When we started paying off our law school debt, we owed over $130,000. At the time, my husband was making $39,000 before taxes and I was bringing in some side income with my Etsy shop. We set an audacious stretch goal of being debt-free in three years, but when we calculated how much we needed to pay each month to be on track to reach our goal on time, it was over $3,000– about the same as our TOTAL take-home pay! We had faith that in that time frame we would be able to increase our income so we could reach our goal.
Our debt payoff plan looked impossible on paper, yet we did it!
Have you ever reflected on an accomplishment and wondered how in the world you actually did it?
I marvel at the dedication, hard work, and sacrifice that went into paying off six figures of student loans debt and wonder how we accomplished it, all while growing a family!
As I reflect on our journey of debt repayment, I can easily identify several habits that made a huge difference in our success.
If you are currently on a debt payoff journey, focusing on the development of these habits will set you up for debt-free success!
1- Planning and Budgeting
It’s no coincidence that this habit is first. I don’t know anyone who accidentally paid off their debt. Repaying debt takes hard work, sacrifice, endurance, and planning. With a solid plan, you’ll be on your way to success.
You will want to plan the order that you’ll attack your debts. You’ll thoughtfully and meticulously decide if you want to start with the smallest debt or the debt with the largest interest rate. If you need help setting up a plan, my Smash Debt quick-start guide has the resources and printables you need to design your individual payoff plan.
You’ll also need to budget like you never have before! This isn’t an arbitrary, one time, set-it-and-forget-it budget. You need to be constantly reassessing and evaluating. Every time you get paid you will set a spending plan (aka budget) for that money. Ask yourself what that money needs to do for you before you get paid again. As priorities change and unexpected spending opportunities arise, you can change the way you allocated your funds. Changing your budget is not a budget fail, that’s progress!
Make a plan for paying off your debt and then make your budget work for you, not the other way around.
2- Asking self-reflective questions
Paying off big debt requires you to get honest with yourself and your spending habits. As we worked to pay off six figures of debt, we got into the habit of asking ourselves a couple of important questions every time we thought about spending money.
1- Do I really need this?
2- Can I use what I already have or go without?
3- Am I willing to pay __% interest on this purchase? (think of the interest rate of your debt)
These questions really helped to curb our spending. The first two questions help us determine if we really needed the item. The third question reminded us that any money we spent on things other than our debt was delaying the payoff of our debt.
Let me be clear that the point of asking these questions is more than just “finding ways to save money.” Instead, this is mentally questioning each and every purchase.
While these questions might sound like overkill or like punishment, for us, they helped us develop a strong habit of focusing on our debt payoff. Sure, we could have allowed more spending by telling ourselves we “deserved” it, but it would have greatly extended the length of our debt payoff and created harmful financial habits that would have slowed future financial goals as well.
3- Looking for Ways to Earn Money
A big part of paying off debt is managing your money well and reducing your expenses. I am a firm believer that you must start with money management (see habits 1 and 2).
I like to picture your pre-debt-payoff finances as a bucket with huge gaping holes in the bottom and sides. It doesn’t matter how much water you put in it, the water is going to go out almost as fast as it comes in.
If you don’t know where your money is going, having more of it won’t change anything. It’s important to take care of those holes before you focus your energy on increasing your earnings.
That being said, once you have a plan for spending (a budget) and a plan for paying off debt, you definitely want to increase your income to speed up the debt payoff process.
Always be looking for ways to earn extra. Instead of binge watching the latest show on Netflix, walk through your house looking for things to sell. Take advantage of any overtime or extra work at your day job. Do you have a special skill you could teach (either in person or online)? Could you offer a product (cinnamon rolls, hair bows, firewood, etc) or service (house cleaning, car detailing, tutoring, babysitting, etc). Can you leave your comfort zone and find a job that pays more? If you are motivated, you can find ways to earn extra money.
When we were paying off debt, we got creative with ways to earn extra money. Finding ways to increase our income was always on our minds. I share some specific ideas in this article.
4. Being open about our financial goals
Another habit that helped us pay off our six figure debt was embracing our current situation by being open about our financial goals.
When others would invite us for opportunities to spend money, we didn’t just turn them down, we also explained our goal so they would understand why we weren’t willing to go spend money with them. In nearly every case, we were met with support and encouragement. In fact, others often admitted that they should make a plan for paying off debt too.
Letting friends, family, and co-workers know why you don’t want to spend unnecessary money will prevent the awkwardness of having to make future excuses as they continue to invite you to money-spending activities. Being open will also hopefully prevent them from being upset or offended that you won’t go out to eat with them and why you turn down expensive entertainment opportunities.
Having others know about our goal added a layer of accountability. Our friends would check in with us and ask how our debt payoff was going. Our openness allowed others to feel comfortable discussing their own financial struggles and goals. When friends and acquaintances decided to start budgeting and improving their own finances they would come to us for advice and encouragement. Being honest and candid opened the door for discussing the otherwise taboo topic of money and created camaraderie and community around personal finance.
Paying off debt is hard. You will need the support and encouragement of cheerleaders. Let go of any shame or embarrassment you feel and let your openness bring you both support and accountability. Your example might be just what someone else needs to start on their own journey of financial improvement.
5. Practicing contentment and gratitude
Comparison is a trap. Resist the temptation to “keep up with the Joneses.” Social media makes the temptation to buy nicer things, take nicer trips, and upgrade every aspect of our lives stronger than ever before. The drive to measure up or appear successful can lead you to dangerous financial habits.
In our debt payoff, we ran the opposite direction from the proverbial Joneses. Instead of buying a new house and new car like many other recent law school grads who had the same (or more!) debt than us, we moved into my in-laws unfinished basement as a family of five. Was it humbling to go from home-owners to basement dwellers? Of course, but we did not dwell on comparisons where we would inevitably come up short. We saw our living situation for what it was– a great opportunity to get ahead financially by paying off our student loans once and for all.
Learn to be content with what you have. Being content with what you already have will give you a financial advantage no matter what your goals are. It doesn’t stop there though. Contentment isn’t just good for your wallet. Contentment will allow you to experience greater peace and happiness.
A key to contentment is practicing gratitude. Often attributed to Aesop, I love the thought, “Gratitude turns what we have into enough.” When we really feel thankful for what we already have, we won’t need to acquire more and more. Contentment is a powerful habit that will benefit you for the rest of your life, but especially while you’re paying off debt.
Whenever we started to fall into the comparison trap while we were living in the basement, we would immediately turn our focus to gratitude. We had so much to be thankful for! Being able to live rent-free while we worked hard to pay off debt was a huge blessing. Keeping gratitude as the focus helped us feel contentment and avoid comparison.
Do you need help planning your own debt payoff?
Are you ready to tackle your debt? There is no better time to start than now! And I have something that will help you get started on the right track.
There are volumes written on getting out of debt. You are welcome and encouraged to read as many of those as you like. Smash Debt: A Quick-Start Guide for Your Debt-Free Journey is not meant to replace those meaty, long-form resources. But sometimes we make the excuse that we can’t get started with something big (like paying off debt) until we think we’ve learned everything.
This straight-forward guide will help you avoid the trap of procrastination. It’s purposely short and to the point so that you can just get started on your debt-free journey.
Each short chapter includes an assignment along with the printable resources you need to design your personal plan for debt freedom. And it’s 50% off right now, too!
Paying off debt can feel overwhelming and discouraging, but I promise you it will be SO worth it!