First of all, if you are in college right now, please do everything in your power to keep your student loans to a minimum! I really wish that I didn’t have to experience the story below. Never having that debt would have been much more delightful, for me anyway.
My wife and I had recently gotten married and moved into an amazing rental complex in South Florida. There was a work-out facility, some tennis courts, and a gorgeous pool. It was heavenly, that is, until the bills started coming in the mail.
Somehow it had slipped our minds that once we graduated from college, we had to start paying back our student loans. Between my wife and I, we had $18,000 in student loans plus a vehicle that we owed $7,000 on. Yep, that was a total of $25,000 in debts!
As newlyweds and recent college grads, we didn’t have two nickels to rub together and had no idea how we were going to afford even the minimum payments on these loans (and it was only $75!). Our finances were heading backward and we felt the pressure. We knew something had to change.
1) Have a Reason
Our reason was simple, we wanted to survive! I never saw myself as the next bankruptcy victim, but if we kept sliding backwards into more and more debt, we would have certainly experienced it!
- Begin to hate debt;
- It’s OK to be afraid. It can actually be your fuel to release yourself from financial bondage;
- Begin thinking of a get-out-of-debt reward. For us, it was moving back to our hometown – we really missed our friends and family.
2) Set Up a Budget
This sounds so simple, but I bet 95% of us do not know where every penny of our income is going every month. I know I didn’t. When I set up our initial budget, I thought that we should have had an extra $500 a month, but in fact, we were in the negative. This will take you a few months to figure out.
3) Plan for Emergencies
You can never predict when an emergency is going to happen, but you can guarantee that at some point, one WILL happen. Set aside at least $1,000 in your emergency fund to cover those unexpected expenses. Here are some that we experienced along our debt-free journey:
- Broken radiator (twice!)
- Broken A/C fan (we lived in South Florida, this is a necessity if you don’t want a moldy car)
- Speeding ticket (my fault, twice)
- Flat tire (rode over a nail somewhere…)
If you own a house, perhaps you want to up your emergency fund to $2,000. A water heater alone could wipe out that fund.
4) Make Sure Someone is Holding You Accountable
Since I was married, my wife and I were constantly holding one another accountable. I wouldn’t let her get those $100 pair of jeans, and she wouldn’t let me buy that brand new LED TV that I’d been drooling over. We were a good team.
If you’re single, try to find someone that you can trust and meet up with them once a week. Chances are, if you are thinking about buying some new gadget that’s not in the budget, but you know that you have to fess up to your friend the next day, you are going to pass on that very tempting item.
5) Plan Small Rewards Along the Way
We started out paying off my wife’s student loans first (higher interest rate), and planned an out to eat dinner at Carrabba’s when we succeeded. Boy, when that debt was down to $1,000, we were starting to salivate! It was a great reward for a partial success.
You Can Do it Too!
Let me tell you, it feels great to be debt free, especially in these uncertain times. If you are considering paying down those debts, I would strongly encourage it!
Are you currently making an effort to pay down your debts? Have you hit any roadblocks along the way? What has been your experience?
This article is written by Derek from LifeAndMyFinances.com. He started his journey as a broke college graduate, but has since been able to pay off $25,000 of debt in only a short time. Derek has graciously outlined the steps he took to become debt-free. Perhaps it could help you too.