Today, we have a guest post from Ashley from Budgets Made Easy.
Ashley Patrick is a Ramsey Solutions Master Financial Coach and owner of Budgets Made Easy. She helps families eliminate debt using simple strategies so they can stress less and live the life they want. She was featured in Fox Business, USA Today, Yahoo! Finance, CNBC, MSN, and many others.
Her story is so inspiring and I hope you find motivation to use some of her tips in your own debt pay off journey.
My debt pay off story begins in 2012 when we bought our dream home, that really we couldn’t afford. It had a funky layout and we decided to take out a 401(k) loan in order to remodel the house to work for our growing family.
We were told that a 401(k) would be a great option for our situation. We would be paying ourselves back and it was a low interest rate. It seemed like the best option for us at the time.
We decided that that is how we would pay for the renovation and got to work.
We finished the renovations and had our second child in the fall of 2013. At the time, I was working as a detective for a small police agency north of Charlotte.
In January 2014, I had just returned to work from maternity leave to come home and find my husband home already.
Which was strange, because he usually got home after me. I could tell by the look on his face that something wasn’t right. He then told me that he had lost his job. I thought he was joking at first but he wasn’t. He had been at this job for 7 years and didn’t not expect this at all.
He got along with everyone and never thought he would be laid off.
This was my worst nightmare come true. I was panicked and devastated.
We determined how long we could survive with our savings and my paycheck. I did not make enough to cover our mortgage and all of our bills but we could survive a couple of months.
The panic subsided for the most part while he looked for a job.
Shortly after he lost his job, we learned first hand why 401(k) loans are a bad idea. We found out that we had 60 days to pay the money back or it would count as a withdraw.
Well, my husband didn’t have a job and we spent the money already. He was the breadwinner and I could not afford to pay another loan even if we were approved for one.
We didn’t have any options to pay off the loan, which was $20,000, since we had just taken it out and had only made a few payments on it. We ignored it and it counted as a withdraw from our 401(k).
So, when we did our taxes next year in 2015, we owed thousands of dollars when we should have received a refund.
Even though this situation was bad, it was the catalyst for us to pay off all our debt and changed our lives forever.
We paid the IRS fees using a zero-percent credit card for 18 months. It was a short term plan, but we weren’t sure how we could afford to pay off the card before interest started to accrue.
Then, I researched how to pay off our debt and discovered the debt snowball.
I started doing a zero-based budget and using the debt snowball to pay off our debt. It took some time to get used to it and make small changes along the way to speed it up.
I made a few changes over time so it wasn’t as overwhelming. I was afraid of shutting off my retirement contributions and using cash envelopes.
However, once I saw the process we were making and how much faster we could do it with more small changes, I did them.
Once we got halfway through, I shut off our retirement contributions. We already had quite a bit saved and I still had a mandatory pension contribution, so weren’t completely out of the market.
When I did the math and realized how much faster we could do it without contributing to retirement, I finally did it.
Once I began using cash envelopes, I realized it We wasn’t as big of a deal as I thought it would be.
I got organized though so I wouldn’t lose it. With this trick, we stuck to our food and eating out budget, which had been out of control!
I then sold everything I could.
I even sold my house decor to the point that it looked like we just moved in!
We cut all of our expenses that we could. If I could save some money, even if it was $10-$20, I did. Even small subscriptions can add up to a large sum at the end of the month.
When we started this process, we were spending over $1200 on food and eating out. This was insane for our small family.
We cut that in half and started meal planning. I called our service providers and asked for credits and lowered our monthly bills.
The more progress we made, the faster I wanted to get it done. I typically jump in to things and this was no different. I was motivated to reach debt freedom as fast as I could.
We ended up paying off our debt a whole year earlier than we originally planned.
Grab the debt free cheat sheet if you need help getting started.
Some other things I did to speed things up:
- Cut off our retirement contributions
- Bought generic
- If it could wait, it waited
- Worked extra jobs and overtime
- Said no to things that weren’t a priority
We still had fun and planned for date nights and fun things with friends but we didn’t do all the things. With our new debt journey, we learned to say “no” to the things that would slow down our progress.
We made paying off debt a priority. That is so important with any of your goals.
The faster we started getting things paid off, the more motivated we were to do it faster and faster. That is what is so great about the debt snowball. It motivates you to keep paying off your debt.
At first, I was worried about how to pay off $6,000 in 18 months and we ended up paying off all our consumer debt, $45,000, in 17 months.
Our debt consisted of the credit card for the taxes, my car, and my student loans.
It was more of a challenge to pay off our student loans, since it was the largest debt. I paid my student loans for the last 10 years and only made a small dent. I still owed $25,000, down from the original $28,000, only $3,000 paid after 10 years of payments.
That sounded ridiculous to me and it made me angry enough that I wanted it out of my life for good!
Here are some tips that helped me stay motivated:
- Calculating the daily interest on my student loans, which was $4.62 PER DAY!
- Joined like-minded Facebook groups
- Listened to inspiring podcasts
- Read debt pay off success stories
- Made visuals of our progress
A combination of all of these things really helped us keep going when we were losing motivation.
It’s important to take the first step and just get started paying off your debt. It really doesn’t matter what method you use or how fast or slow you go, as long as you are moving toward your goal.
Find what works for you and do it. If you need to start off slow, that’s okay. Just pick up the pace when you’re ready.