It’s a cliche for a reason: people set New Year’s resolutions, then inevitably break them. So late last year, when I told myself I was going to pay down my debt in 2017, I pretty much set myself up to fail.
Part of me suspects that’s why I volunteered to write this article—because if I didn’t hold myself accountable, the Career Contessa readers sure as hell would. And maybe, just maybe that would be enough to force me to take charge of my budget.
I’ve owed money on student loans since I can remember, and I’ve never had trouble paying above the minimum or making rent. So for years, I went about my business—while racking up balances on credit cards—comfortable enough with my income that I could simply ignore the mounting interest.
One day, all that changed. I found myself reading an article that pointed out what should have been obvious: debt is a self-fulfilling prophecy. You feel like you’re always broke because essentially, you are—you’re spending every extra dollar you have on paying down what you already owe. After reading, I tallied up how much money I was spending every month on debt payments. The answer was: a lot (if you want a reality check, try it, I dare you). Suddenly, I understood why my friends who weren’t in debt seemed to be able to afford so much more. To put it simply: they could.
And thus was born my commitment to get out of debt this year.
I’ve owed money on student loans since I can remember, and I’ve never had trouble paying above the minimum or making rent. So for years, I went about my business—while racking up balances on credit cards—comfortable enough with my income that I could simply ignore the mounting interest.
One day, all that changed. I found myself reading an article that pointed out what should have been obvious: debt is a self-fulfilling prophecy. You feel like you’re always broke because essentially, you are—you’re spending every extra dollar you have on paying down what you already owe. After reading, I tallied up how much money I was spending every month on debt payments. The answer was: a lot (if you want a reality check, try it, I dare you). Suddenly, I understood why my friends who weren’t in debt seemed to be able to afford so much more. To put it simply: they could.
And thus was born my commitment to get out of debt this year.
Say It Proud: I’m In Debt
Evidently, the first step to dealing with debt is to acknowledge you're in debt so, as embarrassing as this is, here goes: I'm in debt. Specifically, I'm dealing with about $2,100 of credit card debt, $8,000 remaining on a personal loan (that I took out to cover both the purchase of a car and to refinance a high-interest student loan), and $6,000 in student loan debt.
Grand total: $16,100.
Kill me.
Grand total: $16,100.
Kill me.
How to set realistic savings and debt pay-off goals
Turns out wanting to pay off your debt and actually paying it off are two different things. I, therefore, decided to start off in the best position I could—by consulting two financial experts for help (#workperks).
First, I talk to Amanda Holden, a former investment counselor for Fisher Investments who now runs The Dumpster Dog Blog and is working on writing a book for 20-something women seeking to get their finances in order.
First, I talk to Amanda Holden, a former investment counselor for Fisher Investments who now runs The Dumpster Dog Blog and is working on writing a book for 20-something women seeking to get their finances in order.
So How Do You Plan a Realistic Timeline?
“To determine whether you can pay off credit card debt in a particular time frame, use a debt repayment calculator like this one by Credit Karma,” says Holden. She continues:
“You tell the calculator how much you owe, at what interest rate, and the time frame you’d like to pay it off in (one year). It will calculate the monthly payment necessary to achieve this goal (and provides you with some alternate timelines). Do this with each credit card, and add up your monthly totals. Look at this number within your personal budget. Can you pull it off? All timelines are wholly dependent on how much you owe and how much you earn.”
Noted. When I use the repayment calculator on my credit card bill alone, I discover that to pay it off in a year, I’ll need to put down $250/month. That sounds manageable enough, but what about the other bills, and where does an emergency fund fit in?
“You tell the calculator how much you owe, at what interest rate, and the time frame you’d like to pay it off in (one year). It will calculate the monthly payment necessary to achieve this goal (and provides you with some alternate timelines). Do this with each credit card, and add up your monthly totals. Look at this number within your personal budget. Can you pull it off? All timelines are wholly dependent on how much you owe and how much you earn.”
Noted. When I use the repayment calculator on my credit card bill alone, I discover that to pay it off in a year, I’ll need to put down $250/month. That sounds manageable enough, but what about the other bills, and where does an emergency fund fit in?
And How Much Should You Save Versus Apply to Debt?
Cue Ashley Feinstein, the woman behind The Fiscal Femme who has a few pointers on when to prioritize saving versus getting out of debt:
“It makes sense that you would want to pay off your debt as quickly as possible, but this can get some people in trouble. When we put more money toward our debt than we can realistically afford to, we end up paying off a chunk and then accumulating the debt right back throughout the month or next couple of weeks as we spend in our day-to-day. This can make the process feel futile or like we are living on a hamster wheel just trying to get ahead.”
Instead of overdoing it, the key is to set realistic expectations, says Feinstein. And those expectations are based solely on you, your lifestyle, your income, and your debt:
“I’m a big believer in bringing back the personal in personal finance so there’s definitely not a one-size-fits-all prescription for what each of us should be doing,” she says (BTW, she offers a 30 Day Money Cleanse through her site to help set realistic goals based on that philosophy). “I’d say, in general, the technical answer to this question depends on interest rate. If you are paying down high-interest credit card debt, it probably makes sense to prioritize paying that down before building a cushy rainy day fund…”
But you can’t ignore savings entirely, even if you are in debt up to your eyeballs. Feinstein says, “There is something magical and motivating about becoming a saver and anyone can do it. Paying ourselves first is a mindset shift where we treat saving like any other expense. Instead of prioritizing all other expenses above ourselves, we set up savings to transfer out of our checking automatically and we become savers.”
Holden agrees that it’s a delicate balancing act:
“I recommend working on both simultaneously. At the very least, create an emergency fund that covers your health insurance and car insurance deductibles, because this is where people often get in trouble. Do this while paying down debt,” she says.
“It makes sense that you would want to pay off your debt as quickly as possible, but this can get some people in trouble. When we put more money toward our debt than we can realistically afford to, we end up paying off a chunk and then accumulating the debt right back throughout the month or next couple of weeks as we spend in our day-to-day. This can make the process feel futile or like we are living on a hamster wheel just trying to get ahead.”
Instead of overdoing it, the key is to set realistic expectations, says Feinstein. And those expectations are based solely on you, your lifestyle, your income, and your debt:
“I’m a big believer in bringing back the personal in personal finance so there’s definitely not a one-size-fits-all prescription for what each of us should be doing,” she says (BTW, she offers a 30 Day Money Cleanse through her site to help set realistic goals based on that philosophy). “I’d say, in general, the technical answer to this question depends on interest rate. If you are paying down high-interest credit card debt, it probably makes sense to prioritize paying that down before building a cushy rainy day fund…”
But you can’t ignore savings entirely, even if you are in debt up to your eyeballs. Feinstein says, “There is something magical and motivating about becoming a saver and anyone can do it. Paying ourselves first is a mindset shift where we treat saving like any other expense. Instead of prioritizing all other expenses above ourselves, we set up savings to transfer out of our checking automatically and we become savers.”
Holden agrees that it’s a delicate balancing act:
“I recommend working on both simultaneously. At the very least, create an emergency fund that covers your health insurance and car insurance deductibles, because this is where people often get in trouble. Do this while paying down debt,” she says.
How Much Savings Should You Aim For?
“It’s best to have six months of living expenses saved in the event of a layoff or emergency, but if you have credit card debt, you’re paying monster interest rates (and losing your money, fast!) and need to put equal priority on getting rid of them,” says Holden.
In my case, especially living in an expensive city like Los Angeles, six months is...a lot. But having a $1,000 to cover any unexpected expenses like car repairs? That seems like something I can probably manage to pull off as a start.
In my case, especially living in an expensive city like Los Angeles, six months is...a lot. But having a $1,000 to cover any unexpected expenses like car repairs? That seems like something I can probably manage to pull off as a start.
How to Pay Down Debt
Turns out it requires taking a few calculated steps.
Step 1: Let Go of the Guilt and Shame
Too often, we’re so ashamed of our own (admittedly stupid) spending habits that we avoid dealing with them. That can turn into a horrible cycle. Says Feinstein:
“The angel on one shoulder says ‘Don’t buy it—put the money towards your debt,” but the devil says, ‘Go for it, you deserve it.’
The result? You spend more than you can, punish yourself, then treat yourself because you feel bad. Ever heard of “acquisition therapy”?
“The key to forgiveness is mustering up some compassion for ourselves and understanding why we are where we are,” Feinstein says, “When we get how difficult money can be, forgiving ourselves is a whole lot easier. Money is something we can’t avoid, most of us didn’t learn about it, we can’t talk about it because it’s taboo and we give it a lot of power because it is a tool to have and experience what we want in life. No wonder it’s difficult! From this place of forgiveness and compassion, we’re ready to tackle our debt once and for all.”
“The angel on one shoulder says ‘Don’t buy it—put the money towards your debt,” but the devil says, ‘Go for it, you deserve it.’
The result? You spend more than you can, punish yourself, then treat yourself because you feel bad. Ever heard of “acquisition therapy”?
“The key to forgiveness is mustering up some compassion for ourselves and understanding why we are where we are,” Feinstein says, “When we get how difficult money can be, forgiving ourselves is a whole lot easier. Money is something we can’t avoid, most of us didn’t learn about it, we can’t talk about it because it’s taboo and we give it a lot of power because it is a tool to have and experience what we want in life. No wonder it’s difficult! From this place of forgiveness and compassion, we’re ready to tackle our debt once and for all.”
Step 2: Make Savings and Payments Automatic
For Feinstein, one of the best ways to shift your perspective is to turn paying off your debt into a sort of game: “Let’s say you typically buy your lunch 2x per week for $10, but this week you decide to bring your lunch to work an extra day, saving yourself $10. Put the $10 you save toward your debt immediately or tally up the times you’ve saved throughout the week and put the total toward your debt at the end of that week.”
Holden’s advice? “Automate payments where possible. Get that money out of the spending vortex that is your checking account. Address your spending habits head-on. It sounds obvious, but you have to earn enough to cover basics like rent and food, and you must prioritize debt next. There is no sexy way to pay down debt other than with hard work and determination.”
Holden’s advice? “Automate payments where possible. Get that money out of the spending vortex that is your checking account. Address your spending habits head-on. It sounds obvious, but you have to earn enough to cover basics like rent and food, and you must prioritize debt next. There is no sexy way to pay down debt other than with hard work and determination.”
Step 3: Make Small Financial Changes (They're Virtually Unnoticeable But Add Up!)
So hard work is inevitable, but the little stuff adds up, too. “There are small, quiet things you can do to make debt more manageable,” Holden says, “With credit cards, call the companies and ask them to reduce your APR. Let them know that you have trouble making payments and are considering transferring to a lower-interest card if they can’t help (don't actually transfer if they say no). They want to keep you as an interest-paying customer—you might be surprised at how willing they are to accommodate. If you have student loans, consider refinancing with SoFi. Reducing the interest rate on any debt can make a huge difference in how much you pay over time.”
Step 4: Avoid Common Pitfalls and Mistakes
Of course, I had to ask about the common mistakes people make when paying down debt so I could avoid them. For Feinstein, the main one is forgetting the big annual expenses:
“When we think about our expenses, we immediately think about our bills and day-to-day spending. We often forget about the holidays, vacations we have planned, friends’ weddings or the new computer we plan to buy. These bigger expenses that happen less often are very important to plan for because they can derail even the best laid debt pay-down plans. Imagine, you typically save $200 per paycheck toward your debt but then in November spend $400 on holiday gifts that you forgot to plan for. $400 goes back on your credit card and you’re back to where you were two paychecks ago. This is why I like to plan for the entire year. Even planning for a quarterly haircut can make a difference.”
For Holden, it’s also concerning that most of us tend to not realize how much work we’ll need to put in. “You’ll have to make sacrifices to pay off debt quickly,” she says, “When you hear about the people who’ve done it fast, myself included, they’ve almost always cut their expenses to nothing (no subscriptions, no gym membership, no cable, no shopping, no pets), use all bonuses and windfalls (birthday moola included) to pay off debt, they sell cars or downsize houses, side hustle, and so on.”
“When we think about our expenses, we immediately think about our bills and day-to-day spending. We often forget about the holidays, vacations we have planned, friends’ weddings or the new computer we plan to buy. These bigger expenses that happen less often are very important to plan for because they can derail even the best laid debt pay-down plans. Imagine, you typically save $200 per paycheck toward your debt but then in November spend $400 on holiday gifts that you forgot to plan for. $400 goes back on your credit card and you’re back to where you were two paychecks ago. This is why I like to plan for the entire year. Even planning for a quarterly haircut can make a difference.”
For Holden, it’s also concerning that most of us tend to not realize how much work we’ll need to put in. “You’ll have to make sacrifices to pay off debt quickly,” she says, “When you hear about the people who’ve done it fast, myself included, they’ve almost always cut their expenses to nothing (no subscriptions, no gym membership, no cable, no shopping, no pets), use all bonuses and windfalls (birthday moola included) to pay off debt, they sell cars or downsize houses, side hustle, and so on.”
Step 5: Recognize That, As Women, The Pressure to Spend Is Much More Intense
Holden also brought up something I hadn’t really considered before. As women, the pressure to spend more is actually part of the societal norm. “[It’s] the elephant in the room that no one wants to address,” she says, “Between unrealistic beauty standards, the breakneck pace of the fashion industry, and competition via social media, it’s hard not to get caught up in it. Discussing shopping habits is a particularly uncomfortable conversation for women—we do the majority of the consumer spending in the United States, and a lot of that is going on credit cards. Exploring a potential emotional attachment to spending is important.”
I can’t help but think about my Sephora binges and cringe. But then I remember Step 1. You know, letting go of guilt.
I can’t help but think about my Sephora binges and cringe. But then I remember Step 1. You know, letting go of guilt.
Step 6: Pick a Method, Any Method (Or The Snowball v. The Avalanche)
There are probably a million ways to pay down debt, but two options kept coming up in my research: the debt snowball and the debt avalanche.
If you’re snowballing, you throw as much money as you can at the smallest debts first so that you cut down on the number of bills you’re paying each month over time. If you’re avalanching, you throw as much money as you can at the highest interest rate debt, thus avoiding paying extra interest over time.
For Holden, it doesn’t matter which you choose (“No need to stress over which method, just pick one and haul some booty!) as long as you make sure to pay all your minimum payments over time. For what it's worth though, Harvard researchers have found that people get more motivation from paying off the little debts first, meaning they're more likely to stick with their goals long-term. But again, everyone's different.
If you’re snowballing, you throw as much money as you can at the smallest debts first so that you cut down on the number of bills you’re paying each month over time. If you’re avalanching, you throw as much money as you can at the highest interest rate debt, thus avoiding paying extra interest over time.
For Holden, it doesn’t matter which you choose (“No need to stress over which method, just pick one and haul some booty!) as long as you make sure to pay all your minimum payments over time. For what it's worth though, Harvard researchers have found that people get more motivation from paying off the little debts first, meaning they're more likely to stick with their goals long-term. But again, everyone's different.
My Personal Debt Pay-Off Strategy
So we’ve established some good practices and proven that paying down debt varies depending on your lifestyle and your own goals. Ultimately (for the sake of a real example), here’s what I decided to do to face my own debt:
1. Pay Off My Highest Interest Credit Card in 12 Months
By far and away, my highest interest rate is on my Chase Card: 14.49%. I decide to tackle paying that off first, and based on my calculations, aim to pay $300 a month on it.
2. Cancel Any Extra Charges/Expenses
Buh-bye YMCA membership. I’ll be running on the good old streets for the next few months. And goodbye coffees or lunches out.
3. No Spend Month
After copious amounts of research, I've decided to commit to a No Spend Month (you might have heard of this before as "No Spend November"). Basically, the goal is to only spend money on absolute needs and no "wants" for a full 30 days.
4. Build Up At Least 2 Months' Expenses in an Emergency Fund
I’m now funneling all my freelance checks into a separate high-interest savings account instead of putting them into my checking, and I'm taking on more freelance than I normally would (because weekends are for people who have money to burn). The goal is to not touch that account and build it up until I hit $1,500—$1,000 for the emergency fund, $500 to cover year-end taxes. Once I get there, I’ll start putting any freelance money toward my debt.
5. Automate Everything
I spent an entire weekend getting all my bills organized so I can pay them all at once as soon as payday arrives. That way I have a clear sense of what’s left before making decisions on how I spend the next couple weeks.
6. ...Including Automating Savings
I’ve said before how much I love Digit. I’ve been transferring money out of that account and making a credit card payment each time I hit $100.
Sounds simple enough, right? Wish me luck.
Sounds simple enough, right? Wish me luck.
An Update
As of September 15, 2017 (today!), I have 1.5 months rent and expenses in my savings account and I've paid off my credit card balance and a good chunk of that personal loan. New debt total: $10,500. Not bad, right? Here's to more progress in the next few months!
Are you facing debt this year? How are you paying your bills off?
