This month, I paid off the loans for both my vehicles! I am debt free!
After focusing on getting out of debt for so long (a few years now), becoming debt free is a wonderful and amazing feeling.
Photo by danesparza
It wasn’t easy — my wife and children and I all made sacrifices. It took perseverance. It took some creativity.
And unlike the common misconception about getting out of debt, it took more than frugality.
Let’s take a little trip back in time and see how I got into debt to
start with. For a large part of my early adulthood, I was very careful
to have a small credit limit and to pay off any purchases on my credit
card immediately. I had an auto loan that I paid off religiously, and
later a mortgage that I also paid very conscientiously.
After a divorce, I came out debt free. We had paid off our car loan
and credit card, and the mortgage was no longer my responsibility.
Then I entered a period that I like to call “frugal
irresponsibility”. I made some bad choices, getting a car loan, a
credit card with a higher limit, putting things on the credit card that
I couldn’t afford, spending without a budget … not the smartest
The next period was one where I was crippled with debt, as well as
trying to survive on a single income with no medical insurance. This
was only recently (within the last few years). I wasn’t making enough
to support my family, so we fell deeper into debt.
The most recent period has been my turnaround. I canceled the credit
card, and began to live more frugally. I increased my income and saved
an emergency fund. This is the part where I learned how to get out of
debt. And this is what I’d like to share with you today, in hopes that
it will help others struggling.
You won’t be able to replicate what I’ve done exactly … everyone has
to deal with their situation in their own way … but my hope is that
you’ll be able to glean something from my experiences. At the very
least, a little inspiration. And that’s not such a small thing.
How I Finally Got Out of Debt
This hasn’t been the easiest of journeys for me, but I think because of
the struggle that getting out of debt entails, the final destination is
that much sweeter.
Here are the most important things that got me out of debt:
1. Canceled the credit card. This item always draws
a lot of debate, but I’ll say it anyway, because it’s been crucial in
getting myself debt free: credit cards are extremely tempting, and with
the high interest, they can be downright dangerous. It is possible to
use them wisely and even profit from using them … however, most people
don’t use them that way, and for people like me, it’s better to just
cancel the card. I still had a big debt to pay on the card, but at
least I wasn’t using it anymore. Rule #1: If you’re trying to get out
of a hole, stop digging.
2. Eliminated non-essential expenses.
This might seem extreme to many people, but remember: I have six kids
and for awhile I wasn’t making enough income to support my family. I
needed to cut back. So I eliminated everything I didn’t need: cable TV,
most of my eating out, going to the movies (except on rare occasions),
alcohol, eventually cigarettes (once I quit smoking in November 2005),
buying new clothes (except when really needed), etc. I slowly
re-learned what it was like to live frugally. This was also key, as
it’s part of the “stop digging the hole” rule. See also: How to Stop Living Paycheck to Paycheck.
3. The spending plan. I don’t like to use the word
“budget” because it strikes fear in the hearts of many readers, and
blank stares in the eyes of others. Instead, I like the term “spending
plan”, because it conjures images of creating a plan to achieve a goal,
taking action, and doing something about your problems. Nevertheless,
both concepts are essential the same: figure out how much you make, and
consciously decide how you want to spend it this month. My plan
actually budgets out each paycheck, because a monthly budget wasn’t
useful to me: if I only do a budget for a month, how do I know what to
pay when my first paycheck comes out? I like to be more specific.
Anyway, the spending plan is essential. You have to decide where
your money is going to go before you actually spend it. It was when I
was spending without a plan that I got into trouble. And remember: a
plan should be flexible, and have wiggle room, because life changes. See also: 10 Ways to Simplify Your Budget.
4. Cash and online bill payments. One of the
reasons I had a hard time controlling my finances in the past is that I
was spending left and right with no easy way to track my finances or
stay within budget. I was using a credit card, debit card, checks,
constant ATM withdrawals, etc. I’m not good at writing down every
penny. So I devised an easier way: pay all my bills online (including
debts and savings), and then withdraw all the money I need for spending
categories like eating out, groceries and gas. I use the envelope
system, so that I always know how much I have left in each category.
Simple and fail-safe. More here.
5. The emergency fund. I think this was one of the
most important things I did. I know, it’s very common advice, but it’s
for a good reason: without an emergency fund, your finances are at the
whim of any urgent situation that comes up. Unexpected medical bill?
Home repair? Car repairs? Need to travel to see your sick relative?
These things will have to be paid for somehow, and if you don’t have an
emergency fund, you’ll either go into debt to pay for them, or you’ll
sacrifice your debt repayment for this month to pay for it.
Without an emergency fund, it’s almost impossible to get out of
debt. For myself, my debt reduction didn’t really start until I had
saved at least a small emergency fund (shoot for $1,000 to start with,
but at least a few hundred in the beginning). Read more.
6. The debt repayment plan. I like having plans. They’re how I get things done. I created a plan to get out of debt, using the debt snowball method.
I tackled the small bills first, allowing myself to create a sense of
accomplishment right away, and to free up some money to pay for the
bigger bills. Although tackling the highest-interest debts first is
smarter financially, the difference is small and the psychological
boost of the debt snowball is huge.
7. Debt is my first bill. In the beginning,
actually, saving for the emergency fund was my first bill. As soon as I
got paid, I would go online, transfer money into my savings account,
and only after that was done would I pay other bills and withdraw my
spending cash. Once I had a $1,000 in savings, I began making debt
repayment my most important bill, and I would pay those first. Savings
second. All other bills third. By paying debts and savings first, you
eliminate the common problem that people have when they make savings
and debt the last thing they pay: if something else comes up, there’s
not enough money left over for savings or debt.
8. Rewards. I am a strong believer in rewarding
yourself and celebrating any accomplishment. When a debt was paid off,
my wife and I would go out to dinner to celebrate. And we might do
something nice for the kids. Sure, we were spending extra money, but
that sense of accomplishment is important. It’s a long journey, and you
need to be able to look back every now and then to see how far you’ve
come. It’s very motivating, and it gets you to the finish line.
9. Increased income. Besides spending less and
living more frugally, I also increased my income to make my financial
situation more stable and to accelerate debt repayment. To do this, I
got a full-time job (I was only doing freelancing before), and
continued to do as much freelancing as possible. Then I started Zen
Habits, and that became a steady and growing income stream. I also
improved my freelancing gigs, and began to look for other ways to make
10. More increased income. With the increased
income mentioned in the item above, I was in a much better situation
financially. That gave me the courage to look for more. I sought
donations, to help me achieve my dream of becoming a full-time blogger,
and people were incredibly generous (and still are). I began to seek
new opportunities, and have some projects coming up down the line. I
sold my Zen To Done ebook, and that was a surprising success … it actually allowed me to get debt-free two months before I had anticipated. My wife went back to work, and that helped tremendously. And now my book agent is shopping around my print book proposal, and that could be another
way for me to make more income. Always look for new ways to pursue your
dreams and your passion … and to increase your income.
Why Living Frugally is Only Part of the Solution
I would not be debt-free today if I didn’t learn to live frugally. If you don’t stem the flow of blood, you’ll never heal the wound.
But frugal living is only one component. You have to learn to get
your finances under control, and to plan your spending, and to create
an emergency fund. You have to learn how to motivate yourself to finish
the long journey.
And one of the most important steps, as mentioned above, was
increasing my income in multiple ways, in a series of steps designed to
get my finances in better shape and to pay off debt faster.
Living frugal should be the first thing you do, in my opinion. It is
vitally important. But it’s only a part of the equation — spending less
only gets you part of the way. Earning more gets you the rest of the
How can you increase your income? You won’t do it the same way I
have. Sure, anyone can create a blog, write an ebook, freelance, write
a print book. And I’ve talked about ways to do those things in various
places before. But it doesn’t always work out for everyone.
The key is to find something you’re passionate about, and pursue
that with all of your heart. That might mean educating yourself, and
learning new skills. That might mean finding mentors, and starting at
the bottom. But when you’re passionate about something, you’re more
motivated to learn and to succeed. Really pour yourself into it, and
you’ll find a way.
It’s also important to seek new opportunities, and don’t let good
ones get away. If the opportunity doesn’t work out, well, drop it … but
at least you gave it a shot. And who knows? One or more of those
opportunities might turn into pure gold. They sure have for me, and I’m
loving my life more than ever before.
What’s Next: My Credit-free Plan
So I’m debt-free … where do I go from here? My plan now is to continue
to try to increase my income with new projects, to continue to follow
my heart and my passion, and to see what comes up.
But I plan to still live frugally and to save and invest as much as
possible. In truth, I haven’t done much investing yet (besides my 401k)
… that’s my next financial project, once my emergency fund is where I
want it to be.
There will be a little more spending, to be sure … I’ll be able to
travel now (maybe a trip every year). I haven’t traveled in 6 or 7
But one thing’s for sure: I’m not getting into debt again. I’m not
taking out any credit cards, and I’m not going to take out any loans.
This might be a little controversial, but I’m pretty adamant about
this: I’m already saving for my next car, so I can buy it on cash. And
I’m going to buy my home on cash too, someday. Until then, I can rent.
Debt is a dangerous game. Some people can succeed at it. The rest of
us can’t. For me, getting out of debt has been like shedding a load of
boulders from my back. Living without debt is wonderfully light, and
I’m not giving that up. Sure, I’ll have to wait a little longer to get
the things I want on cash … but that’s worth the wait. It really is.