As of July 2nd, I am officially free of credit card debt! I honestly did not see this day happening for the longest time, especially after quitting my job to pursue blogging full-time three years ago. If you think having debt while being fully employed is rough, imagine how I felt having to incur more debt just to survive the first year and a half as an entrepreneur. I went from $5,500 of credit card debt to roughly $8,000+ in the last two and a half years. This debt also included payday/short-term loans that I ended up applying for to avoid getting evicted from my apartment and to keep my car. Despite the overdraft fees, the negative balance in my checking account every month, the lack of a savings account, and maxed out credit cards, I was still in denial that my debt was bad. I kept telling myself, "this is normal, this is fine, having debt is ok, etc." The fact that I didn't believe my debt was a problem was my biggest problem. So what made changed all this?
Rule #1: Get Real with YOURSELF!
Last year, I was served court papers regarding one of the credit cards (of mine) that had fallen into collections. It was the end of the summer, I had just started my social media consulting agency, had about 4 clients, 2 assistants, and of course, KSOLE helping me. Needless to say, I had the money coming in but I was still falling short when it came to bills, hence the collections. I thought that making more money would automatically resolve all my debt problems, but that wasn’t the case. What was I doing wrong?
It was around this time that I came across my friend’s Instagram post about Dave Ramsey. I was unfamiliar with him but with such great claims, I ended up purchasing The Total Money Makeover. My perspective on money changed as soon as I finished the book but reading about it wasn't going to make my debt disappear. I knew I had to put in the actual work so I started off by following the baby steps Ramsey outlined in his book.
However, I kept getting stuck at the baby step one, which is to save $1,000 (as your emergency fund). I always ended up using the emergency fund to pay off my bills at the end of each month so I basically restarted baby step one 20 times, got extremely frustrated and was about to give up until my best friend, Shoshanna, suggested I look closer at my monthly expenses. My lack of understanding and attentiveness to where my money was going became my roadblock. I ended up sitting down, created an Excel spreadsheet of all my expenses per month and quickly saw where I was fucking up.
Rule #2: Create a Budget That Fits YOU
I spent an entire weekend going through 3 months worth of charges and categorizing them into my spreadsheet.
Tip: I use FreshBooks for all my invoicing and a perk about it is that it tracks all my expenses for me. I connected all my bank accounts and credit cards to it and let it do the rest. It does cost $25 a month, but it was certainly a big help when putting together my spreadsheet. Try it out here.
After finalizing the sheet, I looked at what I needed to cut down on and what I could better budget. I knew I had to be as realistic as possible, meaning I wasn't going to cut out my daily coffee runs or on eating out (because I'm not home often enough to cook). Everyone has different needs/necessities so the key is, to be honest with yourself when creating a budget.
For example, I noticed the amount I was spending on gas was pretty high despite having a Toyota Corolla. To better budget, I started batching my drives. For example, I batch all my LA appointments/meetings/events so I don’t have to drive more than a couple times a week into DTLA. I live 30-minutes outside of LA so consolidating everything in one day helps a lot with gas and time. This also means that I started declining invites to anything in Santa Monica, Venice, and Beverly Hills because it's over 20 miles from my place.
Other things I looked at were business costs and weighing out all my options when it came down to investing my time and money into my brand. It wasn't easy as I ended up cutting down on my staff (graphic designer, assistants) and while it saved me money, it certainly didn't save me time, which was a sacrifice I had to accept. I also ended up discontinuing a few services and really analyzing what my business truly required to survive, and got rid of everything else.
Rule #3: Evaluate and CELEBRATE Every Week
I sat down once a week and spent a few hours evaluating my expenses to ensure I was sticking to my budget. I readjusted, as needed, and reminded myself that while it sucked right now, it will be worth it in the end. Motivating yourself to keep going and having a strong support system helped a lot. Celebrate all the small wins as well and don't be too rough on yourself if you have to reset yourself. As long as you don't give up, you're still winning!
I also did a monthly financial assessment, which incorporated the income I was expecting next month so I understood how much I truly had to work with. I would purposely underestimate my income, especially since there are times where I am paid pretty late by companies so I wanted to give myself room for accidents like that. NET30 doesn't always mean 30 days to some brands (hah).
So after all this setup, how exactly did I pay OFF the debt?
With my budget in place, evaluating how much I was spending, and knowing how much I was going to make each month, I then set my goals to start paying off my credit card debt.
Methods of Paying
There are a couple different approaches to this, you can tackle the largest one first or start off by focusing on the smaller one. I believe Ramsey's suggestion is to pay off the smallest one first so that you feel accomplished and motivated. Seeing how I honestly was losing hope on all this debt crap, I went with that route.
I paid off $500 in one month, putting one full paycheck towards it while making sure I was able to pay the minimum on the other ones. Again, how much you decide to put towards that one card you're focusing on that month is up to you. Whatever you feel most comfortable with, do not put all your paycheck towards it unless you're 100% sure that you have enough money for everything else in your budget.
After that one card was paid off, I focused on the next, which was $750. I was able to pay off this amount in a month, thanks to a couple of bigger projects. I also cut back on a few expenses and readjusted my budget to ensure I could pay this off.
By the way, if you're wondering about my savings, I ended up ditching it altogether (for the time being). As much as I loved the idea of having savings, I wanted to really pay off my debt ASAP. This obviously isn't ideal because when an emergency happens, you're going to be screwed but I'm stubborn and couldn't wait. I also got lucky and didn't have anything serious happen.
My next hurdle was a settlement amount for a collection agency, which amounted to $1,250. In this case, I had to negotiate terms with the company so I had very little control over the situation. However, this also forced me to be more aggressive with my payoff plan. In just 4 months, I paid off the entire balance and happily crossed off my second to last debt.
Nearing the End
While I was rushing my process, by no means should you if you aren't comfortable with it. The last payoff amount I had was around $5,000 and it is a vet bill for one of my cats. Interest rate killed me on this one and I've held onto this debt for over a year and a half. Strategizing this one was difficult because I had to find additional ways to put over $1K each month towards the debt.
Naturally, I looked at what I had and started selling stuff on eBay. I ended up selling half my closet and picked up freelance gigs aside from blogging projects.
To be completely transparent, I was also lucky enough to have some major blog deals come my way, which helped a lot. If I didn't, I would've picked up a part-time job to make up for the amount needed.
That $5K debt was paid off in just two months, well two and a half months, because I forgot about the interest rate and had to make an additional payment after the first.
Release and Relief
I didn't have a practical plan nor a step by step guide to paying off this debt. I took pieces of Dave Ramsey's Baby Steps and attempted to do FPU, but never finished. I contribute my success in overcoming debt to Ramsey because of the motivation he gave in his book and podcast, but not necessarily because of his plan.
The biggest problem I had was with myself, my mentality had to change for me to tackle my financial situation first and foremost. I had too much pride and ego to admit what was wrong and I was so scared to face my issue, for fear that people would judge me and see me as a failure. But, at the end of the day, it is your life and no one's paying these bills except you.
To summarize, I didn't do anything crazy to pay off my debt. All I really did was read Dave Ramsey's The Total Money Makeover, which motivated my ass to own up to my debt and then...
I created a spreadsheet, analyzed and made a budget that I was comfortable with.
I only cut out what I truly did not need and better-budgeted everything else
I use Freshbooks to help keep track of my expenses and reviewed my expenses every week
Did monthly financial assessments and readjustment my budget when necessary
Paid off my debt starting from the smallest amount and worked my way up
Found ways to make more money, skipped on my savings and was extremely determined to pay everything off ASAP
I'll reiterate again that everyone's journey to paying off credit card debt will be different. Take whatever is useful in this post, apply it as you wish, and stay focused. If I can do it, you can too and if for one second you feel hopeless, feel free to email or DM me, I will be your cheerleader!
The feeling you get after all this is AMAZING! It is worth it to keep going and do not give up!
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