When I landed the first gig of my accounting career, I was beyond excited. I would finally have a decent income; I could breathe again. But after crunching a few numbers, it was obvious that debt would quickly gobble up any of the extra funds I’d planned to use to live a little.
My only options were: 1) spend months complaining while searching for a higher-paying job or 2) take immediate action. I chose the latter because the job market was miserable at the time, and delaying the process would only give the interest more time to accrue.
Since debt management can be extremely difficult and mentally draining, I decided to execute a five-step plan.
Here’s how I successfully dug myself out of the hole:
How to Get Out of Debt
1. Decrease your salary
For starters, I gave myself a demotion. To determine the amount of my salary decrease, I calculated my expenses, determined what could be cut, and came up with a figure I could realistically survive on. The remainder of the funds were automatically deposited into a separate account with automatic withdrawals to credit card accounts. That way, I wouldn’t be tempted to use the funds on non-necessities.
(Quick note: I did have an emergency fund intact to handle unexpected expenses.)
2. Keep the change
At the time, I was on a cash-only, envelope system, so each purchase I made generated change. I stored the loose coins in a mason jar and converted them into cash once the jar was full. The same rule applied with bills paid electronically; change would be deposited into a savings account. Each month, the total amount accumulated would be used towards a monthly payment. After an extended period of time, those coins started to add up.
3. Implement incentives
One day while visiting my son’s school, I noticed a behavior chart that incorporated different rewards as the students climbed up the ranks. Inspired by the idea, I headed home and created my own chart — with incentives based on the amount I was able to allocate towards debt on a monthly basis. Of course, I was more motivated to reach my monthly goals when it meant I could enjoy a movie with friends or a night out at my favorite restaurant.
4. Ignore your bonuses
This was probably the most difficult step of all, because I was looking forward to the day when I could enjoy extra money earned from pay increases or overtime. But instead of giving in to temptation, I paid down debt. And for those months with an extra week, I also kissed the money goodbye as soon as it arrived in my bank account.
5. Deposit windfalls
For holidays and birthdays, I requested monetary donations and then put the funds to good use. That’s in addition to any other money earned from odd jobs, random refunds, and couponing savings (I was an avid couponer at the time).
In the end, the journey wasn’t easy — but it was worth it. I dug myself out from a mountain of debt in a brief period of time and had a little fun while doing so. Most importantly, I learned that I could accomplish any financial goal I put my mind to, as long as I had the proper plan in place.
What tricks have you used to pay off debt?
{ read the comments below or add one }
Dear David,
How can I go about loaning money in exchange for stock. I got the idea from sharks show on TV
People ask for loans, and give ownership in there companies. I only want to loan 25,000. Any ideas?
These are great tips, I like the idea of the reward chart. One technique that I use is this; I divide my net income by 2 (2 paychecks ea. month.) and everything is paid for out of that figure. Any money left in my checking account at the end of the month goes directly to an extra credit card payment. Example; Net income is 2200 per month. After gas, groceries, bill payments, savings, – everything, I often have 50-60 dollars left over…this amount goes to an extra credit card payment for that month and I start the cycle fresh when I get my first paycheck for the next month. Of course you have to have a tight budget in place and stick to it.
I liked that #1, 2 and 3 were really tricks, hehe. Whatever works, works!