The debt-free life can seem like a distant dream for some people. It used to be for me, until I got serious about my finances.
Back to the beginning
At 18, I moved out of my parents’ house. I was studying at university and I had a bit of a shopping addiction. My bank offered me a $500 student credit card with no annual fee. I thought this was just part of becoming an adult – everyone has a credit card, right?
It wasn’t long before I’d maxed it out. I asked the bank to increase my credit limit, it agreed, and a $500 limit quickly turned into $6000.
What did I spend the money on? I have no idea. I had an expensive habit of buying things, anything, that I didn’t need.
When I was 24 I got my licence and a car loan for $13,500 at 6% interest.
Two years later, I needed money to move out of a share house and into my own unit. I had no savings for a bond and didn’t think that I was capable of saving, so I converted my car loan into a personal loan, doubling the interest rate, and borrowed more money to use for my move.
For two years I had been making minimum repayments on the loan while paying off my credit card then maxing it out again. The problem was my habits, not the credit card itself.
The lightbulb moment
In June 2017, around my 27th birthday, I was sick of never having any money. I’d been living pay to pay my whole life.
I was paid monthly so I often spent the last week before payday living on my credit card. I had a budget I never stuck to, and no savings.
I used to tell people that I didn’t have the ability to save, that my expenses were too high. Now I realise these were all excuses.
When I read The Barefoot Investor, it was as if a lightbulb turned on in my head and I vowed to change my ways.
I started my journey on June 13, 2017. and challenged myself to become debt free within a year. I started with $11,489 of debt: $2443 on a credit card and a $9046 personal loan (I didn’t count HECS).
Every day I’m hustling
For the next year I did everything I could to pay off my debt. This included:
– Cutting out unnecessary expenses such as personal training.
– Changing utility providers to save money.
– Switching to a SIM-only mobile plan.
– Increasing my income through surveys, selling items I didn’t need and doing casual work on top of my full-time job.
– Spending less money on food, taking my lunch to work and cutting back on takeaways.
– Changing my bank accounts for a higher savings interest rate.
– Moving my personal loan to a 0% credit card to save on interest.
– Cutting up my credit card.
– Limiting spending money.
The first hurdle was my credit card, which I paid out with a yearly bonus from my job, then cut up.
It was the first time in my adult life that I didn’t have a credit card. I was scared!
I spent the next two months saving money to build an emergency fund. After saving my first $2000, which took me about 10 weeks, I threw everything at my debt, including my tax refund.
I set aside as much as I could from each pay and slowly the debt came down. It wasn’t until I transferred my loan to a 0% interest credit card that I really noticed the balance drop because my payments were no longer eaten up by interest.
The final countdown
At the start of 2018 my balance was $6331 and I created a chart to track my debt. Every section that I coloured in gave me the motivation to keep going.
The process was slow; every payday I would transfer as much as I could to my debt and then wait until the next payday to do it again.
In June 2018 I used my yearly bonus to pay the last $1200 of debt.
I was officially debt free on June 15, 2018, exactly one year after I started my journey. I was elated!
Never in my adult life had I been debt free. To not have any credit card payments or car payments was the most amazing feeling.
Shifting focus to saving
My next goal was to save a three-month emergency fund. I was made redundant in August 2018, so I used my payout to kickstart the emergency fund and general savings.
Saving money seems harder than paying off debt. Without a goal in mind and no clear consequences if I don’t save, unlike the consequences for letting debt get higher, it can sometimes seem pointless.
My goal for savings has slowly turned into just saving for my future. My ultimate dream is to travel and live in a caravan.
I now try to save a third of my income each month.
To keep my motivation going I’ve started to think of it like getting a high score on a game and always trying to better my score.
It’s another monthly pay day 💰 Thought I’d share my budget for this next month with you. Very happy to be savings more then 30% of my pay too. If I get anymore income which would only be from sales then it will go to savings too. I’ve also included the Barefoot Investor style breakdown and normal pie chart if you swipe ⬅️
Top five tips for paying off debt
1. Get serious when evaluating your budget. What can you live without?
2. Work out your spending habits and try to overcome them. There’s no point having a budget if you can’t break a spending addiction.
3. Find a source of motivation. Paying off debt alone can get isolating. Set up an Instagram account to motivate yourself and others. Use colouring charts to track progress.
4. Find ways to increase your income. The more money coming in, the more you can put towards debt.
5. Give yourself time! It can be a long progress. Look how far you’ve come, not how much further you’ve got to go.