After a couple months of dating, Sam and I started talking about our future together. I figured that this was the moment to tell him about the state of my fiances. I took a deep breath and just blurted it out, "I have credit card debt."
Sam asked me, "How much debt?"
"Umm, a lot?" I responded embarrassingly
"What's a lot?"
I probably covered my hands over my face at this point because I had never admitted this to another person. Ever. I was mortified.
We talked for a few minutes about how I got into this situation (emotional shopping after my first engagement ended) and then Sam uttered the words that finally lit a fire under my mountain of debt, "I would feel better about moving forward with our future and getting engaged if you start paying off your debt."
So I did it. I paid off $10,000. Here's how I did it:
1. Get motivated. I had tried halfheartedly to pay off my debt before, but never had much success because I wasn't motivated. Getting engaged was a really significant motivation factor for me! Sam also pointed out to me that having debt would affect our ability to buy a house in the future. Figure out what your motivation is; maybe it's buying a house or starting a family. Always keep this goal in the forefront of your mind to help motivate you to keep going.
2. Write down your goal. I've read several times that people who write down their goals are more likely to achieve them. One study suggests that writing down your goals makes you 42% more likely to accomplish them. Another statistic claims an 80% success rate if you write down your goals.
3. Tell another person your goal. After Sam and I had the initial discussion, he was so encouraging and helpful. Sam introduced me to Mint.com, which really helped illuminate my spending problems (see Step #6)., and he helped me come up with a plan to pay off my debt. He would periodically ask me how I was doing me and encouraged me every month my debt shrunk.
4. Come up with a plan. You need to figure out a plan to throw money at your debt. Some people do really drastic things to get out of debt, like moving to a cheaper area, or taking on three jobs, or selling their belongings. My plan was very simple: stop spending.
5. Stop accruing more debt. Everyone gets into debt the same way: by borrowing money. You have to stop using the credit cards. Stop financing new furniture. Stop buying the latest cell phones. Stop buying things you can't afford. This part is really hard! Hello, that's how I got into debt in the first place! In order to dig myself out of this hole, I had to change my lifestyle. To accomplish this, I took my credit card out of my wallet and hid it in a box in my craft cabinet. From this point forward, I only used cash to pay for things.
6. Track your spending. Most people don't know where their money goes, so it's hard to spend less if you don't even know what you're spending money on. By simply tracking my expenses, I spent less. I can't really explain this phenomenon, but that's what happened with me. I read recently that 60% of American adults don't have budget! That was so shocking to me! I use Mint for my budgeting, but I've also heard great things about YNAB. By tracking my expenses, I was able to figure out what my triggers were and adjust my behavior.
7. Identify your triggers. For me it was buying clothes, home decor, and books. Once I realized what my weaknesses were, I stopped putting myself into situations where I would be tempted. I stopped going to my favorite clothing stores. I stopped buying books on Amazon. I stopped going to HomeGoods. Again, this is HARD! I think it helps to tell other people about your goals (Step #3) so they can encourage you. I told one of my co-workers that I was trying to stop buying clothes. She told me she was trying to stop buying shoes. Together we encouraged each other to stick with these goals.
8. Give yourself a timeline. It's not very realistic for the long term to just stop spending money, so I gave myself a timeline for my spending diet. I decided to go for three months without spending any money on extras. My plan was to only spend money on bills, groceries, and gas. After those three months I would occasionally buy a book or buy clothes at a consignment store, but I only spent cash (see Step 5).
9. Start paying it off. By this point you should have cut way back on your spending, and now you can apply this extra money towards your debt. My plan was to pay a minimum of $1000 a month toward my debt. I only had one source of debt and only one credit card, but I know other people have multiple cards. Dave Ramsey's snowball plan is a great method to use if you are trying to pay off multiple cards.
10. Stick with it. Whenever you feel like giving up, think about your motivation (Step #1), confide in a friend and ask for encouragement (Step #3), and DON'T GIVE UP! You can do it!
I'm so glad I paid off my debt before we got married! I feel like I entered marriage with a clean slate, and through this debt process I've actually become really good at budgeting and saving. Thankfully I have not fallen back into the cycle of credit card debt. I do occasionally use my credit card, but it gets paid off every month. We were also able to have a beautiful wedding and European honeymoon without going into debt. Neither of us have car loans, so our only debt at the moment are my student loans, which will be paid off in December 2015 (4 years early).