How I Paid $40K Of Debt and Saved $70K in 2.5 Years

This “How I Paid $40K in Debt and Saved $70K in 2.5 Years” post details how the author was able to pay off debt he owned to creditors and saved more than $70K in under 3 years. The author wishes to provide inspiration to those who are going through the struggles associated with debt or trying to pay off debt.

Not long time ago, I was indebted to the tune of over $40,000 with no savings in the bank and funds for my retirement accounts. During the time when I was buried in debt, I got married and, eventually, had our first baby. There was too much pressure to straighten my life financially for me and my budding family.

Fast forward by 2.5 years, my life has completely changed as I eliminated all of my debt. Yes, free from debt.

In addition, I have saved at least $70,000 in emergency funds, college education funds for my daughter, retirement, and some for leisure. Oh, did I say that during those years, I was the only one working.

Looking back to what I considered as one of the most challenging phases of my life, I could not help but wonder how I and family came out successful in our endeavor.

Up to this day, I cannot believe how I was able to make it happen. I know it was a combination of some many things from cutting down on expenses to stretching out my money to the last cent.

The story of failure

I was about to graduate from the MBA program when the subprime mortgage catastrophe occurred. I had a couple of interviews lined up from some of the big banking companies in the US. But they all cancelled not because of what I did but because of what was going on that time.

After graduation, I attempted to apply but ended up not getting a job. To make the story short, I became unemployed. It was during that time when my sisters and I built our own business.

The business was a retail one. We sold handcrafted bags and women accessories made from the Philippines. We sold our products through arts and craft shows, holiday shows, military base concessions, and malls.

The money was good in the beginning. But our business started to tank a year later. As a result, the business was bleeding money…. a lot of money. Being the person who had a business background, I attempted to revive the company but all my efforts failed.

In 2013 or 2014, we decided to close the business to prevent from incurring more debt. I walked away from the business that I was proud of but I knew it was time. Though we shut down our business, we were swimming in a sea of debt. I can’t remember how much was the debt but my share was around $40,000.

While one of the causes for the business closure was the tanking economy, I believe that some of the major causes were our business missteps or decisions that inevitably affected our business.

Ways To Pay Off Debt

Here are ways I and my family adopted to pay off debt fast.

It’s all about the attitude

It’s always difficult to start on doing something but it gets better when you’re doing it constantly. This was my mantra during those difficult years especially during the time when I was drowning in a mountain of debt.

Instead of subjecting myself into depression, hopelessness, and self-pity, I became optimistic, alive, and eager to pick up the pieces of my life.

I was not married back then when it happened but was in a relationship with my then-girlfriend (now wife). My wife wasn’t in the US when our financial dilemma started to happen but she was worried because I told her the situation.

I knew she was coming to the US eventually and we’re going to have family together. It was that thought that helped me to move on and rose from the worst state of my life. I changed my attitude because I knew it was not all about me anymore, it was about me, my wife, and, our future kids (my daughter wasn’t even conceived during that time).  I didn’t want to continue to live a life of pure destitution.

Some may think that changing one’s attitude will not save you money. They may be right but I will say that it will help you change how you view your life.

I started my quest to eliminate my debt by changing my attitude and moved forward from there.

It’s also about grabbing the right job opportunity

I worked in Las Vegas in 2012 as a financial technician. I was making around $39,000/year (gross), which was considered a good salary for one person. My wife, who came from the Philippines, arrived in Las Vegas in mid-2012 and became pregnant a couple of months after. The good salary wasn’t a good salary anymore. So, I decided to look for another job anywhere in the U.S.

For almost a year, I applied for a lot of jobs. I still remember applying to 435 job openings. Yes, that’s the exact number of applications I sent out. It was hard applying for a job and not getting a call back or an application status.

After 435 job applications and 23 job interviews, I was offered a job from two companies. One was a financial analyst position, which would pay 1/3 higher than the other job, which was a budget analyst position. Many would guess that I took the higher paying job. On the contrary, I took the lower one. I took it because of the potential career growth and salary.

I made the right decision. To this date, I still think that I made one of the best decisions I’ve ever made in my life and for my family because I have moved in my career and salary in a trajectory angle.

Frankly speaking, I used the lessons I learned from running my own business and from my financial technician job to ace the interview, which eventually helped me land my new job.

Basically, the business that I lost helped me get a better paying job and a wonderful career.

It’s all about tightening the belt

During the first month working at my new job, my wife and I decided to set up a flexible budget at first. You may think that it’s not what “tightening your belt” is about? It wasn’t at first but we decided to cut down on our expenses 6 months later and little by little.

The reason that we did it this way was that almost everything was new to us. My wife was new to the US life, she’s pregnant, I had a new job, we’re living in a different state, just to name a few. Changes came so fast and they came all at the same time.

My wife and I wanted to have savings in the bank, funds for retirement and emergency purposes, college education for our daughter, and some for leisure. So, I decided to pay myself first before paying the creditors.  Being the finance person I have always been, I figured and calculated that this strategy best fit our situation.

When I first started at my new job, I was making around $50,000 a year. Every month for the first 6 months, we saved around 45% of our net income and the rest went to debt and monthly living expenses.

After the 6th month, we increased our savings to 46%, decreased our expenses by 1%, and left the debt payment amount the same. Every month, we would increase our savings rate and decrease our expenses until we couldn’t cut our expenses anymore.

Back then, when I had a salary raise, I kept the net increase (i.e. income after taxes), which was the difference between my old and new paycheck, between investments and savings.

Up to now, keeping the net increase every time I get a bonus or a raise has been our saving strategy.

It’s also about others

Many may think that I got lucky for having a good paying job. The truth is, I don’t make a lot of money from my job and have to work on the sides to supplement that $2,450/month savings and that debt payment.

Yes, my savings goal was $2,450/month. I have always known that it’s easier to achieve success when you know that you have a goal or a vision. Without it, you are just looking at walking on a long and winding road with no foreseeable end on sight.

I live near the D.C. area and the cost living is astronomically high compared to that of Las Vegas. Even if I were to make $70,000/year, the cost of living would eat up a big chunk of my paycheck.

In order to continue to save and pay off my debt, I chose to work harder and work on other jobs. I worked as a bookkeeper for a home health agency. I provided tutoring sessions to middle to high school students. I wrote articles for the first two years in exchange for fees. It was during those years that I learned to leverage both my trade and academic skills to earn extra money.

Some of the other ways I used to earn extra money are as follows. Please note that I’m still doing these every year.

  • Helping tenants move. Almost every weekend I help a family move in their stuff to or move out their stuff from their homes or apartments. In a year, I probably get $1,000 in tips (roughly $20 donation each for 50 families). Please note that I don’t ask for a set fee. Everything is by donation. Sometimes, I would get free furniture, which I would sell for an easy profit.
  • Helping others on their tax returns. I have always been helping friends and some acquaintances make their tax returns. I am not a whiz kid and I only use TaxSlayer for doing tax returns. In a given year, I get around $300 just by doing tax returns.
  • Refinishing and selling furniture. Every spring and summer, I work on my projects, which are refinishing and selling furniture. Every year, I would buy used furniture at garage sales or Craigslist, refinish them, and sell them for a profit. I net around $350 a year on this hobby.

Grocery has always been a big piece of my family’s budget. During the challenging days of my life, I clipped coupons almost every night for 2.5 years so I didn’t have to spend a lot of money in groceries and personal items. I used apps like Checkout51 and Ibotta to get rebates for few select items from my groceries.

I wasn’t a fan of clipping coupons back then but I knew I had to. It turned out I was good at it and got more than $1000 of free grocery items in the first year of couponing. Now, couponing has become a second nature to me that a lot of products I buy are deeply-discounted or free. I’ve become a not-so-extreme couponer.

It’s also about luck and passion

If there’s one thing that I know about myself, it is the fact that I like everything about the stock market. Whether it’s buying mutual funds or funding my and my wife’s IRA accounts, I am always passionate about investing in the stock market.

In 2013, my investment return was around 23.65%. In 2014, my return was 16.12%. The returns I got from the stock market contributed to the increase of my family’s retirement funds and college fund for my daughter.

I don’t know if it’s all about luck or if I made smart investment decisions. It’s probably a combination of both.

Conclusion:

I think what my wife and I did in the first 2 years was extreme frugality. We stayed away from even the littlest things that my wife and I call luxury like eating out, buying dresses, buying toys for my daughter, watching movie, just to name a few.

We decided to provide ourselves with needs and completely stayed away from the wants. It was hard especially when we wanted to buy something for our daughter but didn’t want to shell out some few dollars. This was the sacrifice we wanted to go through in exchange for a better future. That future has come. We have been debt-free since January of this year. All the challenges and struggles are all in the past. The lessons they’ve given us will always be with us and will be our guide to whatever decisions we will make in the future.

My family has never been in better situation than we are now. If there’s one thing that came out from this phase of our lives, it is that we’ve become even closer as a family. That makes everything that we’ve gone through all worth it.

 

 

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