I’ll be honest with you.
I’ve debated for several weeks whether I should actually write this article or not.
A million thoughts have passed through my head:
Will this actually help anyone? What if someone I know reads this? Will they judge me?
Maybe they will. Maybe they won’t.
But all I know is that I can’t live my life worrying about that stuff. Because if I can help ONE person become debt-free by sharing what worked for me, then it’ll be worth it.
Because here’s the thing:
You’re not alone.
You’re wanting to become debt-free because you’re sick and tired of the never-ending payments. I’ve been there.
You’re tired of feeling like your “new normal” is thousands of dollars in debt. I’ve been there.
You’re tired of feeling like a prisoner to your payments. We’ve ALL been there.
So today, I want to share the 12 steps I took to become debt-free in less than 2 years. Because if I can do this, then so can you.
Ready? Let’s dive in.
Step 1: I added up my debt
Adding up debt feels overwhelming, intimidating, and maybe even scary.
But think about it:
If you don’t get clear on your numbers, then you risk staying stuck like a hamster in a wheel. And that’s an easy trap to fall into.
For a long time, I had anxiety about my debt. I knew “about” how much debt I had, but I wasn’t exactly sure. So when I got up enough backbone to face it, I sat down and tallied up every. single. penny.
I had $76,453.49 worth of student loans, credit cards, my car loan, and medical bills.
This is a tough first step. But I knew if I could get past it then I’d have a much higher chance of becoming debt-free.
Step 2: I started the debt snowball
Are you unfamiliar with the debt snowball method?
I was too.
I first heard about it from a friend who was using it to tackle his debt. So I started googling it and I stumbled upon a guy named Dave Ramsey.
Who is Dave Ramsey, you ask?
The short cliff notes version is this:
Dave Ramsey is a financial expert with over 14 million weekly listeners on his radio show. He wrote the NY Times best-selling book, The Total Money Makeover, and he introduced the world to the debt snowball method.
Dave will always hold a special place in my heart because he transformed the way I manage my money.
So here’s what I learned:
Throwing money at my debt without a plan wasn’t the smartest way to get rid of it.
I needed a solid roadmap. And I wanted something that would keep me motivated.
I needed something that would stop me from falling off the wagon.
So I began the debt snowball method because it was simple. Want to know how it works?
You start by listing all your debts from the smallest balance to the largest balance (everything except your mortgage). You’ll also write down the minimum payment beside each debt.
Next, you’ll begin paying AS MUCH as you possibly can towards the smallest debt while making minimum payments on everything else.
Once the smallest debt is paid off, then you move up to the next smallest debt. And you keep working your way up until you’re debt-free.
Let’s use an example.
For simplicity, let’s say you have the following 3 debts:
- Visa: $1,300
- Honda: $7,500
- Navient: $18,000
Let’s also say that you were paying $300/month towards the Visa card. Once the Visa card is paid off, then you would take your old $300 Visa payment and add that to the Honda minimum payment.
$300 Visa payment + $325 Honda minimum payment = $625
See how you’re now throwing a whopping $625 towards your car loan?
This is where the debt snowball gets its name.
Once you pay off the smallest balance then you add that payment to the next one. And the snowball payment grows bigger and bigger with each debt payoff.
What happens next?
Your debt snowball ends up looking more like a boulder by the time you reach your largest balance.
So my smallest debt was the $75 I owed to Target. I was able to knock that out right away. And for the first time in a looong time, I actually felt like I was making progress on my debt.
Step 3: I lowered my interest rates
Let’s face it.
Lenders make a ton of money off the interest they charge.
You know that feeling when you realize most of your payment went to interest instead of principal?
Yeah, that feeling sucks.
Sorry, let me rephrase.
So when I first graduated from college, I had no idea what student loan refinancing meant. But I started doing my research since a large chunk of my debt was student loans.
I remember googling things like, “how to get out of debt when you are broke” and reading every financial book I could get my hands on.
So here’s the deal:
I refinanced my student loans because I didn’t want to stay stuck with a crappy interest rate. I was ready to get the 10,000 pound burden off my back and reach debt freedom.
What is student loan refinancing?
Student loan refinancing meant that I swapped my current student loans for a new loan with a lower interest rate. It’s free and I applied online.
So my student loans had an average interest rate of 7.85%. And I used Credible to lower it from 7.85% to 4.05%.
This alone saved me $3,882 over the life of my loans.
(My student loans at that time were around $36,600)
Just because you can’t pay off the entire balance right away, don’t settle for a high-interest rate.
When checking for lower rates, just make sure you go with a fixed rate. This ensures that your low interest rate gets locked in and you don’t have to worry about it increasing.
I don’t recommend variable rates because they can – and most likely will – increase over time. (Which defeats the purpose of lowering your rate in the first place, in my opinion)
Step 4: I made biweekly payments
Want to know one of my favorite tricks to paying off credit cards?
Split your payments into 2 each month.
The end. Have a nice day. See you later.
Oh, wait – you want to know why? Let me explain.
Why the Biweekly Payment Method Works
When you split your payments into 2 each month, it means you’ll have an extra payment go towards your debt each year.
Why? Because the biweekly method equals out to 26 half payments – or 13 full payments made each year, compared to 12 full payments made on a monthly payment plan.
So here’s what I did:
I split my monthly bills in half and paid every other week. For example, if I was paying $600/month, then I split it into $300 every 2 weeks.
So are you ready to see the biweekly method in action? The graph below shows the traditional payment method in green and the biweekly method in orange:
See how the loan balance reduced faster with the bi-weekly method?
This trick is effortless. Just change the way you make the payments.
Make sure that your lender implements your payments correctly.
For example, you need those second payments to go towards your balance instead of forwarded towards your next bill. You can double-check by logging in and checking your account or by calling your lender.
Step 5: I got a side hustle
There are 2 things I learned when it came to figuring out how to pay off debt fast with low income:
Spend less or earn more.
And ideally, I knew I needed to do both.
So here’s what worked for me:
I became a virtual assistant for a real estate brokerage. As a beginner, they started me out at $18/hour.
Not bad, right?
Being a virtual assistant intrigued me because I wanted to work from home and have a flexible schedule.
And even though I’m debt-free now, I still do this side hustle because I love it.
My main job duties are:
- Managing their social media accounts
- Responding to customer emails
- Updating listings for houses
- Managing clients contact information
Now I know what you’re thinking:
Did you need assistant experience to do this?
No. All you need is to learn how to become a virtual assistant.
Once I got hired, I spent about 15 – 20 hours per week on this side hustle. Sometimes more, sometimes less.
This allowed me to put an extra $1,000 to $2,000 towards my debt each month.
And that’s when I felt the ball was really rolling for me. It felt amazing.
If you’re interested in earning $18+ per hour as a virtual assistant, you can read where I teach you how to do it here.
Step 6: I started saving while I spent
Do you like to keep things simple?
You don’t always have time to clip coupons, but you love saving money.
Use a cashback app like Rakuten to save money on the things you’d normally buy anyway.
If you’re unfamiliar with it, Rakuten is a rewards program that gives you cash back when you shop online.
I’ve earned over $1,000 since 2013. And last year, when my oven decided to kick the bucket, I got $63 back from that purchase alone.
So here’s what you do:
Sign up for an account and use the search bar to find the store you want to shop at. For my visual readers, here’s how that looks:
As you make purchases, you’ll get cashback.
Note: Our Rakuten link gives you $30 for signing up.
Step 7: I fired my bank
Have you checked your bank statements lately?
I’m not saying any names. But at my last bank, there was a fee for every. single. thing.
A maintenance fee. A card swipe fee. A fee for not keeping a certain balance. But I knew I needed to cut unnecessary expenses so I switched to Chime. Chime’s motto is “banking made awesome.”
And they’re right.
With Chime, I didn’t have to worry about hidden fees. Plus, they offer direct deposit express which allows me to get paid 2 days earlier. So now I get paid on Wednesday instead of Friday.
Also, the app is awesome which was important to me since online banking is my jam.
Step 8: I got a more affordable car
Let’s face it.
Wasting money on something that sits idle 90% of the time isn’t the smartest idea. What am I talking about?
Here’s the thing:
I had $27,565 left on my car loan. And if there’s one thing I learned from The Total Money Makeover, it’s this:
The total value of all your cars shouldn’t be more than half your annual income.
(So if you make $50,000 per year then your car(s) should be less than $25k.)
And most people who are learning how to pay off debt fast with low income realize they’re driving a car they can’t afford. Thankfully, my car wasn’t more than half my annual income, so this didn’t apply to me.
But I decided to sell it anyway.
Why? Because I hated the idea of being stuck with my debt any longer than I had to. I knew that if I could cut my car loan in half, then I’d be one step closer to becoming debt-free.
So once I found a buyer for my car, I went to my local credit union and got a loan for $9,000. I used that small loan to decrease my car debt from $27,565 to $9,000.
(That was a 67% decrease!)
I went from a new Toyota 4Runner to an 8-year-old Toyota Camry with only 67,000 miles on it. I love this car because it’s safe and reliable.
And just like that, I saved myself thousands of dollars and shortened my debt-free journey by at least 8 months.
Step 9: I consolidated my credit card debt
When you find yourself on the wrong side of credit card debt – personal loans can be a big help.
My credit score was in the “fair” 600 range, so I wasn’t able to qualify for a 0% balance transfer card.
Instead, I used Credible to get a personal loan with a better interest rate than my credit cards.
Once I qualified for the personal loan, I used it to pay off my credit cards and go from an average interest rate of 22% down to 15%.
Lowering my interest rate also lowered my monthly payment which allowed me to free up some cash for other expenses. I used that extra cash to tackle debt.
If you remember from step 3, this is similar to how I saved money on my student loans.
If you can’t find a bank or credit union that’ll give you a personal loan, I recommend going through Credible instead.
Step 10: I started using cash
Did you know that people who use cards waste 12%-18% more money than people who use cash?
Before my debt-free journey, I was what you would call “swipe happy”
I didn’t budget for groceries. I didn’t budget for gas. I didn’t budget for personal spending.
I just swiped….and swiped….and swiped.
So when my card statements hit each month, I would look at them in shock and say:
“Wait…I spent HOW MUCH on eating out last month?”
I knew I had to break that cycle if I wanted financial freedom.
So I started using a cash system and budgeting my money. And I learned that budgeting and using cash isn’t restrictive. It’s being responsible.
Think about it:
Swiping a card doesn’t sink in as much as handing over your hard-earned dollars.
Cash systems have a built-in accountability system, too. Because when you’re out of money, then you’re out of money. No more inflating your lifestyle with credit.
(I used the SavvyCents cash envelope wallet because it’s durable and makes handling cash easy. After 5 months of using a cash system, I had increased my savings by just over $1,600.)
Step 11: I moved to a cheaper area
Nowadays, I’m a homeowner (I never thought I’d be able to say that) but back then I was a renting a 2-bedroom, 2 bath apartment.
My apartment was in a great area, had a nice view – and did I mention it had an amazing swimming pool?
Yeah, well…while all that stuff was fine and dandy, the truth is – I couldn’t afford that apartment.
Why did I need 2 bedrooms just for me?
I was full speed ahead in my debt-free journey. I was doing whatever it took to finally get that massive burden off my back.
I downsized to a 1 bedroom, 1 bath apartment in a good area, without the view, no pool, and no gym. This alone saved me hundreds of dollars each month.
And no, I didn’t even miss that pool.
Step 12: I said “no” a lot
You know how it is.
It’s hard to say no to friends and family, isn’t it?
I get it. But even though it’s not always easy, you have to learn to say ‘no.’
I passed up vacations, dinners, and wasting money. I scaled back my lifestyle in every area. I focused on the BIG picture.
Because I knew I’d be happier in the long run if I was able to get this debt behind me once and for all.
And over the course of 19 months and these 12 steps, I finally became debt free.
Now let me be the first one to tell you:
Being debt free is awesome. And I know this feels like a s-l-o-w journey, but quitting won’t speed it up.
You can do this.
So, commit to the process. To focusing on your goal. To getting that burden off your back.
Start making tiny ripples. That’s how change begins.
Are you ready?
Recapping how I became debt-free:
- Step 1: I added up my debt
- Step 2: I started the debt snowball after listening to Dave Ramsey
- Step 3: I lowered my student loan interest rates with Credible
- Step 4: I made biweekly payments
- Step 5: I began my side hustle as a virtual assistant making $18/hour
- Step 6: I started using a cashback app called Rakuten
- Step 7: I switched to Chime so I could have zero bank fees and get paid 2 days early
- Step 8: I got a more affordable car
- Step 9: I got a personal loan through Credible
- Step 10: I switched to a cash system
- Step 11: I moved to a cheaper area
- Step 12: I said “no” a lot to save money