After work you want to go back home, have a bite to eat and relax don’t you?
I do as well; even when I have to do the cooking and the clearing out.
It was not to be one dark and wet November evening in 2009. We were at the dinner table when it hit me: I was done feeling worried about money; I was done looking at the patched kitchen ceiling (don’t even want to go there) and I was done…well, I was done!
What did I do? I had a tantrum: a spectacular explosion of unfocused anger and frustration.
As tantrums go, this was a productive one. Usually, they just make me feel better; this tantrum at the dinner table is the reason we are debt free today.
It made my husband add up all consumer debt we had; yes, it was all on his credit cards but our finances are, and have always been, joined. As to the overdraft, I hadn’t looked at our bank account for close to a decade.
Couple of days later, I’d forgotten all about it. We were having dinner and between the main course and the dessert, instead of serving sorbet, my husband put on the table our consumer debt; all $160,000 of it.
What debt feels like
Now, some personal finance writers compare debt with running a marathon. My experience of marathons is the apprehensive excitement at the beginning, the measured pace and good cheer before 17 miles, and the mad single mindedness of the last three-four miles. Then there is the euphoria of crossing the finish line and your body screaming for food.
Debt is not like that! Debt is more like standing at the top of a difficult ski run, feeling terrified and knowing that you have to go down somehow. All the while your head is screaming ‘…there is no way I can do this…’.
There is no choice: standing at the top will hurt you more than getting down.
This is what having an obscene amount of debt feels like!
We got down the slope; paid $160,000 worth of consumer debt in three years and have been debt free for over a year now.
People ask me how we did it. I can tell you that we:
- started spending less than we earned;
- learned to control our spending;
- increased our income by hustling like pros;
- kept to a budget…
We did all that. Anyone who has ever paid off debt does that.
I’d rather tell you about the things that made it all possible; I’d rather tell you about the five steps that changed our debt from ‘a predicament to be suffered’ to ‘a problem to be solved’.
You know, to be able to pay your debt off – and do it fast – you have to accept it.
I’m not talking about the fatalistic acceptance of a cult devotee. The acceptance I mean is more like that transformative, hard hitting stare in the face of an addict.
I struggled; I raged; I raved!
I cried in the night; I saw us all in a debtors’ prison (no, there is no such thing any longer); I thought my life had ended.
Then one morning, couple of weeks after hearing how much debt we had, I woke up and thought that enough is enough.
Then I acted!
I’ll never tell you it’s easy; to accept your debt means that you can’t continue blaming others and you’ll have to accept many things about yourself. You have to read and learn, research and plan.
Still you have to accept; because with acceptance reason returns.
2. Reason, thinking and planning
Once you have accepted your debt, it is time to decide how to tackle it. I can’t help you here – how you tackle your debt depends on your circumstances and on what you feel comfortable with.
What all people I know have paid off their debt share is that they:
- Figured out exactly how much they own and who are their creditors;
- Took stock of their income and net worth;
- Got to know what their options are; and
- Worked out an actionable plan to pay it off.
Any plan that will make you act can work. We, for example, chose to consolidate debt and took a large loan to pay off the credit cards. Some say this doesn’t work; it worked for us. Do you know why?
Because we had accepted our debt and committed to paying it off. We had a plan and we acted on it.
What you have to realize is that at some level being in debt is a matter of very simple arithmetic – if you spend more than you earn you’ll be in debt.
Your first task on the way to paying off your debt is to start spending as much as you earn (including debt repayments). This I call stabilization.
Nine times out of ten, stabilization is a matter of reducing expenditure. So look at your spending and look carefully: most people will claim that they simply can’t spend less. They are wrong!
To spend less – be it on food and everyday items or insurance, bills and accommodation – you have to look at your spending and ask yourself:
- Is there any waste I can target?
- Is there any replacement possible?
- Is there any reduction necessary?
Tackle these three questions honestly and with ingenuity, and you are likely to end up spending hundreds, if not thousands, of $s less per month.
When we ‘stabilized’ we moved from over-spending by about $3,000 per month to being able to save $800 per month (and make debt payments).
Once you’ve settled into the ‘stabilized’ budget you’ll have to accelerate the debt repayment. Why?
Because to pay off your debt fast – and save paying loads of interest – you have to get to the middle of it really fast. After you halve you debt you start paying off less interest than principal (if you are paying off a loan).
Accelerated payments can come from further reduction of spending but I won’t recommend it: overdoing the saving can make you resentful, deprived and ultimately a ‘debt repayment failure’.
Once you’ve stabilized your budget, it is time to think about ‘side hustles’ – how much you can earn on top of your regular income?
We ended up increasing our income by over 25% by the end of year two of debt repayment. It came from consultancy, blogging and writing.
I know that if I failed to get writing gigs I would have stacked shelves in a supermarket, cleaned premises and waited tables. I was just lucky!
5. Cross this finish line!
Just don’t give up, right!
Giving up is tempting; particularly at the end when the debt is almost gone. Don’t stop before it is all gone.
Then celebrate! Let out the joy and relief because you did it!
That’s it! Now you know my secret; the rest is a matter of technicalities you probably already know.
Take it as a present to build an abundant future! Are you ready to make your debt into a problem?
In addition to having paid off $160K in consumer debt, Maria is the blogger behind The Money Principle, where she shows smart people how to win the game of wealth by learning and acting. Her brand of money management comes with a side dish of logic, analysis, sociology and common sense.