Happy Friday friends!
Today, I’m sharing a post that I’m probably most frequently asked for: How I got out of debt.
A Little Background:
For one reason or another, as I started my career, I found myself $30,000 in debt.I lived by myself, in my own apartment and was a full-time figure skating coach (so, like an independent contractor). I decided to address the debt and over the course of 2 years I paid off $30,000.00 with the majority being paid off in the second year. I receive so many questions from friends to explain how I did this that I thought I would write a post about it and share the steps I took to figure it out. I didn’t have the #debtfreecommunity (oh, how I wish I had!). I did have books by Gail Vaz Oxlade whose practical advice was invaluable.
Let’s talk more about my journey to financial health, and hopefully you can find some tips to help you get through this too.
Step One: Budget
I created a budget. I know, I know, I talk about this all the time. But this budget was probably the very first budget I made for myself and it was bare bones to say the least. I started with my ‘must have’ expenses:
Housing: I found an apartment that was incredibly close to the arena where I worked, and it included heat, hydro and underground parking, and it was CHEAP.
Transportation: I didn’t have a car payment, but a large insurance payment a month. And a monthly gas payment that I had cut massively by moving so close to the arena.
Groceries: I needed to eat.
Access: I needed Wi-Fi for business and because… well I’m a lover of the internet.
Phone: I needed my cell phone for work.
That was it. I added up how much it would cost to keep me housed, fed and with what I deemed to be the bare necessities in life. And then I did step 2.
Step 2: Save For the Next Month First.
I later learned this was called “aging money” from ‘You Need a Budget’, but to me it was just ensuring I had enough money in the account to pay the next month’s bills before I started tackling debt repayment. Being a figure skating coach meant I worked with many different skaters who were invoiced monthly. A parent could chose to pay me the day after billing –like on the 2nd,- or wouldn’t pay me until the 29th. I needed to ensure that there was enough in the account to cover myself in case a larger payment wasn’t received until the end of the month. Basically, I would always be a month ahead. This was especially important in the summer months when students went away on vacation and the rink became quiet. I needed to make sure I was able to survive during the lean times. This also gave me a number that I had to shoot for during the months when times were tough. I had to figure out a way to bring in the bare minimum.
Step 3: How much debt do I have
After figuring out steps 1 and 2, I sat down and figured out everything I needed to know about my debts. Luckily I only had two (a credit card and a line of credit) to deal with. I started by tackling the credit card since it had a higher interest rate, and it was also the lower amount, so basically combining the debt avalanche and debt snowball methods.
After I figured out which one I was going to get rid of first, any income that was left over from my budget was thrown at the debt. Everything. Some months, this was $2,000.00 and others it was the minimum payment (summer). I developed a spreadsheet to keep track of the debt repayments and keep me motivated to reaching my goal. When I reached big goals like paying off the first debt or taking a chunk away from my line of credit, I would print it off to share with my parents.
Step 4: Living that budget life
It was during this time when I become obsessed with ways to cut costs and find more money to save on everyday expenses and dedicate to debt. Here are some ways I found to cut costs:
I started grocery shopping at Walmart, which I found to be much less expensive than larger grocery store chains. Dave Ramsey talks about eating beans and rice, and to be honest that was my food of choice! That and Kraft Dinner and cheesy rice that you could make in the microwave.
Meal planning and bringing leftovers to the rink to eat became a necessity. Also Tim Hortons gift cards that clients gave me for holidays. Those were game changers lol
Dinner out meant an appetizer, splitting a meal with a friend or the cheapest option on the menu.
I didn’t buy any clothing I deemed unnecessary. I needed a winter coat and snow pants, everything else was secondary.
I found an amazing mechanic that worked right beside the rink who would give me advance warning if something had to be replaced. And, by advanced, I mean 6 months before it had to happen. I wasn’t shy in telling him I would need to save for any large repairs that had to be done on my jeep and he was happy to help me plan. This allowed me to stash money away for upcoming purchases that would need to be made.
I happily accepted help wherever I could get it. Monetary gifts from my parents or grandparents went towards food or debt depending on the month. I would “shop” at my parents’ house for household furniture and old knickknacks they no longer used. One student’s parent that I worked with was a dentist and gave me deals on my dentistry and helped me plan for future dental costs (as an independent contractor I didn’t have a dental plan). Another parent bought a new Mac desktop computer and graciously gave me her old one (I named the computer Susan). One parent always brought me lunch to the rink when I taught her son, along with other small gifts. Another parent was a lawyer and helped me maneuver through a few things (that’s another conversation.).
I found an amazing accountant. I found Mark Feldstein. Mark helped me address tax issues. When I first met Mark, he joked that I was basically working to pay for my car insurance, lol, which wasn’t far off. Finding an accountant I could honestly talk to was key to my financial stability.
The Rest Is History
And that’s it! Some months I slowly chipped away at my debt (especially in the first year when I was establishing myself at the arena) and other months, I made large payments towards it. Slowly but surely one debt and then the other disappeared. I learned how to control my money. I learned to make purchases based on the amount of time it would take me working to pay for it. I learned what is a ‘need’ and what is a ‘want.’
The #debtfree journey isn’t just about finances. It’s a journey of self-discovery: of finding out just how hard you can attack something if you have the ambition to do so.
When you decide to become debt free, the warning label should read:
Warning: Becoming debt-free may cause financial freedom, increased health, self-love and self-awareness. This path may (will) lead you to self-discover- that is beyond everything you anticipated.
You can pay off your debt and completely change the path your life is on. All it takes is a decision to change, a plan and drive.
You can do this.