I’m out of debt

by Jen (March 7, 2008)

I’m officially out of debt this month.

Several years ago, I had college loan debt and car payments. Then I went through a horrible three-year period where I never had a steady, full-time job - I was temping and working part-time when I could find work at all. It was a good thing I had good credit, because when I barely made enough to pay rent and had no medical insurance, every other bill sometimes had to go on the credit cards. I was lucky - I had zero percent interest cards (back then, you could get these if your credit was good enough), and was able to bounce a lot of the debt around on zero percent interest balance transfer offers (ah, the good ol’ days - you can still do this, but not without hefty fees).

When I got a full-time job that actually paid my expenses and provided insurance, it was time to get out of debt. Some people recommend staying in debt and saving money instead, but that’s not for me. I’m now on a cash basis, paying off everything every month, and that makes me happy.

How did I do it? And don’t stop reading because zero percent interest is so hard to get now - what I did can be applied to low interest credit offers, too.

• I looked at all my debts and found the one that made me most anxious was my student loan debt. My options for repaying it weren’t as flexible as my options with other debts. So I transferred it to a zero percent credit card, thus increasing my credit card debt but lowering my overall interest owed. Even if I hadn’t had zero interest, I think I’d have made that move as long as the credit card interest was lower than the student loan interest, which it was.
• My various cards with zero percent interest offers weren’t going to stay zero forever. I threw every penny I could at the one whose zero interest was expiring soonest, and made minimum payments on the others. This is a variation on the snowball method.
• I found I had a relative nearby who didn’t use her car very often because she works from home - it was a good car, and not being run regularly wasn’t good for it. We worked out a deal where I sold my car, gave her that money plus an agreed-upon monthly payment, and we now share the car. I drive it most of the time, and she borrows it for a day here and there. On workdays, she would drop me off and pick me up from work. And this in a city notorious for terrible public transportation, making cars a necessity. Maybe we can’t live without our cars yet, but two people can easily share one car in some cases.
• For a while, I wasn’t really saving any money. I had maybe $1,000 in checking that I wasn’t touching. This may not have been the smartest move, but when I got my bonus the first year at my new job - several hundred dollars - I put it in an INGDirect account and have not touched it since. I did this with all my bonuses, so within a few years I had several thousand in savings.
• I kept paying off one credit card at a time, and bouncing the balances around to new zero interest offers. If you did this with low interest offers, you’d still be minimizing the costs above and beyond the things you actually bought.

And what was my lifestyle during this time? For the first couple of years, I was very frugal. I didn’t have cable. I changed my cell phone to pay as you go and didn’t waste minutes talking to friends I could just as easily email. I didn’t eat out at lunch time. I stopped going to movies (and didn’t miss it, actually). I didn’t rent videos. I didn’t buy new clothes until they were actually needed. (I did have relatives who bought clothes for me on birthday and Christmas, so that worked out well.) But I still had my internet and my computer, so that was fine by me.

After a couple of years, I did some calculations and realized I could put $500/month toward my debts easily, even in months when emergencies happened, and be out of debt in three years. I decided to ease up on my frugality a bit, but found I hadn’t missed much of the stuff I had been doing without. It was awesome to feel indulgent just by having an affordable lunch out, and I decided not to fall into the trap of indulging in more and more luxuries until they all felt like necessities.  Most people would consider me very frugal because I don’t spend money on half the stuff they do. But I feel like I indulge myself frequently. I don’t drive to a different store to save $1 on shampoo like my parents felt they had to. I don’t deny myself the more expensive product if I think it’s the better choice. I feel like I buy whatever I want, and so what if that’s partly because I’ve trained myself not to want so much? It feels good.

My next project is saving up to buy a house. Now, I live in Los Angeles where a half a million will buy you a tiny fixer-upper that needs $25k in repairs, so this is a crazy challenge for someone earning only five digits. But I have a plan, and I’ll let you in on it in future posts.

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