Getting out of Debt

Debt is something that has become common place within society. In fact, according to an article written by USA Today, the average American household has $137,063 in debt.

The reasons vary for going into debt. Tara and I went into debt for a few things including 3 different cars, a wedding ring, and a student loan. What we owed had totaled around $25,000, although we had different amounts at different times. Most recently, we were able to pay off more $10,000 in less than 6 months. Each time we got a loan, there was always some sort of justification, but deep down we both felt that it wasn’t the right decision.

To most, having payments is a normal part of life. Our goal is to not be like most people; we want to be free and be able to make our money do what we want. With payments, we don’t even get to see that money before it is taken out of our hands. Having things is nice, but having financial independence is much nicer.

What we did to get out of debt

Paying off $10,000 in less than 6 months may seem like a lot, but it was actually quite easy for us. Here’s what worked well for us.

1. 1. We listed our debts and exactly how much we owed. Sometimes it was hard to look and see how much we owed, but knowing exactly how much is important to getting rid of it.
   2. We made a budget and stuck to it. Tara wrote an awesome post behind what it takes to make a good budget. Discipline to that budget was key.  
   3. We had specific goals. Having a budget in place, we were able to put numbers behind our goals. These measurable goals allowed us to know how long it would take to pay off our debt. After seeing how long it would take, we went back through our budget and tried to trim off as much as we could. The more we were able to trim, the quicker we could be out of debt.
   4. We paid off the smallest loans first and then moved on to the bigger ones after the smaller ones were paid off. There is some debate to if you should pay off higher interest rate loans first, but paying off the smallest worked best for us.
   5. We celebrated every time we paid off a loan. We didn’t do anything crazy to celebrate, but we always found a way to celebrate the small victories, like going for ice cream. 

Once we paid off our last debt (my student loan) we decided that we would never go into debt again (except for a mortgage). After going through what we went through, it would take a frontal lobotomy for us to get another loan.

What we don’t recommend

1. Loan consolidation. Your goal should be to have 0% interest. Going from a higher rate to a lower rate may make it easier in one location, but you will end up paying these consolidators money. Unless your interest rate is ridiculously high, we recommend just working hard and paying it off yourself
2. Keeping up your same spending habits. This is probably what got you into debt in the first place. There are sacrifices that will need to be made in order to fully be debt-free.
3. Use your 401k to pay off debt. There are penalties for taking money from your 401k early, plus you’ll end up paying taxes on it. Depending on where you sit in the tax bracket, you could end up paying 25-50% in taxes.
4. Try to pay it off in an unreasonable amount of time. While setting your goals, you should be realistic. Setting unrealistic goals will make it harder to stay on track. Plus, there’s still life to live in between, you should be able to still enjoy some things.

Influences

Our path to getting out of debt started with my dad, Trevor. He blogs at rvonfire.com and has been one of the greatest influences in my life to getting out of debt and working towards financial independence. One of his best traits is his ability to get us passionate about business and finance in general. I owe a lot of my knowledge and success to him.

Another great thing my dad did was point us to important resources. He gave Tara and I Financial Peace University a little after we were married. Dave Ramsey’s approach has been ingrained in my mind and has led me to a better life. We’ve used Financial Peace as a foundation for our wealth building and it was the catalyst to us getting out of debt.

One of the best to describe debt is J.L. Collins from jlcollinsnh.com. His metaphor to debt being like leeches gives the perfect image of how it should be perceived. I highly recommend reading anything he puts on his blog. I’ve never read anything I didn’t like.

Getting out of debt takes time and dedication. It probably won’t be easy. There were things we had to sacrifice in order to get out of debt that made things not ideal. Being completely debt free has been one of the biggest burdens lifted off of our shoulders. Every aspect of our life has improved. Our marriage has definitely gotten better because of it.

If you have paid off debt, let us know! We would love to hear your story. Every story is different, but all are inspiring. If you are currently getting out of debt, let us know too! We would love to see what has worked for you and maybe offer some of our own advice.