’ve found a lot of freedom and peace of mind in knowing where my money is going every month and just simply having a plan.
Speaking of The Plan:
In the simplest terms, my plan is to pay off my debt quickly while also saving up as much money as possible. But how?
I have 3 sources of debt: my student loan and 2 car loans. The smaller car loan is the one I’m working on paying off first by putting $1000 towards it every month. I’m also paying the minimums on the other loans and setting $500 per month aside in a HYSA. This is similar to the snowball method.
Once I have that smaller car loan paid off, I’ll split that $1000 payment and put an extra $500 to my savings and an extra $500 to my other car loan. This is only until my savings reach $10,000, then I’ll go back to saving $500 per month and put the other $500 into my remaining car loan.
If your eyes haven’t glazed over from all the numbers, you’ll see that by using this method, I will build up a sizable savings and still have all my debt paid off by October 2025 the latest. Yes, I could hold off on building my savings and pay everything off earlier, but I had to weigh my priorities and felt a balance between saving and paying off debt was the most comfortable for me.
If you’re also looking to start your debt free journey, or you’ve already started and just want some inspiration or need to reevaluate, here’s my advice:
Create a budget
Everyone says this, but it truly is so helpful. First look at your bank and credit card statements to see what your spending habits are. It’s important to analyze and be honest about your spending. Does a majority of your money go to eating out? Do you pay for subscriptions you don’t use? How much is in your savings account?
Once you understand these aspects of your spending, it’s time to put the numbers down. I like using a good, old fashioned spreadsheet, but there are plenty of apps that you can use as well. This is the part of the process where you tell your money where to go. How much for gas? How much at the grocery store? How much to save? How much to pay off debt? It’s important to account for everything!!
You should also take this opportunity to look at what you can cut. Cancel subscriptions, stop going out to eat. Maybe take a drastic measure like me and sell your car to get out of debt and lower your payments. You don’t have to completely stop getting your coffee out if that’s what you want, but your spending reflects your priorities; you can’t indiscriminately buy what you want and still reach all your financial goals.
If you’re not sure where to start, check out The Beginner’s Guide to Budgeting.
Take a Close Look at Your Debts
Lay them out. Student loans, car loans, personal loans, credit card debt, medical debt. Everything you have. Look at your monthly payments, interest rates, balances, and make a plan to pay them off. I think that starting with the lowest amount is very beneficial because it enables you to have that sense of satisfaction relatively quickly. If you have $200 on a credit card, it’s quick to pay off and have your first victory.
(Do not celebrate this little victory by buying yourself a little treat, no matter how tempting. Have someone else buy you one instead.)
Remember to throw as much as you can at that first debt while still paying the minimums on everything else. For some people, it may not be much extra, maybe $50 more per month, but every bit counts.
Don’t get discouraged if it takes a while to pay off your first debt. Remind yourself why you’re going through this process in the first place so that if/when you get in the dumps, you can fall back on that reason to push through.
To Save or Not to Save?
I personally think this is a very individualized question. What works for one person won’t work for everyone else. As for my particular situation, I had no savings at all when I decided to really get serious about paying off my debt. My initial goal was $1000. I think this is a great goal for most people to just be able to get something saved.
From there, I looked at how much I make and financial goals I want to reach in the coming years. I want to be able to move out and buy a home, so getting a jump start on saving made sense to me. I wanted to already have tens of thousands saved up by the time my debt is paid off so I’m not building up my savings from scratch. Plus, having a 3-6 month emergency fund will help prevent me from falling further into the hole.
Credit Where Credit Is Due
When it comes to credit cards, there are a lot of philosophies out there. Dave Ramsey, from whom a lot of my strategy was learned, is a no credit cards ever kind of guy. There are others (Graham Stephan, Caleb Hammer) who recommend utilizing credit cards for points, bonuses, building credit, etc.
My own personal philosophy is that not everyone should have a credit card. They’re just too easy to fall into a trap of owing more and more money each month. You certainly don’t need more than one, so if you have multiple, pick your favorite and cut up the rest.
I do personally have a credit card (sorry, Dave!) that I pay off in full every month. If you are the type of person who has the discipline to do this, I think it’s fine to have a credit card. Many people cannot help themselves, and if you’re one of them, it’s okay. Cash is your friend. Do a test run and put away your credit card for a few months as you save, pay off debt, and refine your budget. You may realize you’re not missing much after all. If you’re not sure, here’s how to find out if you’re a credit card person.
Closing thoughts
Managing your own personal finances is not something taught in most schools or even families. As we come into our own as adults, the burden is left to us to figure out how to manage money. I believe our finances are a matter of personal responsibility and if you’re not happy with how your bank account looks, you alone have the power to fix it.
There are plenty of circumstances that can make becoming debt free more challenging and make it even seem impossible. I, myself, have at points succumbed to the mindset that it’s “just the way it is” before realizing there are actions I can take to get out of the mess I put myself into.
There’s a certain liberty in realizing that you have the power to control your money, and in turn control your life.