The road to Debt Free Living
Debt free living and how I got myself out of debt. Like most young adults I too was drowning in the credit card debt of America. Not knowing how the credit system works and desperately needing to establish credit I went on a journey of applying for credit cards not knowing that every time they ran my credit it was deducting points off my credit and hurting me. It had to be about the 7th bank I went to apply for a credit card until I was told “you know every time you apply it deducts 5 points off your credit score right?”
Finally I got approved, it was for a Capital One credit card with a high interest rate, 20+%. I didn’t care, I got a credit card. Still continuing my journey, got approved for a few more credit cards. Thinking my new found money had to be spent, I went on a shopping spree, system for my car, clothes, shoes, etc.
Then came my bills which of course like most Americans I was living above my means, which wasn’t a whole lot since I didn’t make much, I was a cook at 2 different restaurants. Spent about 3-4 years ducking and dodging the credit card companies, banks, medical bills, and of course collections. I would make $5-$10 payments thinking they won’t take me to collections which is false. I believe by speaking to some of them and trying to make arrangements they did not take me to collection.
Finally in December of 2004 I landed a better job and put on my big boy pants and decided to try to pay back what I owed (upwards of $25,000) instead of filing for bankruptcy. I took a long hard look into my bills and finances that were long overdue and came up with a debt free living plan.
- First I got rid of all of my credit cards
- Second I started by prioritizing my bills by lowest $ owed to highest owed attacking the lowest $ amount first. Still paying minimum on other bills.
- Third looked at interest vs no interest. The ones with no interest are low priority.
- Also looked into consolidating bills
- Pay more than the minimum payment on the high prioritized debt first
Looking at my spending habits
- Cell phone bill. Can you go prepaid instead of contract? Can you cut out subscriptions, games, or go to a lower plan?
- Auto insurance. Have you shopped around for car insurance? It’s best to shop around for car insurance every 2-3 years
- Home/renters insurance. Same as car insurance it’s best to shop around every 2-3 years.
- Entertainment. Can you cut out monthly cable? Do you have Hulu, Netflix, Disney plus, Amazon video? Could you limit it to one, cut out completely? There are free sites and libraries usually have free movie rentals.
- Food. Stop eating out! Budge buy, use coupons, get off brand products. Make a grocery list and stick to it. Now you can order your groceries online for free, all you have to do is pick it up. This will avoid compulsive buying. Don’t shop on an empty stomach.
- Kids. Kids clothes and shoes can get expensive. Try your local goodwill or consignment shops, also eBay, craigslist, and Facebook marketplace. Sometimes you can get brand name items for a fraction of the price.
- Hobbies. Cut out expensive hobbies. There’s plenty of free things you could do.
- Create budgets. Have an account for your bills and have a separate account or prepaid for your weekly expenses
- Account #1 (Bills account) – If your monthly bills are $1200 (rent, electric, gas, water, trash, phone, insurance) try to keep a little extra for just in case. It’s best to have 1-3 months worth of bills cash.
- Account #2 or cash (Day to day account)- Only money that you need for groceries, fuel. Get in the habit of, when this day to day cash is gone you do not have any more, limit the amount you can spend.
- Account #3 (Saving/investing account) – Try to start a savings account. Back up cash. Put it in an online only investing account or high yielding savings account so it is harder to access.
- Pay bills on time, watch out for overdrafts. As simple this sounds one time or another we all have done this. Both of these extra fees can be very expensive and a blow to your account.
- Second job/side hustle. Do you have time to pick up a 2nd job for a while? Do you have any side hustles you could do. For me I worked on cars, bought, sold and traded cars/car parts until I got into investing and trading in the stock markets. Check out some side hustle ideas