Lessons We Learned While Getting Out of Debt

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Just because we’re experts on personal finance today doesn’t mean we always knew the right answers when it came to our own finances. In honor of Financial Literacy Month, some of our Nerds are sharing money mistakes they made and the lessons they learned along the way. (Here’s NerdWallet’s guide to getting out of debt.)

This week, we’re taking a look at how some of our employees paid off their debt. Stay tuned for saving for retirement, building credit and buying a house. Follow us on Twitter and Facebook for more great tips.  

 

Sean McQuay, credit cards expert at NerdWallet

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Tell us about your experience in getting out of debt.

“I built a budget that was simple and that matched how I thought about money. I’d tried standard budgets that track spending across dozens of categories like groceries, clothes, gasoline, car repairs, etc. over the course of a month, but I simply didn’t think that way when it came to my spending, so these type of budget tracking systems were impossible for me to follow. There were too many categories to keep track of, and outside of rent and a couple of other bills I didn’t think of my money in a monthly time frame.”

How did you manage to stay out of debt?

“I built a budget that gave me a bucket of money to spend on anything I wanted each week. This amount re-set every week. Through this approach, I was able to cut my spending dramatically while simultaneously feeling like I had more money on hand.”

What is your advice when it comes to getting out of debt?

“Getting out of debt requires work. You’ll need to cut back on expenses and set aside income — but remember that these short-term sacrifices greatly increase your long-term freedom. It’s worth it.

“If you’re working on paying off credit card debt, consider consolidating your debt onto balance transfer cards. Many will waive credit card interest for a period of time, which really helps cut costs.”

 

Nicole Colwell, communications pro at NerdWallet

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How did you manage overcoming a large amount of debt?

“I was incredibly fortunate not to have student loans, but I did carry a healthy amount of credit card debt throughout my 20s. After a few perfunctory attempts to pay it off, I was finally successful once I took a hard look at what I owed and what the interest was actually adding up to in the long run. Seeing thousands going to interest (!) was all the motivation I needed. I calculated how much money I could set aside to pay off my debt each month, put all of my credit cards in a spreadsheet — ranked by interest rate — and set a realistic deadline to be debt-free. Then, I paid the minimum amount due on the lowest interest cards and put the bulk of my ‘get out of debt’ budget towards the highest interest card. Once the highest interest card was paid off, I focused on aggressively paying off the next card on the list.”

What do you wish you would’ve known from the beginning?

“I made quite a few silly mistakes racking up then trying to get out of debt — that’s part of why I joined NerdWallet!

“Honestly, when I opened my first credit card at 18, I wish someone would have told me that being smart about credit doesn’t just come down to a credit score. For the first few years — when I was a student, then when I was broke and trying to make it in an expensive city — I figured I was doing fine because I never missed a payment and wasn’t exceeding my limits. I had a good credit score — that was being responsible. Meanwhile, I was living beyond my means, buying handbags that were 50% of my monthly salary then using my credit card to buy Top Ramen so I could eat.”   

What was or is your most challenging experience when it comes to becoming debt-free?

“The most difficult part was finding a ‘get out of debt’ process that worked for me. You really need to pay attention. Initially, in my quest to become debt-free, I decided to set up automatic payments up on my credit cards, take them out of my wallet and stop using them. But, I never calculated how long it would take me to actually pay off the debt or the real impact of interest. After a few years, I’d barely made a dent in the principal but paid thousands in interest. Once I put together an actual plan, I was out of debt in less than 18 months.”

What were the biggest or most unexpected learnings that you’ve experienced when it comes to becoming debt-free?

“It sounds like common sense, but really read the fine print. For my first big electronics purchase, I opened a ‘no interest for 18 months’ credit card, didn’t read the fine print and set up automatic payments. Because I didn’t pay off the purchase in 18 months, all of the interest was charged retroactively. Let’s just say by the time I realized what happened, it ended up being a really, really expensive home entertainment system.

“Now that I am debt-free and am using credit cards responsibly, one lovely surprise has been how many benefits I reap. Now, I can use credit cards to rack up miles or travel rewards, get price matches — I even have one with a concierge service that will make reservations for me. For free. Much better than using them to buy that Top Ramen!”

 

Emily Starbuck Crone, writer at NerdWallet

Follow Emily @emstarbuck

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How did you manage overcoming a large amount of debt?

“Once my husband’s law school student loan payments came due, we got very serious about budgeting and started having monthly budget meetings together to outline our upcoming monthly expenses, and then we’d track them in a budgeting app to help us stay accountable.

“We lived on one income and put the second toward his debt. We meal plan and grocery shop for it every Sunday, which helps us save tons of money on food. We’ve paid off $60,000 of the student loan debt in the last few years, and part of the way we’ve been able to do that is by avoiding other debts. Neither of us have car loans, we rent an affordable home, and we avoid credit card debt unless absolutely necessary for a short-term expense.

“At times, we’ve also done freelance work in our spare time to make extra money. If unexpected expenses pop up, we look at the budget and see what optional expenses can come out of it so that we don’t have to put it on a credit card or pull from savings. And when we get windfalls like a work bonus, we try to put it in savings or put it toward the debt (or both) rather than blowing it.”

What do you wish you would’ve known from the beginning?

“That budgeting means freedom. I never lived on a real budget until I married my husband and began sharing the burden of his law school student loan debt.

“Before we got married, while I lived how I wanted to (no budget) and still managed to save some money, I often went through my paycheck too quickly and had to sweat out the last week of the month when things got really tight.

“He got us on a budget so we could live within our means and start paying down the debt, and at first I resisted and felt constricted. For the first few months, I was miserable and hated not getting to impulse shop like I was used to. But as time went on, I realized that if I stuck to our budget, I didn’t have to worry about running out of money at the end of the month anymore — every dollar had its place.

“It soon became very satisfying to know that if we stuck to the budget, we’d have enough money for the essentials, for his student loan payments and for a little fun. It’s so liberating not having to worry about running out of money anymore!”

What was or is your most challenging experience when it comes to becoming debt-free?

“Our priority is paying down my husband’s law school student loans, and while we’ve knocked $60,000 off the total, we still have just above $100,000 left.

“It really weighs on me sometimes. We had a plan to knock out the debt in a few years, but my husband recently left a stable job to open his own law practice, which is better in the long run but has set us back a bit as he builds up his business.

“Sometimes I feel like the debt holds us back from living life to the fullest; we don’t travel as much as I’d like to, we don’t eat out as much as I want to, and we’re not buying a house for a while. It’s hard watching our peers buy their first homes, globe-trot, eat out often and make big purchases we can’t afford.

“While we do have peers with the same student debt load who are throwing caution to the wind doing those things anyway, we prefer to make the debt a priority for now, especially since we don’t have kids yet — it feels the most responsible for the long-term to us, so we won’t have the debt hanging over for us as long.”