It was 2010 and after ten years of marriage it was time to call it quits. I was done. Done with the nonsense, the affairs, the lying, the manipulation, the guilt….I was d.o.n.e. Without any thought of repercussion I packed up my suitcase, grabbed the cat, and I left. Seemed simple enough and it was how my mama raised me….but there were consequences. My divorce ended up taking four years. With little to no assets and no kids many were surprised the divorce lasted that long, but it was no surprise to me. He wanted to stick it to me one last time and he made every process beyond painful, difficult and ridiculous. Needless to say I finally threw my hands up in the air (which is ultimately what he wanted) and threw in the towel…
We had over twenty thousand dollars in joint debt. Initially, because he made seven times my income I assumed he would continue making payments towards said debt, but I was wrong. Within just a few months I started receiving calls from debt collectors wanting money. The minimums alone were over a thousand dollars a month, but it was going to take over three thousand dollars just to get them caught up from months of non-payment. To say that I was scared and overwhelmed would be an understatement. Problem was, I’m an entrepreneur, and if you work for yourself, or are a student, you know what it means to have inconsistent income.
Initially, it was all very overwhelming. As an entrepreneur I chose not to pull a paycheck for five years. After the separation I started to pull a small paycheck but it was never the same each month. Some months I was only able to pull $500, other months I could pull $1500….needless to say it was never the same and never consistent, which made it seem impossible to pay off such a large amount of debt. How on earth could I make a budget this way?
When the divorce started I figured the court would see his income and make him pay at least half of the debt but I got stuck with all of it. Problem was by the time I came to the realization that all of this was happening and I got out of the “holy crap, what am I going to do phase?” my credit was destroyed. I went from a 750 credit score to a 565 practically overnight. I was no longer a sure thing and I couldn’t get a loan or a credit card to consolidate the debt. So I had to do whatever I could to make shit happen. I buckled down, researched and came up with a plan. Here are 21 things I did to get out of debt and avoid the overwhelm.
1) Develop a plan and start a budget
You can’t just stare at the numbers wondering what the hell to do. You also can’t randomly pay the cards each month and think they will eventually get paid off. You need something concrete that keeps you motivated and on track. Figure out how many cards you have, what their balances are, APR %, and write them all down. From there, figure out what you can pay each month towards credit cards. Don’t have any money? Read on!
2) Sell EVERYTHING you can
Early on this was the first thing I did. I had no savings and no money coming in. I took everything I owned and contacted a local auction house and placed everything on craigslist…and when I say everything, I mean my sofa, chairs, dining set, side tables, lamps, dishes, clothes….everything down to my silverware!
3) Look for odd jobs
Get off your high horse and stinkin’ thinking. SO many people I meet over thirty think it’s beneath them to get “odd jobs”. And yes they don’t pay a lot (typically $10-$15/hr) But that extra $300-$500 a month can go straight to your debt and bring those balances down quicker. Boom! During the weekdays I ran my company and worked with high profile clients. In the evenings and weekends I worked for an acupuncturist and a wholesale sporting goods company. I also started pet watching for people who were on vacation. It was like leading a double life. During the day I was the boss, at night I was essentially a hungry college student who looked for every odd job I could find!
In the fall of 2012 it was time to move. I could no longer swing my rent. When I first moved to my rental house I needed the large space because I had so much furniture, but after the auction happened I was free to move. Note: All of this was part of my overall plan: Auction off my things, move and sell my car. (see number 1 above about developing a plan) In an effort to keep costs down, I chose to move into city limits so I could walk to yoga, the grocery store and my part-time job. I do not live in a bustling metropolis. I live in the suburbs and my shopping center is 1.6 miles from my house. I walk 10-15 miles a week so my new house is a win-win. I get exercise and avoid a car payment.
5) Sell your car or down size
After the auction and the move it was time to get rid of my car payment. So much of my income was going to credit cards, rent, attorneys fees and utilities that there was nothing left for a car payment; I fell three months behind and before I knew it I was getting repo calls. I called a friend of mine who went to weekly car auctions and he sold my car. In an effort to stay afloat and create more cash flow for debt payments I moved on to tip number 6.
6) Get a roommate
Other than living with my husband I had never had a roommate. But living in a two bedroom apartment allowed me to split my rent. I took my rent from $1700 a month to $700 a month. Boom, and boom!
7) Snowball or Avalanche your accounts
Now it’s time to get serious. For me it took a solid year just to get my ducks in a row. Finding an auction house, a new place to live, moving and selling my car was no easy feat, especially when I was also in the midst of a divorce. But now I was in a position to finally get serious and pay debt down in chunks rather than pennies.
The snowball method is one of the oldest, but most popular ways to pay off debt. Take your smallest debt and pay more than the minimum until it’s paid off, and just pay the minimums on all the other cards. Then take the money you were using to pay off that debt and apply it to the next lowest debt, while paying the minimums on all the other cards. When that debt is paid off you take both of those payment amounts and apply all of it to the third debt, and keep this method up until they are all paid. (see example below)
The avalanche method is taking the highest debt card with the highest APR and paying it first. When it’s paid off you take the payments that were going toward that card and start paying towards the next highest, and so on. There is no right or wrong. It’s preferable to pay towards the highest APR card first, but ALL of mine were over 22% so I opted to pay the smaller cards first that held less than a thousand dollars. Paying those off has made me feel like I have accomplished something and that all this hard work and sacrifice was worth it. Heres an example: *This is not an exact replication of my payments and loosely includes APR fees. It is an example of “snowballing” and how to stay on track. The idea is to focus hard on one card at a time. Pay the minimum payments on all the other cards except the one that is in “pay-off” mode.
In 2011 (before all hell broke loose in my life) I signed up as a volunteer at the YMCA for domestic violence victims. Not only was this grounding for me, but I found that many of the items that were donated were not of use to the center. In fact, used items were not always excepted like: linens, table cloths, microwaves, used hair products, make-up and more. This proved to be beneficial to me because I auctioned off everything I owned and couldn’t spare money for extras. Things like nice shampoo became a luxury I could not afford, so if a 3/4 full bottle of Alba shampoo landed in the donate bin I got to take it home.
9) Lower APR
This was not an option for me. I called all of my credit card companies to lower my APR and none of them would work with me. Some lowered by half of a percent, but when all of my APR’s were over 22%, a half percent did nothing in the big picture. But it is important to pay attention to your APR’s, especially if they fluctuate, and mine did. Some would go as high as 27% in one month so if you only pay your minimum payment each month the credit card company gets the majority of your money and little goes towards your principle.
10) Plan your trips
If you are an entrepreneur, student or a baller on a budget, you need to plan your trips. If I am walking three miles to yoga and the grocery store you can guarantee that I am planning my trip. If you still own a car this is incredibly important to conserve gas.
11) Donate time to workout
Many of the yoga studios that I have attended over the years offer free yoga in exchange for free help. I have also heard of friends bartering with local gyms for the same service. Just because you are broke does not mean you cannot stay healthy. It is incredibly important to stay centered when working with such a strict budget. When there is nothing left over for yourself you can be left feeling disgruntled, frustrated and pissed off. Do everything you can to stay happy and healthy during this time of spending sabbatical.
12) Highest interest first or lowest balance first
This ties in with tip number 7 above. Once you have a plan formulated and know what your balances and APR is you need to decide how you are going to tackle your debt. Typically it is the smallest debt first or the highest APR first; either way do something.
13) Avoid first thought wrong
If for some stupid reason you are unable to cut up your cards or want them “in case of an emergency” do everything you can to avoid ‘first thought wrong’. What does that mean? If you have low will power and immediately turn to your credit to go out with the girls or think you need to buy a new dress, then you need to create a barrier to make you think twice. I find that freezing them in a large tuperware container was the best method. By the time the damn thing thaws you can talk yourself out of the stupidity. Whatever it is you need to do (give them to a friend, freeze them, keep them in a safety deposit box) to avoid the urge, do it.
14) Pay early to avoid late fees
Early on the late fees were what killed me. When my husband decided not to pay our debt I racked up over a thousand dollars in late fees. Not to mention bad credit, and several accounts were forced closed. Pay early and pay more than the minimum on one card a month.
15) Pay twice a month
Just because you received an extra $25 this month and have already paid your cards does not mean you can’t pay them again. If you get any extra money always apply it to the card you are snowballing. ALWAYS!
16) Use Online Services
17) Get a personal loan
This one can be dangerous but it is an option. Many times when people receive a loan to pay off their debt they receive a false sense of relief as if the debt has been paid off, when in reality you’re just shifting paper. If you have willpower taking a loan to pay off debt can be helpful to lower APR significantly and consolidate into one payment.
18) Pay more than the minimum on at least one card preferably two cards
This goes back to the snowballing, but always avoid paying minimums only. If you can swing it, pay a large amount over one minimum and $10-$20 on top of another
19) Use unexpected money wisely
Many friends I know have come into a windfall of money either through an unexpected settlement, winnings, family, or gift. If this unexpected money can help you move through debt faster don’t waste the opportunity…no matter how tempting that vacation or new car seems.
20) Trim the fat
Get rid of cable, change internet providers, change cell phone plans, cancel magazines, cancel monthly memberships- what ever you can do to trim the fat. I not only did all of the above but I went as far as turning my air off in the summer, I stopped flushing every time I peed and conserved water and other energies every way I could. I joined a food co-op, bartered services, and I purchased all other services through flash sites like group on. I have not paid full price for a haircut in three years.
21) Keep a journal of everything you buy
In the beginning when you are getting into the mindset of “budget” it can be difficult to understand how much you are really spending, especially if you use plastic. Keeping a journal helps you keep track of those $20 habits. I used to think that if something was $20 or less it wasn’t expensive. Problem was I would rationalize my $20 habit four or five times a day….which added up to $100 very quickly. Keep a journal, only use cash (you’ll hang onto it till the death!) and before you know it you’ll find yourself going 2-3 weeks possibly months without buying a single thing, other than peace of mind from paying down that debt!