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In the middle of June 2013, my wife and I got married on a beautiful and humid Texas day. After our wedding, we went to Jamaica for our honeymoon and celebrated with a week long vacation. A honeymoon is amazing, because it is a new marriage with a trip that lets you forget about everything.
Eventually, the trip will end and a plane will bring you back to reality. That reality included $51,802 of debt and officially kicked off our seven month journey to pay off nearly $30,000 of debt in seven months.
Related: We Crushed Our Student Loans with Student Loan Forgiveness ($22.5 Grand to be exact!)
With the knowledge of Student Loan Forgiveness, we became very focused on knocking off our other three debts (two cars and a credit card). We used the following strategies to demolish the other $29,302!
Strategy #1: Get on the Same Page
This strategy is for all of the couples out there. Both of you have to be on the same page. Otherwise the other strategies below won't matter.
My wife and I sat down and discussed our overall plan and budget to pay off our debts ASAP! We both agreed before anything was done financially (We also don't hide any money from each other).
Related: Teamwork = Traction
Strategy #2: Have a Plan
You can go wander into debt, but you can't wander out of debt. Therefore, we decided on a plan and took off. We decided to list our debts in order from smallest to largest. I didn't really care about interest rate. All I cared about was getting rid of a payment, so I could use that monthly payment towards another debt. Below is a list of our debts in order from least to greatest.
- Car Loan 1: $3,703.48
- Credit Card (4 months left of 18 months no interest): $7,428.37
- Car Loan 2: $18,169.79
Some of you may not like the plan that I choose. That's fine, use a plan that works for you. Some people prefer to pay off the loan that has the higher interest rate (technically Car Loan 1 had the higher interest rate). To me that didn't matter and your decision on a plan does not matter to me, as long as you have a plan and stick to it!
Strategy #3: Use Savings to Dump Debt
Prior to marriage, my wife had saved a decent amount of money (she is not the spender in the family). So, we took that savings and paid off Car Loan 1 in full before the end of June. That was a great way to jump start our debt pay off!
If you have a bunch of savings and a bunch of debt, use the savings to help cut your debts. Just don't use all of it. It is good to have a cushion in case of emergencies.
Strategy #4: Use a Budget
A budget, really? Yep, and I still use a budget to this day (I kind of enjoy making budgets). I guess you can call me a nerd.
Each month, we sat down and looked at our income and expenses. Based on our monthly budget, we would then discuss how much to throw at our debt. With our intense focus of dumping debt, we were finding $2,000-$3,000 each month to throw at debt.
Just like with a plan, using a budget requires you to stick to the budget.
Strategy #5: Avoid Home Ownership
Young couples all over the country fall into the "I need a house" trap upon marriage. In all reality, you don't need a house until you are financially secure enough to afford a house.
Simply, this could have been one of the biggest factors that helped us get out of debt so fast. We avoided closing costs (upwards of $8,000). We avoided mortgage payments (currently more expensive than our rent was in 2013). We avoided the property taxes (currently close to $6,000 per year).
Nobody ever tells you about the extra expenses of buying a house. Most people only think about the mortgage payment and forget about the extra costs associated with owning a home. Basically, we didn't buy a house and came out with an extra 14 grand to throw at our debt.
Strategy #6: Live Way Below Your Income
Prior to our marriage, my wife and I discussed our dreams and my wife had mentioned that she wanted to work part-time after having kids. To prepare for this drop in income, we agreed to only live on 3 paychecks and use her other paycheck for dumping debt and for savings (a little bit later).
Thus, we were living on 75% of our income and using the other 25% for getting rid of debt. Our budgets were pre-setup with that 25% being used for debt and added any extra money found for debt payoff.
Still today, we live way below our income. For example, just look at our January spending below:
As you can see, savings is the biggest piece of the pie (42% to be exact). Yes, we saved 42% of our income in January and lived on only 58%! Simple lesson: Live way below your income and your lives will be much simpler.
Strategy #7: Find Creative Ways to Cut Expenses
We have always been a family that looks for ways to cut expenses. In my book, the more I can save today, then the more freedom I can have in the future! Below is a list of a few things that we cut to get out of debt in seven months!
- Buying any new clothes - You can wait 7 months for a new shirt right?
- Getting rid of a Gym Membership - Used nature and used the Apartment's Gym
- Avoided Buying New Shoes - My tennis shoes even had a hole in them...
- Avoided Movie Theaters - Those $11 movies are just too expensive for me.
- No Gifts for each other for Birthday or Christmas - Our gift to each other was getting out of debt!
I can't think of anymore. Sure we have cut some more stuff currently, but our recent cuts did not help us get out of consumer debt in early 2014.
How many of these strategies have you used? Do you have any other creative ways to cut expenses?