I’ve made the mistakes with debt and overcame them. You can too!

If you’re reading this, you might be feeling hopeless on paying off debt. Read how I got into my debt disaster and the steps I took to pay off debt at a rapid pace.

I drank the kool-aid

You remember those times, back in 2007/2008 when people were spending money they didn’t have, at a rate faster than oil prices could increase? I had fallen into the trap as well. This naturally frugal fellow drank the kool-aid for a few years; accumulating credit card debt spending on food, entertainment, and home supplies.

How I got myself in this situation

I had made a “smart financial decision”, and purchased an overpriced home a few years earlier at age 19. That home was of course a fixer upper for 450k, that required two years of my own blood, sweat, and tears to make it habitable. But that’s a story in itself for another time.

What was the final straw, was seeing a luxury car commercial that said I could get the car I wanted for payments of only $400 a month.

“Pssshhh I could totally afford $400 a month!”

I promptly drove down to the dealership and drove off with 4k more in credit card debt, for the down payment, and payments of around $700 a month including insurance.

They definitely saw me coming. I’m pretty sure there was an announcement before I arrived that a young 20 something, who finally thought he was beginning to make it in life, would be coming in at any minute. Be sure to take him for all he’s got!

The writing was on the wall

Something weird started happening. I was working less and was draining what little savings I had each month to keep up with all my spending. Knowing nothing about finance at this time, I realized I needed to make a change; I needed to start tracking my spending.

How I paid off 55K of debt

At that time I had about 22k owed for the 36 month car lease, and 33k in credit card debt.The economy was crumbling and I knew this wasn’t sustainable. I made a tough decision, swallowed my pride, and consciously made the decision I was no longer going to live this way. So what did I do?

I got into more debt!

Yes you read that right. Sometimes we have to take a step back before we’re able to move forward.

I wanted to get out of the car lease. I tried swap-a-lease, but it was useless; not one person called. Looking back I’m thankful I didn’t. I found out later I would still be obligated to fulfill the lease term unless I broke the lease, adding yet another fee. The risk of someone driving the car, not paying me, and damaging the car, seemed highly likely.

I went back to the dealer, but they wanted to give me under 10k less then I had paid just 4 months earlier. Talk about buyer’s remorse.

I had already incurred a sunk cost, so I focused on getting out of my reoccurring obligation

I didn’t give up. Knowing I needed to get out of the lease; I changed my mindset from, “I don’t want to lose money!” And approached it instead as, “How little can I lose to move forward?”

I had heard that CarMax was paying fairer prices for used cars. Their price was still 5k under what I owed on it though. They fortunately gave me a week to think it over. I took that week to live like the rockstar I thought the car made me and then…

I cut the check

One of my credit cards was offering promotional checks at 0% APR for a 3% fee. I wrote the check and officially began crushing my debt.

Think about this for a minute. I had to cut a check for 5k and give them my car that I only had for 4 months. Those 4 months cost me 11k to drive that car. Do your problems seem a little smaller now?

I used my savings

I had a few thousand in savings while having credit card debt. We’re all told to build up a nest egg for an emergency fund. I made the decision to only keep enough in the bank to make my monthly payments. That amount was replenished each month with earnings from my job. If I lost my job, I was confident I could come up with enough cash to keep me afloat.

I took all my reserves and paid down the smallest credit card balance; knocking out one completely and made a beginning dent in another. I chose the second card based on when it’s promotional period for the teaser rate ended and what rate I was going to be charged. If I had similar sized balances, I made my decision to pay the higher rate card first.

Consolidate

Having too many payments to keep track of was both distracting and capital intensive. I went from 6 monthly payments to two. This gave me a net lower minimum payment, and I was able to move the balances at lower rates. I used balance transfer promotions and credit card check promotions that cost me from 0-4% to make the moves. Doing the math at that time, reinforced that the savings were worth it.

I timed my purchases

I was able to get one last 0% credit card before the banks tightened their lending. Remember I’m doing this during a major financial recession. I had always paid cash for most things and used credit cards for big purchases.

I completely changed my mindset. What I found, was that if I timed it right, I could defer needing to make a payment for almost two months at times. I began charging everything on my new credit card.

See “Earning the float” for what this strategy turned into.

Shuffle balances

My new credit card would send me a statement after the first month, and it would be due in almost a month. Learning this, I was able to float the funds for almost 60 days.

You may think I was just transferring debt from one credit card to another. You’re right, I was, but I was paying down a balance at 12% and moving it to a card that charged 0%. It saved me tons in interest.

I continued to rotate between cards. Once one was completely paid off, I’d wait until after the billing period ended. I’d then began charging on it if I needed to get debt off one card and onto another for a promotional period ending or to get lower rate.

I sold and returned all my excess

At this time I had purchased items for future projects, items to keep in stock for ease of use, and duplicates of things. I returned the extra building materials, multiple house cleaner type items, and parts for projects that were months, if not years out.

This was clearly the easiest way to recoup cash. I began to think like a lean business; letting the store hold the items until the moment I needed it.

I had accumulated multiple sets of tools to have on-hand for a helper, and another set to keep in separate locations. Whatever could be sold was sold. The toys went as well. It was freedom or debt. I wanted a fresh start.

I picked up extra work

I’m very much in the earn money via hard labor mindset at that time. I looked to my network and ended up helping a friend manufacture items in the evenings for his business; in addition to, my current 9-5. I was welding, cutting, grinding; whatever it took to earn extra cash. I had an abundance of time, but needed money. You don’t need to be tech savvy to generate money from side gigs, but you’ll find out you should learn to be.

This turned into my first exposure to drop shipping. Only I didn’t realize it was drop shipping at that time. I was at the cusp of a great idea with the wrong item to sell. I ended up doing the customer service and selling the items I manufactured with him on Ebay. He would ship to the customer, while I communicated with the customers and received the order details. This would have been great, but the sales were very sporadic and gave me a poor impression of what could be achieved online.

I became a hermit

I’m just going to be real with you. I prioritized being debt free over short term entertainment. I didn’t go out. If I went out, I figured I’d spend money, so I just didn’t. Instead, I stayed home thinking of strategies to earn money and pay down debt. I became an avid reader during that time; getting a library pass, and reading all I could for free.

Check out some of the free things we currently do: 25 things to do for free in NYC

If I did go out, I made sure I did things for free. I did a lot of running, hiking, mountain biking in areas that were accessible from my house without needing a car. A unintended bonus from this was that I got in great shape. You’d be surprised that there are things that are fun to do for free; you may just need to change your mindset.

“The Daily Stoic“ is a book I highly recommend if you want to rethink how you view life. I discuss the book here. You can read the first few chapters for free here in the preview section.

I ate incredibly cheap meals

After home expenses, food is typically peoples second largest expense. I attacked that the only two ways I could think of: eat less, and find food that would fill me up for cheap.

I had eating less down to a science already that originated in my post How to save $1000 without a job. Come to find out, some nutritionist are claiming short term fasting has health benefits. I’m not experienced in this area, but it may be an unintended added bonus.

I never said this was going to be easy

I made sacrifices and trade offs in order to pay my debt down faster. The key to making it easier, was to make it a game. I would try and find what meals I could make that cost the least. I had a full rotation of meals; they weren’t the healthiest, or most nutritional, but they got me through that tough time. I’ll share those meals in future posts, so be sure to subscribe.

Conclusion

While I did this almost 10 years ago, these ideas still apply. There are even more tools and resources to help you earn money or save money online these days to make paying off debt easier. We’ll be discussing these more in future posts.

I wanted to share my story as inspiration. I did this during pretty tough times and went pretty extreme with it. You can turn your life around by getting out of debt and learn to build wealth. Espresso my kitchen has lived it, and will help you do just that.

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Let me know how you paid off debt, or what’s preventing you from achieving this in the comments below.

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Paying off debt - How I paid off 55k of debt in 14 months