How I Became Debt Free to Live the Life I Want

In 2010 my debt was at an all time high of $81,500. Today I am excited to say that my last big cheque gets cashed and I will officially be debt free. 😀

There have been a lot of lessons learned from how I got into debt and how I managed to dig myself out of it. I can’t say I feel I have a lot to show for all this debt and that makes me sad. A lot was frivolous spending, not thinking things through and basically just poor money management. Hopefully you can use some of my struggles to get yourself on track to become debt free as well. 🙂

 

My breakdown of debt is as follows:

Around $5000 on credit cards

$31,500 car Loan

$45,000 loan/line of credit (2 schools, failed business, random stuff)

How I Got My Crap Together

With all of these debts, I was paying the minimums needed except I tried to pay more than the minimum on the credit cards. After my expenses were taken from my pay cheques, there was not much left for basic things. This kept me in the hamster wheel of not being able to move any faster than the debt and my pay allowed.

The fall of 2011 I finally decided I wanted to change my life and for me to do that I had to focus on paying my debt off. The relationship I was in had ended and I had just come back from visiting my best friend in Europe. With the help of my parents I decided to move back home to be able to save money and pay off my debts a lot faster. It was tough and humbling to move back home in my 30’s, but I knew this was the only way that I could accomplish my goal in a reasonable amount of time. I paid a small amount of rent and I got my old bedroom back. There were some great perks and some bumpy times but looking back at my time at home, it has been so nice to have so much time with my parents while we are all adults.

 

First Steps:

  •  Make a spreadsheet with all of your expenses for the last 6 months using your credit card and bank statements
  • Look for ways you can reduce or cut out your expenses
  • Make a budget from the information you get from your spreadsheet
  • Include all expenses, savings, debts and spending money

I took six months worth of credit card and bank statements and made a spreadsheet to see where I was spending my money and where I could cut back. I then set up a budget for each payday, that included my expenses: rent, car insurance, gas, cell phone, food, spending money, insurance, my loan and car payments and a small savings amount. What was left after that was put into another account to go towards debt repayment.

 

  •  Compare banks and go with the one that has the least amount of fees
  • Open up multiple accounts at your bank
  • Make at least one account locked on your bankcard
  • Set up transfers for the whole year from your money into the specific accounts at each payday
  • Save up throughout the year into an account to pay for bigger items, expensive times, ie: Christmas, trips, electronics

I hate giving money to banks, so I always look for one that has the smallest fees. I don’t want to be charged to move all my money about. The bank I go to has no fees. Once my budgets were set, I opened 3 new bank accounts at the bank I was with. I have my chequing account that all my pay cheques went into. I have a basic savings account that I put the money for my gas, food and spending in. I have two high interest savings accounts that I could not take money out through my bankcard. If I wanted money from these accounts I had to transfer the funds into one of my other two accounts and then take the money from there. This process took about 2 days. One of these accounts was for the small amount of savings I took out of my cheque each payday. This money was used to pay for Christmas and for a bigger priced item I wanted so I could pay for it outright. Any money left over would stay in that account for additional savings. The other account was for holding all my excess money to pay my debts and extra savings. All bonuses and income tax returns were also put in here. At the beginning of each year, I set up all my transfers of funds each payday for the whole year into their appropriate account. This way it comes out automatically and I don’t end up spending money I shouldn’t.

 

  • Use a paper calendar and write down all your debts/credits and when they come in/out of your accounts.
  • Keep a running tally of what should be in your savings account each month

To keep me on track I used a paper calendar to write down my money coming in and going out on their specific days for the whole year. I also included a running tally of the totals each month that should be in my high interest accounts. I found this invaluable as I could have a quick glance at the overview and check my bank account to see if I was on track or not. I may not have always kept within my budgets, but it was never too far off track that I couldn’t make up for it in the end.

 

Credit Cards:

  • Make a spreadsheet of all your debts and what their rates of interest are
  • Focus on paying off the debts with the most interest first.
  • Look for offers that can lower your rates of interest
  • Once your credit card is paid off, either lower your limit to under $1000, or cancel the card completely.
  • Do not put anything on your credit card that you cannot pay off in full at the end of each month.

I made a spreadsheet of all my debts with the rates of interest. Taking the advice of all the money management books and shows I would watch, I focused on paying off the debts with the most interest first. My credit cards were the first of the debts to go. I got an offer in the mail for me to open and transfer my credit card balance for a small fee to another credit card and then get 1 year of no interest on that money. I signed up and transferred my largest balance. I then started paying off the 2 cards with interest and just the minimum on the balance transfer. Since the interest was the same on both cards, I paid more on the one with the least debt. I wanted to feel some sense of accomplishment and doing it this way gave me that. Then I moved onto the next card, and finally paid off the third one before the year of no interest was up. Once each card was paid off, I got the limits lowered to under $1000 and cancelled the ones I didn’t want. I then only carried one card with me and left the rest at home in a jar not to be touched.   I set a rule with myself that I could not put anything on a credit card that I couldn’t pay off at the end of the month. To this day I pay my credit card balances off in full each month.

 

Car Loan:

  • Set up your loan on a bi-monthly withdrawal to save money

My next debt to go was my car loan. I set up my car loan so that I had the payments taken out bi-monthly so I could cut down on some of the interest. I continued to pay these every second week. When I quit the business I had with my sister I settled on a loss of $8000. When I received my check, I put the $12,000 onto my loan immediately. The following year I got a good return on my income tax for all my business losses. With the return and some of my savings I was able to pay off the remainder of the loan in 3 years instead of 6.

 

Loan:

  • Save up money to put down a large percentage of funds on your debt each year
  • Decide on how much you want to put down yearly on your debt
  • Figure out how much monthly you need to save to reach that goal
  • If you don’t have enough to save each month, lower your goal. It can always be raised the following year, since the cost will be lower.

The last one to go was my loan. Some math was needed to crack this one. The type of loan I had was tied in and was to be paid off in10 years. I was not able to pay it all off whenever I wanted, even if I won the lotto. I was able to put down 20% of the total each year and at the five-year mark I could then pay it out if I was able to. The first two years I was only paying the monthly payments. My goal was to pay down 20% chunks each year and then pay it out on the fifth year. To do this I figured out how much of my monthly payments were put on the principle and then subtracted that total from my total left on the loan. At the end of each 12 months, I would minus 20% from the total to figure out how much I could put down on the loan at the end of each year. I divided the yearly total by 12 to figure out what I needed to save each month to make my 20% goal. I was only able to save and put down 17% the first time, but these last two years I was able to save and pay the 20%. This last and fifth year I was left with a significant chunk to pay off. After the 20% was saved, I had about $10,000 left to clear the debt. I was able to use the money I received from being in a car accident to completely pay everything off. If I didn’t have that money it would take me another two years to pay it all off and still saving me 3 years.

 

 Incentives and Extras:

  • Have a goal at the end of your debt repayments to help keep you motivated to stick to your budget
  • Limit the amount you go out for expensive nights
  • Look for things that are still social but inexpensive ie: going for walks, seeing movies, going for coffee or appies instead of drinks and dinner
  • Borrowing books from friends or the library
  • Sign up for new things to do through your community centre
  • Try new things inexpensively through Groupon, Social Shopper and the likes
  • Google free things to do in whatever city you are in
  • Try making some extra money with your hobbies
  • Pick up an easygoing part time job that interests you
  • Sell stuff you don’t need/want anymore

Once you have a goal in mind it really makes it a lot easier to not spend unnecessarily. I didn’t go out a lot drinking and dancing anymore. It definitely helps when most of your friends are married, married with kids since they don’t tend to have the time or want to go out anymore. Through these years, I also suffered with situational depression and anxiety. This made me not want to go out much either. I looked more into activities that I could do for free, or inexpensively. Watching Netflix, TV or movies, reading books, doing research on my new life, Pinterest, getting lost in blogs, or going for hikes, walks and photo walks. Getting out into nature was a favorite of mine. I would also sign up for activities that interested me through the local community centres or all the groupon-type sites.

I also tried making extra money on the side too. I would sell stuff I didn’t need anymore, do photo shoots and sell my baking. All the money I made from these things I put into a jar and I could use that for extra spending money to not feel deprived and still be able to meet all my financial goals.

I hope some of the things I did can give you some ideas on how to take control of your finances and your life.   It truly makes you feel completely free to change your life direction when you don’t have to worry about debt.

Leave a comment and share some of your habits to eliminate debt or save money.

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