Getting Debt Free

While real food, health and wellness are a big part of my journey to embrace the "crunchy", another important part is living within my means - rejecting consumerism, being a producer and living simply.

A huge part of simple living, or tiny living, is getting out of debt and staying out of debt. The average consumer debt is $15,000 per household in credit cards - that's not counting mortgages, student loans or other secured or unsecured debt. Add the $300K+ mortgage on a McMansion, a $200/month car payment on a newer model car and student loans of $20,000+ and it is no wonder so many people went into default during the recession. (Of course the spend, spend, spend model we see from our Federal Government is hardly setting a good example of fiscal responsibility).

For me, I got into credit card debt when my parents lost their jobs during my junior year of college. From the spring of 2006 through moving back to Colorado I worked part-time or full-time and lived cheaply, but still paid for many of my expenses with credit cards because my parents could not help me with them. On top of over $20,000 in credit card debt I was also $20,000 in the hole on student loans from my private Christian school undergraduate education. About a year after moving back to Colorado I had my own debt crisis when I was forced to shoulder the full monthly rent on a two-bedroom apartment when I could not find a new roommate for a few months. Doubling my rent quickly sent me into a spiral of late payments and underpayments. Something needed to be done. Here is what has helped and continues to help me chip away at my debt. I still have some debts, but paying them off is my top financial priority. After paying for rent I pay my debt - even before buying food!

• Make A Budget and Stick To It - A recent BuzzFeed post suggested that one of the things every grown woman should know how to do is to have a credit card and overdraft protection. But I disagree - a grown up and responsible woman would have a budget and stick with it so that they don't need overdraft protection and credit cards to cover their splurges. Keep track of what you're spending on food, rent, utilities, medical bills, insurance and other regular expenses. If you're regularly spending more that you're taking in, it's time to scale it back. What can you cut? What is a "want" and what is a genuine "need"?
• Look Into Debt Repayment Programs - I got onto a consumer debt management plan for my credit cards. I cancelled them and made low-interest payments that they negotiated with a consumer debt organization ever since. Every month an automatic payment was withdrawn from my bank account and went towards paying off those cards. It took 5 years, but earlier this year, around the time of my 30th birthday, I had these cards completely paid off and can now put that money towards savings instead. (Note - I am not putting it towards spending more money on luxury items, vacations or a new car - but towards building a nest egg)
• Pay More Than The Minimum - On my debt repayment plan I did not do this, because it was structured a specific way so I couldn't. But on my student loans I pay more than the minimum every month. I usually round up to the nearest 5 or 0, for instance, one of my loans is $23/month so I pay $25/month. It's not huge, but that's an extra $24 per year, which is equal to having made an entire extra payment!

That's what I've learned when you have to deal with debt the hard way - the best way is to go into little or no debt from the beginning. If you are still young enough to make some better decisions now, or if you have teens or young adults in your life - this is my advice given with 20/20 hindsight.

• Do Not Get a Credit Card - Plastic has become standard, but there are other ways to build your credit that don't require credit card debt. Monthly rent, utilities, car payments and small student loans are all reported to credit reporting agencies and can build a good credit score - don't let bankers give you the hard sell that you must have a credit card.
• Pay the Full Monthly Balance - That said, if you choose to have a credit card pay off the balance each month. Don't let high interest rates end up eating up an extra 15-20% of your hard earned income. Isn't giving that much to the government enough?
• Pay Cash and Avoid Debt - You don't even need a credit score if you never go into debt to make purchases. Of course, this is easier said than done, but as much as possible I recommend paying for things in cash up front. Save for what you want ahead of time and pay for it debt free rather than paying interest on installments after the fact. This may mean withholding instant gratification, but it builds invaluable patience and self-discipline. I was recently able to take a cruise vacation in New England by saving for a year before the trip so I could pay cash up front. When I came home it was a relief to not have to worry about continuing to make payments on the trip I'd already taken.
• Live Tiny - Tiny Living means scaling back on non-essentials. Could you live comfortably in a smaller and cheaper house? Could you drive a used fuel-efficient car instead of a brand new SUV? Could you shop thrift stores and clearance racks instead of the new season at department stores and boutiques? Could you go without cable or dish? The things you need to live your life are different for everyone, but take a good hard look at what are true needs and what are just luxuries, and scale back accordingly.

By following these tips I was able to completely pay off my credit card debt, one of my student loans and a few thousand dollars in hospital bills from the ER visits and procedures that ultimately led to my IBS diagnosis. I'm not completely out of debt (I still have 3 student loans I am paying off), but I am working hard to become so.

What have you or your family done to tackle debt?