How We Crushed Nearly $25K Of Debt In One Year

(Originally posted on The $76K Project on 6/24/2018)

Exactly one year ago today, I launched The $76K Project with this post: Introducing the $76K Project (man, I come up with such inspired titles!) In it, I wrote the following:

I'm putting all this out there in part to help myself stay motivated and in part because I know we're not alone. People don't talk about their debt, and if there's anything I've learned from our experience, it's that the choices we make with our money don't always reflect the reality of our financial situations. We are not the only ones who've spent what we don't have and in the process dug ourselves into a deep hole.

At the time, we were more than $76K in debt and coming to terms with what it would take to get it paid off. Fortysomething was working a sometimes lucrative, but sporadic, contract gig, while my 8-to-5 job paid so little that it barely covered the rent for our small, noisy apartment. We were implementing a budget but struggling to establish realistic expectations. We had a car loan, three credit card balances, and two student loans. Using the What's The Cost calculator, we estimated that it would take five years to demolish our debt.

Budgeting - once we finally managed to crack that nut - helped us reduce our expenses; meanwhile, increasing our income accelerated our initial debt repayment plans. Within the past year, Fortysomething landed a salaried position. I took on a side hustle, and then, after a long and tedious search, I found a new job that paid more. With extra money to deploy, we were able to pay off the car and two credit cards.

That said, we've also encountered some challenges. Last February, the unrelenting noise at our previous apartment became so unbearable that we used our tax refund to break our lease and move into a pricy duplex. It was a move that cost us thousands of dollars, money that could have gone straight to our debt. Instead, we used it to secure the luxury of sleeping at night.

At the end of March, the Kiddo woke up with a stomachache that turned out to be appendicitis. One ER visit, a 40-minute surgery, and an overnight hospital stay later, and we were on the hook for over $6000 in medical bills. We've paid about half of it and are using monthly payments from our HSA to cover the rest. (Admittedly, I have not included this expense in our debt breakdown here because... I don't want to. LOL. The HSA money comes straight from my paycheck, and the monthly hospital fees are withdrawn directly from my HSA, so the bills do not affect our budget.)

Anyway, let's get down to what you're really here for:

How much debt have we paid off over the last year?

Car loan: Initial balance: $1,784. Current balance: $0. Amount paid off: $1,784.

We paid off the car last October. It's our only vehicle, and we enjoy being a one-car family. Even more, we enjoy not having a car payment. Our plan is to drive this vehicle for another few years until it just won't move anymore. Once it dies, we'll either purchase a used car in cash or try to get by with walking, biking, public transit, and Uber.

Credit card #1: Initial balance: $1,553. Current balance: $0. Amount paid off: $1,553.

We paid off this credit card last July. It was our first debt win, and it came at a time when we could have easily lost interest in the process. Instead, it motivated us to keep going.

Credit card #2: Initial balance: $9,667. Current balance: $0. Amount paid off: $9,667.

Paying this one off back in February felt amazing. It was here that we really started to notice the snowball effect of paying off the car and credit card #1. We used part of our tax refund to wipe out the last few thousand dollars.

Credit card #3: Initial balance: $11,067. Current balance: $3,821. Amount paid off: $7,246.

This is the card that we're determined to pay off by the end of this month or the beginning of July. As I've mentioned previously, we had some help with this one. A family member gifted us some money (full disclosure there), and Fortysomething's been earning some summer side hustle cash. His side hustle salary plus his end-of-year bonus should be enough to take care of the current balance (perhaps with a little help from our savings, which I'm willing to dip into in order to get this done).

Student loans: Initial balance: $53,219. Current balance: $49,305. Amount paid off: $3,914.

For the sake of brevity, I've chosen to lump our student loans together. The one in my name has a balance of $10K, whereas Fortysomething's loan is about $39K. As you can see, our debt snowball hasn't touched this debt yet, but we're expecting the payoff pace to pick up come August.

When you add it all up, as of today, we've paid off $24,164.

Cue the fireworks!

I feel good about that. That's better than I could have ever imagined when we started. 

Recently, several members of the personal finance Twitter community encouraged us to start tracking our net worth in addition to our debt load. Because net worth takes into account both reduced debt load and savings/investments, changes in net worth often occur at a faster pace than debt reduction - thereby making it a rewarding number to track over time.

We've been using Personal Capital to monitor our credit card and loan balances, and I've taken cursory glances at our net worth for the past several months. I'd been fixated only on the fact that that number is very, very negative, but then I dug deeper, focusing instead on how much our net worth has changed. As it turns out, since last November alone (November was when we started using Personal Capital), our net worth has increased by $25K. It's still negative, but it's not as negative, and the rate of increase has picked up.

Again, I would have never - NEVER - predicted that we'd dispatch nearly $25K of debt in the span of 12 months. Reflecting on our journey, I credit our progress to the following factors:

(1) Obsessive tracking. Since February of 2017, I've tracked all of our expenses in an Excel spreadsheet. I'm going to continue doing it. It's tedious, but it's become a habit, and it keeps me in touch with what we're spending on a daily basis so that we can make adjustments as needed. Several people have suggested that I simply use YNAB or Mint. For me, though, manually logging our receipts makes all the difference.

(2) Spending less. We're certainly not the most frugal people you'll ever meet (you can tell by our grocery budget, which continues to be a hot mess), but we've dialed back our spending in a big way since starting this journey. We no longer book last-minute long-distance trips, make random furniture purchases, or replace our clothing all at once. We go out to eat less and participate in more free community events. When we do need to buy a more expensive item, we'll plan at least a couple of months in advance and fit the expense into the budget. 

(3) Earning more. Honestly, this is a big one. A higher salary is what's really allowed us to make such big strides over the past few months. Yes, spending less certainly helps, but on a limited budget, it gets you only so far. We were making so little to begin with that even with drastically reduced expenses, it would have taken us five very austere years to pay off all our debt.

(4) Letting good enough be good enough. We are by no means doing this perfectly. We often come in over budget. Sometimes we go out to eat more frequently than we should. In my opinion, we spend way too much on groceries (I'm not the one who grocery shops, so I'm trying to let this one go). But we also realize that debt repayment is like an endurance sport: the most important thing you can do to ensure success is to just keep going, regardless of what that looks like, regardless of mistakes made in the moment.

(5) Support from the personal finance community. As I had hoped when I wrote that first post, this blog has become a source of personal motivation and an opportunity to share our story with people who are in the same boat. It's also brought me into the fold of the personal finance community, one of the most encouraging groups of people I've ever encountered. The comments I've received here and on Twitter make me feel like we've got an entire team of debt reduction cheerleaders celebrating our every win, however large or small. I couldn't be more grateful. Thank you to everyone who reads this blog and/or follows us on Twitter and encourages us each step of the way.

One year down, and this is only the beginning. Here's to another year of progress!