When I left off last, I had $13,000 left in car loan debt and $3,500 in credit card debt (accrued due to the post-college-young-single-lady-lifestyle, a new boyfriend, and newfound independence).
Like I said, I went on for about a year with all that credit card debt. Gradually, I started to despise living paycheck to paycheck. I was a professional accountant! I should have a handle on my finances!
I was desperate to pay off my debt and couldn’t seem to wrap my head around self-control at that point. I had heard of something called a 401K loan and picked some of my co-worker’s brains about it.
I didn’t know much about this type of loan, but I did know my job was very stable and I didn’t have any fear of being laid off (which I now know is the biggest risk you take when you take out a 401K loan).
I debated for a couple weeks and then pulled the trigger. I took out the exact amount of money from my 401K that I was in debt on credit cards – $3,500. There was a $50.00 service charge and I would pay about $200 in interest over the one year of the loan. Since $150 was deducted automatically from my bi-weekly paychecks, I couldn’t get out of paying $300 back to my 401K every month.
The timing actually worked out perfectly because I ended up getting a pretty sizeable raise around the same time – from about $45,000 to $57,000.
I know that all financial gurus practically forbid you from taking out a 401K loan, but in this case it worked for me. I took out a fairly small amount and my job was extremely stable. (Note: I am NOT recommending anyone do this without talking to your personal financial advisor.)
During the year that I was paying back my 401K loan, I did NOT use my credit cards under any circumstances. Ironic as it was, I was teaching myself how to use credit cards properly, while paying them off with a loan.
I took out the loan in May 2007 and my final payment back to my 401K was in May 2008. As luck would have it, I received another hefty raise right around the same time. It felt like such a blessing since it was just the extra bump I needed to get my last debt paid off: my car.
In May 2008, my car loan had come down to about $10,000. I enjoyed the summer of 2008 and didn’t think too much about paying off my car.
However, something hit me in late August 2008. I just got angry again. I absolutely hated the fact that I had to make a car payment every month. As much as I love Toyota, I hated logging onto their website every month. I got serious. I meant business this time.
I stopped buying ANYTHING. By anything, I mean anything at all that I didn’t need to survive.
I spent $40 on groceries per week, I didn’t go out to eat with Lloyd, I stopped buying drinks at bars, I forbade myself from buying ANY clothes, I learned how to make coffee at home. I only spent money on necessary food and utilities. All my extra money went straight to my car loan.
It was around this time that I started my very first budget. Something I’m sure you all have heard of, right? 😉 The budget kept me on track and gave me a mental amount that I could follow on a daily basis.
I made a goal to debt-free in December 2008. I paid anywhere around $1,500 per month towards my loan – many times more than that.
It was hard – very hard. I wore the same clothes over and over to work even though I wanted to go out and buy the latest fashion trends that fall. I ate peanut butter sandwiches quite a lot of work (which…actually wasn’t too hard because those things are amazingly delicious). If I wanted to have a drink, I’d drink whatever was in my fridge and meet my friends out later and just have water. Lloyd and I really got into cooking dinners at home around this time. It becomes very easy to stop spending money on anything when you combine a female’s wrath (toward debt) and a crazy ridiculous goal. I tell you what, that combination gets things done! 😉
In December 2008, I made my final payment on my car loan and never looked back.
It took about 6 months to pay off about $9,000 in debt with these things:
HOW I PAID OFF MY DEBT:
- 401K loan (not recommended)
- Substantial raises (read: work hard)
- Lots of self-control
- Highly restrictive spending
- Staying busy
- Making a Budget
As funny as it seems, I am so grateful for my debt history. There is no doubt that it changed my way of thinking about finances forever. I am now in more control of my finances than I ever thought anyone could be. I was one of those people that thought it was normal to always carry high credit card balances. I thought it was a way of life. It’s NOT. Now, I never have to be in debt ever again.
It’s coming up on one year since I paid off my debt, and I have no intentions of ever going back. It helps to have someone in my life that shares the same values of debt-free like Lloyd.
I was never frugal or mooched off anyone. I merely tighten the grips on my wallet and learned to tell myself “No!”. I think this is the best way to pay off debt. It worked for me and I know all you readers suffering with debt right now will become debt-free someday, too. Realizing that being debt-free is the way to live is already half the battle!
Thank you so much for following along this journey with me! I hope this series makes me a little more relatible to my readers. Now you know – I was once there, too!