How I got out of debt

I think the question people ask me the most is: How did you get out of debt?

These are the 7 steps I followed:

1. Deciding one day, to get out of debt & stay out of it
2. Tracking all my debts down to the penny with their respective interest rates
3. Tracking my income & daily spending (down to the penny)
4. Making a budget
5. Making changes to my lifestyle (deflating it, rather than inflating)
6. Increasing my income
7. Staying disciplined & psychologically committed to clearing my debt

But even after hearing all of the above, I still get the inevitable question of:

Okay yeah, I read all that, I know I’m supposed to spend less than I earn and use the money to pay down my debt…. but how did you do it!?

I finally realized today that people are not asking how I TECHNICALLY got out of debt (I mean come on, look at all the information available on the ‘net!).

They are really asking me how I got into the mindset & how I stayed motivated in the face of temptation.

So here are my decisions & motivations to get and stay out of debt.

1. Being sick of my debt

I was disappointed, no, DISGUSTED with my unorganized finances. I couldn’t believe I let myself rack up that much debt, and I knew I could have done better.

Letting bygones be bygones, I used that disappointment to motivate myself to make a change for the better.

Every time I looked at that number, I would feel even more motivated to watch it go down, and I was scrutinizing every purchase I made, because it had an impact towards my end goal of being debt-free.

2. Being obsessed with understanding my money

I read about people’s spending, their lifestyles, tips, tricks.. anything I could get my hands on. I became obsessed with trying to understand my money by reading what other people did with theirs, and seeing how it made me feel.

The top 5 things that stood out to me were:

1) No one else has a better interest in your money than you do
2) $1 of your net income saved is $2 of your gross income earned
3) You WILL make mistakes: don’t get mad, just learn from them
4) Compounding interest is magical
5) You need emergency savings (at least 3-6 months)

I also credit this whole personal finance obsession of mine to reading a single book that changed my outlook on life: The Millionaire Next Door by Stanley & Danko.

I realized that having lots of money into the millions wasn’t for showing off what you bought, but for the security, freedom and peace of mind that it brings.

This may seem like common sense to a lot of you, but it never clicked in my head as being significant until I read that book and it all fell into place.

Since then, every other PF book I’ve read has been ho-hum. I would like to pick up (from the library) the authors’ other books on millionaires, but for me, nothing has really held a candle to their first book.

3. Tracking my expenses & seeing the analysis

I started trying to keep a budget, which was a disaster for about 3 months, because I was trying every budgeting tool I could get my hands on out there (MS Money, Quicken, Pear Budget, etc), and was SO FRUSTRATED that I wanted to give up.

None of the budgets out there let me see what I found important, like whether or not I paid for what I bought the other day on a credit card (which I kept at $0), at what store, what I bought, why.. it didn’t have the detailed level of tracking & analysis that I felt I needed, and it didn’t show me anything I found to be very useful.

Then I thought: What the heck, you should make your own damn sheet and I ended up creating my own version with colours & pretty graphs to keep me interested.

From then on, it was like I was on fire.

I tracked my expenses daily, and found it to be a lot of fun, and enjoyed speculating when I’d clear my debt.

A simple action of typing in what I spent on groceries that day, made me quickly re-assess what I bought that day, because I could see how much money I had left over for groceries for the rest of the month.

It made me reinforce habits such as stopping my habit of picking up a $2 item I didn’t really need or want (junk food, pop.. take your pick) at the grocery store isn’t just $2.

It’s $2 that if you don’t really need, essentially goes to waste, because it eats up your budget & affects your spending for the rest of the month.

I felt like I became more conscious over time, and I’d pick up something from the grocery store the next time, wonder if I needed it, and either put it in my cart or put it back on the shelf.

I also started meal planning as a result, so I would stop buying one-off ingredients that would just sit in my fridge.

4. Changing my lifestyle

After doing a little bit of my expense tracking for a while, I stepped back as objectively as I could, and scrutinized each line item in my budget, paying particular attention to the fixed line items (rent for example).

I spent time thinking about why I had it on there, if I could do better and what it was really costing me.

So for example, I looked at paying for cable television – $35/month. I asked myself what channels and shows I liked to watch, and then observed my watching habits over a month or so. I realized that I was watching re-runs, and I wasn’t really watching the show, as I was using it as a way to kill time which led to procrastination and then my feeling stressed & rushed on some days.

I did the calculation for the year ($35 x 12 months = $420), and then slowly realized the $420 a year may not seem like a lot, but if I put in $35 a month for 30 years, at 3% interest it would be …


Mind boggling.

Or it could be $420 more towards my debt each year, which would decrease one of my debts by 70 days (it was costing me around $6/day).

That’s when I made a decision to cut it out of my life and I decided to watch my favourite shows in other ways, such as buying the DVD boxset, or finding the shows online instead. I’ve never looked back since, although when I am in a hotel room, I do flick on the TV out of boredom.

I did this for everything I paid for: rent, landline telephone, groceries, transportation, makeup, clothing, entertainment, eating out, Starbucks habits, and so on.

These little changes I made all added up and the effects from my lifestyle changes didn’t happen over night.

I should note that in some areas I decided to spend more money, such as going to a dentist & doctor for a checkup mroe often, because my health & particularly my teeth are very important, and I have a propensity to generate a lot more plaque than most people. :\

To this day, I am still constantly thinking about my purchases, mistakes I (recently) made and how I can do better in the future. It is a lifelong process with a beginning but no end.

5. Finding minimalism

This came out of the blue, as I was staying in a hotel 3+ years ago.. just around the time I started this blog.

I realized that I had been in that hotel for about 3 months, with one large suitcase, and I didn’t miss much, as long as I had a kitchen and a bed. That’s when the wheels started to churn and I saw the potential for a different kind of lifestyle — where I’d have less stuff to buy, take care of, and use.

I had no idea what minimalism was at that time, and I called what I did being a “modern nomad”, because I had no set home address and I was living out of hotels.

It has saved me a bundle of money, and made me re-prioritize what I want to spend my money on — namely traveling.

It also made me re-assess what I wanted to do in retirement (which is still up in the air right now), but I have a better idea of what I expect my retirement to be like.


And that’s pretty much how I did it

I tried not to let myself become debt-crazed, but I think as I neared the end of my debt, I may have scared BF with how obsessive I was getting about seeing my debt drop each time.

He of course, never having had a stitch of debt in his life (education paid for in full by scholarships & his parents were VERY frugal), had no idea about the kind of metamorphosis and change I was going through.

I made a lot of mistakes (and I still make them, but I feel like I’ve grown by leaps and bounds from when I first started.

Maybe I am just more naturally inclined towards all of this, but I really think that if you are motivated to do something, it’s just a question of how motivated you are.

If you want to get out of debt, you will find the will and the ways to do it, and even when there are setbacks, you get angry/sad about it, but you move on & push on.

That’s really it. It doesn’t seem like a lot when you read the steps, but psychologically, it was intense.

About the Author

Just a girl trying to find a balance between being a Shopaholic and a Saver. I cleared $60,000 in 18 months earning $65,000 gross/year. Now I am self-employed, and you can read more about my story here, or visit my other blog: The Everyday Minimalist.