The debt-free life can seem like a distant dream for some people. It used to be for me until I got serious about my finances. My debt free journey officially started in 2017 but to give you a bit of a back story lets rewind to how I got into debt in the first place.
Back to the Beginning
Let’s rewind back almost 10 years to where my problems with money started. At 18, I moved out of my parents’ house and into a place with my then boyfriend. I was studying at University and I had a bit of a shopping addiction. My bank offered me a $500 ‘student credit card’ with no annual fee. I thought this was just part of becoming an adult, everyone has a credit card right? I accepted their offer and it wasn’t long before I’d maxed out the $500 limit. I asked to increase my credit limit, the bank happily agreed (of course they did). It wasn’t long before my limit increased again, and again, and a $500 limit quickly turned into $6,000. What did I spend the money on? I have no idea…I had an expensive habit of buying things, anything, that I most likely didn’t even need.
When I was 24, I got my drivers license and needed to purchase a car. I decided that I didn’t want to buy brand new, but I also didn’t want just any old cheap car. I took out a car loan through my bank for $13,500 and bought myself a 2-year-old Suzuki Swift. The interest rate on my car loan wasn’t too bad, about 6%. Approximately 2 years later, I decided that I needed some money to move out of a share house and into my own unit. I had no savings for a bond and didn’t think that I was capable of saving so I converted my car loan into a personal loan (at the same time doubling the interest rate) and borrowed more money to use for my move. During the 2 years of having my loan, I had only ever paid just the minimum payments. I had paid off my credit card balance and then maxed it out again numerous times. The problem was my habits and not the credit card itself.
The Lightbulb moment
In June 2017, around the time of my 27th birthday, I decided I was sick of never having any money. I’d been living pay to pay my whole life, just like most of the population. I was paid monthly so I often spent the last week before payday living solely on my credit card. I had a budget but never stuck to it and I had no savings at all. I used to tell people that I didn’t have the ability to save, my expenses were too high etc. Now I realise these were all excuses.
I had heard of the book “The Barefoot Investor” through a friend and decided to give it a read. It was like a light bulb went off in my head and I vowed to change my ways. I started my journey on 15 June 2017, 2 days after my 27th birthday, and decided to give myself the challenge to become debt free by my next birthday. I started with $11,489 of debt; this consisted of $2,443 of credit card debt and $9,046 of personal loan debt. I wasn’t counting my HECS debt as that was already being taken care of through my pay.
Every day I’m Hustling
For the next year, I did everything I could to pay off my debt. This included:
- Evaluating my budget including cutting out unnecessary expenses such as personal training
- Changing utility providers to save money
- Switching to a ‘sim only’ plan for my mobile
- Increasing my income through doing surveys, selling items I didn’t need, casual work on top of my full-time job
- Changing my bank accounts to one with a higher savings interest rate
- Moving my personal loan to a 0% credit card to save on interest
- Cut up my credit card!!!
- Gave myself a limit on spending money
- Spending less money on food, bringing my lunch to work and cutting back on takeaway
The first hurdle was my credit card and using a yearly bonus from my job I paid it out and cut it up. It was the first time in my adult life that I didn’t have a credit card. I was scared! The next 2 months consisted purely of saving money to build an emergency fund. I didn’t have a credit card anymore, so I needed a backup in case something happened. After saving my first $2,000 (which took me 2.5 months) I threw everything I could at my debt, including my tax return and any other money that came my way. I set aside as much as I could from each pay and slowly the number came down. It wasn’t until I transferred my loan to a 0% interest credit card that I really noticed the balance drop because a portion of my payments was no longer getting eaten up by interest. Seeing the number drop was the biggest motivation and little by little I got closer to my goal. By this point my Instagram had also grown a small following and hearing everybody’s encouragement helped when times were stressful.
The final countdown
At the start of 2018, my balance was now $6,331 and I created a chart to colour in each payment towards my debt. Every little section that I coloured in gave me the motivation to keep going.
The process was slow, every payday I would transfer as much as I could to my pay and then wait until the next payday to do it again. I was always excited for payday so that I could see the balance drop.
I’m Debt Free!!
In June 2018, my yearly bonus came around once again and this was what I used to pay the last $1,200 of my debt. I was officially debt free on 15 June 2018, exactly 1 year after I started my journey. I was elated! Never in my adult life had I been debt free. To not have any credit card payments or car payments was the most amazing feeling ever.
I celebrated with my followers and even posted about it on my Facebook for the first time. I kept my journey private from Facebook as I knew that it wasn’t quite ‘normal’ to be seeking a debt-free life. Instagram though has a whole community of debt-free people and so I found my tribe there.
Shifting focus to saving
Now that I’d paid off my debt my next goal was to save a 3-month emergency fund (EF) and then just have general savings. I was made redundant in August 2018, so I used my payout to kick start the 3-month EF and general savings account. I’ve found that saving money seems harder than paying off debt. Without a goal in mind and no clear consequences if I don’t save money (unlike the consequences for letting debt get higher) it can sometimes seem pointless. If I didn’t pay off debt there were more strict consequences, then if I didn’t save as much that month. Also, I haven’t really had a clear goal in mind for what I’m saving for. My goal for savings has slowly turned into just saving for my future, whatever I decide that to be. My ultimate dream is to travel and live in a caravan permanently. To do that I’d probably need to stop work and my savings would be used to buy the caravan and live off.
I try to save a minimum of 30% of my income each month. To keep my motivation going I’ve started to think of it like getting a high score on a game and always trying to better my score. I would keep track of my balance on a board that I could see every day. I’ve also come up with monthly challenges such as no spending on clothing for 1 month and having my followers do the challenge with me. Having the Instagram account is also a constant source of motivation as there are many others who are saving money for a better future.
Whether you’re dreaming of becoming debt free, retiring early or just not struggling anymore, getting on top of your finances will make you feel like a queen (or king)!
My top 5 tips for paying off debt
- Get serious when evaluating your budget. How much of it is necessary and what can you live without?
- Work out what your spending habits are and try to overcome them. There’s no point having a budget if you can’t break a spending addiction.
- Find a source of motivation. Paying off debt alone can get isolating and you risk giving up. Set up an Instagram account to motivate yourself (and others) along the way. Use colouring charts to track progress.
- Find ways to increase your income. The more money coming in, the more you can put towards debt.
- Give yourself time! It’s a process that can be long and trying to rush it can just make you feel like you haven’t progressed. Look how far you’ve come, not how much further you’ve got to go.
All photos from my Instagram @tashagetsfrugal