Sunday, February 23

How I Shed Nearly $50,000 of Debt in Less Than 2 Years!

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The following is a guest post by Eric from Finances With Family.This is an awesome story of triumph over the worst possible kinds of debt — I’m talking payday loans and gambling debts, on top of credit cards and student loans! If you need a dose of inspiration for getting rid of huge debts fast, this is exactly what you’re looking for. Enjoy!

Debt is something that is so easily accumulated, and once owned is incredibly hard to get rid. I found this out the hard way.

My first run-in with the monster of debt was through student loans. My parents had been funding my in-state tuition but stopped when my grades dropped halfway through my junior year. However, I had been taught that a college education would provide me with a good paying job. I believed that order to make something of myself, I needed to obtain that piece of paper no matter the cost.

I racked up $26,000 of student loan debt in only 2.5 years

Of that, only $18,000 of that went towards my education. The other $8,000 was spent on food, fun, and travel. It was a reckless and unfortunate introduction to debt.

Soon after taking out my first student loan, I opened my first credit card. It came to me in the mail and had a limit of $500! I told myself that I would only use it for everyday expenses such as groceries and gas. That lasted a total of 6 months before I was spending it on other things, like video games.

I hit my limit, but since I didn’t have any money, I opened another credit card through my bank to pay off the balance on the first. This time I had a limit of $3,000 and soon it, too, was maxed out.

I had put myself into what seemed like an endless debt cycle… and things were about to get worse.

Going from bad to worse with payday loans

It had now gotten to the point where I was making minimum payments on my debts. I realized things were getting bad when the balances on my accounts were not shrinking. In fact, they were increasing! There had to be a way out of this mess, and that is when the “brilliant” idea hit me.

“I’ll just go to a cash advance place and take out some money to pay extra each month on my balances.”

I was paying a little extra to my credit card balances and they were finally going down, but now I was in yet another financial mess. Now I was stuck in relying on cash advances to help pay my bills each month.

RELATED: Debt to Income Ratio – Why You Want It To Be Zero

It wasn’t too long before there were missed payments. I needed new income and fast, but I wasn’t allowed to work overtime at my current job. The smart thing to do would have been to pick up a second job, but I wasn’t making smart choices. In my infinite wisdom, I decided to take out the maximum amount I could at a second payday lending company. This was $600 dollars, and I took it down to the casino!

The worst possible thing that could have happened, happened:

I won.

My gambling profits didn’t save me from my debt, they made it even worse

I was able to pay my bills for about 2 months with casino winnings until that fateful day that I ended up losing. Now I couldn’t pay my bills and I owed money to 2 payday lenders, 2 credit cards, 4 student loans, and had gambling losses! I had almost $50,000 of debt and was drowning.

One of the biggest eye-opening experiences I had was when my heat was shut off in the dead of winter. I had put on 4 layers of clothes just to stay warm. You know it’s really bad when you can see your breath in your own apartment while eating half a package of ramen noodles to make them last.

In order to make headway, I moved into a smaller apartment that was about $300 less in rent each month. I had opened a 3rd credit card to pay my bills so I could use my check to pay off the payday lenders. I put my student loans on financial hardship and started chipping away at my other debts until I was at a comfortable level of balancing my expenses. It was exhausting.

RELATED: How to Get Help Repaying Your Student Loans

After moving into my new place, a friend and I decided to get away from our problems and go on vacation. Only I didn’t have any money to do so. However, I had recently found out that you could borrow money from your 401k. Can you guess what I did next? Withdrew $3,500 from my 401k and went on vacation, of course.

Hitting financial rock bottom

Eventually, I moved back in with my parents as I was unable to afford my really cheap apartment. The condition was that I was to follow a strict budget that we all worked on together. Tears of joy and sadness were streaming from my eyes as I finally saw a light at the end of the tunnel. At the pace we planned, it would take 20 years. But for the first time, I had a plan.

As fortune would have it, I was offered a job in Texas that increased doubled my income. Through my company, I was introduced to the Dave Ramsey Baby Steps. Up to this point, I thought that debt was something you had your whole life. Yet here was a guy saying that I could live a life completely debt free. Free from all the sleepless nights, stomach aches, and uncertainty that came with living in a financial crisis.

The Financial Values that changed everything for me

I wanted to rid myself of the weight I carried from my debts more than anything and here was the solution. With guidance, I stuck to following Financial Values:

1. Have a Starter Emergency Fund

Dave Ramsey says that you should build a starter emergency fund of $1,000. While this is a good starting point, it may be too little or too much depending on your situation. I wanted to cover one month of expenses before hammering away at my debts. I kept $1,500 in a Money Market account in the bank. To keep me from spending it, I ensured that I could only access it by visiting the bank.

2. Make a Written Budget

I had created a beginner budget with my parents, but it was not enough. Through the Dave Ramsey program I learned to create a Zero Balance Budget. I could now account for all of my expenses and know exactly how much I could put towards paying down my debt. This was the first time I had been proactive and intentional with my money.

3. Throw Every Extra Dollar at Your Debt

Now that I had found some extra money through my budget, I was able to pay extra on the principle of my debts. My credit cards were the first to fall. With every debt that I paid off, the motivation to pay it all off grew!

4. Intensify Payments Towards Debt Through Sacrifice

Another way I decreased my time in debt was through sacrifice. My friends would go out to eat, and buy some pretty nice toys. I would go with them but order water and eat free chips. They all thought I was crazy, but I knew that every $10 meal I did not eat, I would be that much closer to my goal.

On September of 2014 I made my final payment on my final debt!

It took me 20 months and I was finally free! I cut up the credit cards, took my now fully paid for car to the car wash, and kicked my student loans to the curb! At first, I felt nothing. The day after, I felt the same as I had been. It wasn’t until I went onto the Dave Ramsey Show in Brentwood, Tennessee and did my Debt Free Scream that I felt as if I had been born into a completely different life! It was as if I had just woken up from a nightmare and could now live my dreams!

Life after debt is wonderful!

I have been able to afford some luxuries now and am working towards financial independence.

The peace of mind you have when you know all of your bills can be paid, food will be on the table, clothes on your back, and gas in the car is unfathomable. I find that I can use the energy I was wasting on worrying into more productive ventures such as my blog and investing for my families future. People seem to think life would be harder without using credit or debt. I have been living without a credit score for 3 years now, and I have had no issues. The only caveat is that if you want something, you have to save up and pay for it!

It is hard to pay off debt if you have accumulated it, but it is worth it in the end. You see life as full of opportunity when you have no payments. Instead of only seeing the negative (or avoiding reality) when carrying a balance.

The best part? You can never owe more than what you have. A feeling that is worth more than anything else in the world.

As a way of saying thank you for reading, I’ve included a FREE Essential Budgeting Checklist Printable!

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About Author

Student debt killer, super saver, and stock market addict. BSc. in Chemistry from the University of Alberta, MBA in Finance from the University of Calgary. CEO x 2 and MOM x 1. Currently residing in Calgary, Alberta, Canada, but hooked on travelling.

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