Ten Things We've Learned About Debt Repayment

(Originally posted on The $76K Project on 10/25/2017)

Although I started writing this blog back in June, we officially commenced our debt repayment journey six months ago, in April 2017. Our financial overhaul was inspired by a sudden, deep desire to offload our $76K in debt (consisting of credit cards, student loans, and a small car payment) so that we didn't have to go through our entire lives with that weight on our shoulders.

Something needed to change. We made a plan, constructed a budget for the first time ever, and dove in. Somewhat miraculously, we've stuck with the process for half a year. We've made plenty of mistakes along the way, but we've also made significant progress, something we'll share in more detail at the end of the month.

Maybe you're at that point, too. Maybe you're ready to take action and ditch the debt. If so, this post is for you. We can hardly call ourselves financial experts, but we do feel like we've learned some lessons that might be relevant to others who are on a similar path or who want to start their own debt-destroying journey:

(1) A long-term debt repayment plan composed of short-term benchmarks is essential. To develop our plan, we took a brutally honest inventory of all of our debt, including credit cards, student loans, and car loans; decided on a general repayment approach (we chose a hybrid of the debt snowball and debt avalanche methods); figured out how much money we could allocate to debt repayment each month (for us, that's $1600); and calculated how long the process would take via the What's the Cost debt repayment calculator. 

We also identified short-term benchmarks. These include credit card payoffs, payoff of our car loan, and establishment of a basic $1000 emergency fund.

Both the long-term plan and short-term goals are important. Obviously, the long-term plan is designed to get us to our overall goal, but given that it's going to take upwards of five years to achieve full debt repayment, we need the short-term benchmarks to stay motivated.

(2) Budgeting is key. It's key for us, anyway. It helps us plan out our expenses and avoid accidental overdraft of our bank account (something we used to do on a fairly regular basis). It took us a while to configure a workable budget - the first two months or so were admittedly a bit of a mess -  but nowadays, we know what our monthly bills entail and when they're due, and we're taken by surprise far less often.

(3) That said, a budget is also a constantly-evolving entity. When I made our first budget back in April, I was under the impression that it should be the same from month to month, which led to frustration early on. Then I realized that a successful budget is a flexible budget, one that we can adjust depending on season-specific needs and one-time expenses. For instance, back in June when we had our fans running almost constantly in our hot little apartment, I budgeted for a higher energy bill. In October, I budgeted for the purchase of winter gear.

(4) Debt repayment requires difficult, sometimes painful decisions. As it turns out, when your salary is limited and you have debt repayment goals, you can't have everything you want. For instance, Fortysomething would love a new iPhone to replace the cheap flip phone he bought when his old phone died, but it's just not in the budget right now. (He's a total tech geek, so the whole flip phone thing is quite un-fun for him. I don't blame him a bit for feeling that way.) Vacation to a distant locale next summer? Probably not. New work clothes to replace my worn and fading work shirts? It can wait until the new year. Rental car when we visit relatives over Christmas? Nope, we'll just have to ask my dad if we can occasionally borrow his minivan. Fewer dinners out? Just the way it is now.

We're not suffering from real scarcity, so I can't complain much. But when you're used to getting what you want when you want it, putting the brakes on immediate gratification can be challenging. It can be tough to say no even when you know it's the right thing to do.

(5) Free activities are more abundant than they might seem. We were used to paying for entertainment - movies, festivals, concerts, etc. - so we thought relying on more free activities would be difficult. As it turns out, it really isn't. We've ditched anything with an entrance fee and have spent more time hiking and running outside, seeking out free movies and fairs, and hanging out with friends. The local paper offers a running list of no-charge activities, so we keep an eye on that and attend the events that look most appealing to us. 

(6) A side hustle can be a game changer. I've written extensively about our side hustles, gigs that bring in a few hundred extra dollars each month. Our regular income doesn't leave much room for savings - so instead, we use our side hustle earnings to beef up our savings account (once we reach our savings goal, the extra cash will go to debt repayment). It's a lot of extra work, and it's totally decimated my beloved evening Netflix veg fests, but I regret none of it. Aside from generating extra income, it gets my mind off of my regular job, gives me a chance to do something I love, and makes me feel more job secure. I highly recommend a side hustle if you're paying off debt.

(7) Even if your ultimate goal is debt repayment, you still need savings. We're determined to pay off our debt as soon as possible, so it's tempting to take any and all extra money and throw it at our credit cards. However, we realized early on that we also need a financial buffer in the event that an unexpected expense lands in our laps. We started by building up $1000 in emergency savings, then decided to add on a holiday/sinking fund. This way, if we do find ourselves saddled with an unforeseen expense, the monthly budget won't get derailed or sink us further into debt. We'll just cover it with savings.

(8) For maximum effectiveness, everyone in the household needs to get on the same financial page. We've found that unless we're all working towards the same goal, it's easy to get derailed. So we talk a lot about debt repayment and how it will benefit us in the long run in an effort to constantly motivate ourselves and each other. Everyone (even The Kiddo, though to a less specific degree) is aware of the budget and where we're at each month with respect to earnings and savings. Both Fortysomething and I are devoted to this debt repayment process and hold each other in check when it comes to planning and spending. Again, we don't always do it perfectly, but we're making progress.

(9) Comparing yourself to others can be a debilitating mistake. I say this, and yet I have to admit that it's something I struggle with on a regular basis. It's all too easy to look around and think that everyone else is in a better financial situation than we are: they have their own houses, they take more interesting trips, they have more flexibility in terms of how they use their time... Every time I fall into this rabbit hole of comparison, however, I realize that it's completely unhelpful and enervating (and, because appearances can be deceiving, it may also be utterly inaccurate). So instead of playing the comparison game, I try to focus on everything our family has in terms of resources and opportunities. 

(10) You have to celebrate your wins. Celebrating our accomplishments - however small they might seem - helps us stay motivated and positive. They also counteract that tendency I have to compare myself to others. Debt repayment is a long road, so it's essential to acknowledge every benchmark and every example of habit change.

Onward to the next six months! I'm excited to see how much progress we make and what we learn in the process.