It wasn’t until my husband and I had our first child and the medical bills started rolling in that I really started to take a serious look at our debt. I had just graduated, and my husband was still in school. We had just bought a house (which we weren’t exactly prepared for), and we were facing credit card debt, as well as mounting medical debt from my son’s birth and some post-delivery complications.
I tallied it all up and realized we had about $140,000 in debt, including the house. Our debt was becoming a serious source of stress, especially now that we had a child. I quickly tore through a copy of Dave Ramsey’s “The Total Money Makeover” that had been sitting long neglected on our bookshelf and vowed to change our ways.
Over the next five years, we paid off $35,000 of that debt — knocking out all our consumer and medical debt as well as a good chunk of our home mortgage. During that time we went through job losses and gains, another college graduation and two more babies. Our income ranged from $25,000 to $60,000. Through it all, I remained focused on paying down our debt — which is a lot easier said than done.
So what does it really take to pay off a big chunk of debt, even when it feels like you’re barely making ends meet? Here are the key actions that helped ensure our success.
Work Smallest to Largest
For those who follow the Dave Ramsey baby steps, this is what’s known as the “debt snowball.” You start by paying off your smallest balance (no matter what the interest rate is) and then move your way up the chain until everything is paid off.
Working our way up through those small victories helped keep us motivated. Every payoff felt like a win, so by the time we reached the point where we started paying down our mortgage, my motivation was still in full swing.
Don’t Give Yourself a Raise
When we started paying off our debt, we were really poor. We had to sell a car to get through that first summer after our son was born to help pay off medical debt (and save on insurance and gas). Over those five years, however, we moved away from the poverty line and into a comfortable middle-class position.
Our income has more than doubled, but we never gave ourselves a “raise.” Our standard of living remained the same so we could pool all our money toward our debt. It didn’t feel like deprivation because it was what we had always known. The only change I noticed was how much smaller our debt was becoming.
Get a Side Hustle
When we decided to pay down our debt, it was obvious that we had an income problem. Since I had quit my job to be a stay-at-home mom, I decided to start an in-home daycare to supplement our income.
Through the years, I ran a daycare, baked custom cakes and cupcakes, and wrote freelance articles to help us attack our debt. Even when my husband’s income became more than comfortable for us to live on, I kept on working so we could keep up the pace on our debt payoff.
Save Some Emergency Cash
Once we had paid off all our consumer and medical debt, we set aside three months of expenses ($10,000) in a separate account as an emergency fund. Although it may seem like setting aside all that cash would postpone the debt payoff process, I found the opposite to be true.
Having an emergency fund to fall back on made it easier to throw lots of money at our debt each month because I knew if something went wrong (like our car breaking down or a trip to the ER), we would have the cash on hand to deal with it. It gave us peace of mind and the confidence to keep paying off our debt with a vengeance.