How I Got Out of $20k of Debt In One Year

Photo Credit: Unsplash

I wanted to write a piece for people in debt or who have too many bills to save some money and get ahead.

I will start by saying that I work for Canada Post as a Letter Carrier, and I don’t make a ton of money. About CAD 25 per hour. So pretty middle of the road to maybe low-end income.

I wanted to get that out there as a goalpost because everyone’s debt to income situation is different, and it's all relative. Twenty thousand in debt isn’t as big a deal to someone who makes over $100k a year.

In October 2019, I was $20,000 in credit card and line of credit debt, only making about $50,000 a year, and I didn’t know if I would ever get out. It was scary and awful. I hate debt.

By October 2020, I was debt-free and had $1000 saved. Now I am saving money and making plans to start a new, fantastic life in a Latin American country in a few years.

Here’s my story and how I took back control of my finances:

Until recently, I had been broke for about ten years. Back in the day, I co-owned a house and a vacation property, I had a car, and I had some savings. Then I tried to follow my dream of travelling and living in a new country, which I did, but I didn’t have a plan, and I spent it all.

About four years ago, I went to a treatment centre for drug and alcohol treatment. My incredible mom paid for my stay there and any necessities I needed. She also paid off a significant debt for me — what an amazing woman. I am so lucky.

Anyways, I had no money going into treatment, and I had no money coming out.

Long story short, I racked up lots of debt trying varying degrees of “get rich quick” schemes such as dropshipping and affiliate marketing.

I had $10,000 of debt on my credit card and $10,000 in my line of credit. I was using my line of credit to pay my credit card bill, and I was trying to pay off as much of my line of credit that I could. In the end, it was not enough.

I heard a great piece of advice in my life coaching training video (another money-making avenue I went down!). The instructor talked about the lies we tell ourselves and how they stop us from becoming who we want to be. She said clients would say to her they wish they could go back to school or something, but there isn’t time. It will take too long, and they will be too old once they complete it, they say.

Here’s the thing: life goes on whether you take action or not. In the case of going back to school for a four-year degree, the four years will pass anyway. So do you want to be four years older or want to be four years older AND have a degree.

The same logic applies to debt. In two years, do you still want to be struggling with debt, saving a bit, paying a bit? Or instead, make some sacrifices right now, be debt-free, and be on your way to a headache-free life in two years? The time is going to pass by anyway. You might as well get the debt part over with as fast as possible.

How I (and you) got into debt is entirely inconsequential now. The fact is, here you are in debt, and now you have to get out.

This is the first step: acceptance and awareness.

I had to take a step back and realize that I was in a shitty situation, and I had to get out. At this point, I will strongly advise that if you are in absolute dire financial trouble, get professional help. There are many free debt counselling services. This is no time for pride. Debt sucks. Do whatever you need to do (legally) to get out.

Right before I realized I needed to take drastic action, I was paying off a bit of my line of credit (LOC) and a bit of my credit card (CC) and saving a bit. Let’s call it a 30–30–40 ratio.

Out of the $200 a week I had set aside to pay bills and save, $50 was for LOC, $50 was for (CC), and $75 was for saving, which I was putting into a tax-free savings account (TFSA).

Here is my first mistake: I was determined to save money. Don’t waste your time saving for a house or your retirement right now. Focus on the problem, which is debt. Focus, focus, focus.

Photo Credit: Unsplash

Now, the second step is to prioritize. As you can see, I was far too spread out trying to pay a little on too many debts, and I am also focusing on the wrong problem. My thinking is that as long as I keep saving, I will be able to squeak by and maybe transfer some of that money to pay off my debt eventually, plus I will have some savings. This plan did not work for me. I would save and save and then transfer some money over, and it would work, but not as efficiently as I had hoped.

Saving and paying off debt doesn’t work. Pay off the debt, and then you can ramp up your savings worry-free.

The reason saving and then transferring the money didn’t work: interest.

Albert Einstein called compound interest the eighth wonder of the world. He is right, as long as it’s working for you and not against you.

When you are in debt, the interest keeps coming at you and coming at you, and you end up giving free money to the credit company. It sucks. All the money that I was saving was not enough compared to the money charged to my cards in interest. It was like trying to sweep back the ocean.

So I had to re-prioritize.

My LOC has an interest of about 10%. My credit card, about 20%. So guess what I did? I prioritized my highest interest rate and threw everything I had, and made at it.

I decided to focus most of my energy on one bill, so I changed my original payment ratio to 70–20–10, with 70% going to my credit card, 20% to my line of credit, and only about 10% on savings. I was still saving, but only about $30 a week. The rest was about $150 to my credit card (CC) and $50 to my line of credit (LOC).

I had to keep putting at least the minimum amount on my LOC, plus a bit more, to make a dent. Here is another key: Whenever I got my LOC low enough, I would transfer the remainder to my credit card.

I know paying off credit with credit is frowned upon, but 10% is… let me see… math math math… about a gazillion times better than 20% in terms of paying interest.

The math made sense. So I used the lower interest rate card to pay off the higher ones.

Plus, the extra money went straight to whatever I had prioritized whenever I worked overtime. I recommend you do this too. Any extra money you receive goes to your highest priority, your highest interest rate.

Get this mantra into your head: Pay off your debt as soon as possible. If your grandma sends you $20 for your birthday, put it towards your debt.

The next step is to look at your expenses and cut them down to the bare minimum.

You have to make a budget, prioritize, and make some serious lifestyle changes. This part is not going to be easy, but it’s essential.

With paying off debt, you have two choices: make more money or spend less money. That’s it.

Ideally, in the fight against debt, you could do both of these options. I didn’t have the knowledge (my failed internet businesses are an example) or the fortitude (I was still in early recovery) to make more money, so I went about figuring how to cut back.

I went through about three or four months worth of CC and LOC statements and put all the numbers and places that I spent money into a spreadsheet. I suggest you do the same. Add those figures up and decide where you are spending money you don’t need to pay.

I had to get rid of my NFL subscription, stop buying clothes, decrease my phone plan, buy cheaper food, quit eating out–basically not spend any money on any extra frivolous items.

I had to get drastic. I ran the numbers and figured I had to live on about $100 a week. So that is what I did for about a year.

Whenever I wanted to buy something more than $50, I had to ask myself if I need this or enjoy it. 99% of the time, it was a want.

One of the hardest things for me was stopping saving and stopping investing. I desperately wanted to get into the stock market. I wanted to purchase Tesla stock when it was $200. But I couldn’t. I had priorities. My goal and manifestation had changed from moving to a new country to: get my head above water.

The last step: change your mindset.

This idea is challenging because, as you know, old habits are hard to break. I had to work at not spending money. Amazon was calling my name. The stock market was calling my name. Sportchek. Steak. Whatever your vice is, you have to change your mindset around it.

Maybe Sephora is your thing. I don’t drink anymore, but I know that alcohol used to put a massive dent in my saving ability. Whatever your spending vices are, figure them out, write them down, and stop buying them.

Think of the bigger picture and keep your goal of getting out of debt at the forefront of your mind. Make it your manifestation.

I put ‘GET OUT OF DEBT’ as a reminder on my phone that I saw every day. I put it on the whiteboard in my room. I thought about it every time I had to make a purchase. Do whatever you have to do to change your mindset about spending, and start paying off that debt. I know it seems like a huge mountain to climb, but every great adventure begins with a single step.

I know you think that you have to live your life and and “YOLO” and you’ll pay it off eventually, but trust me, you want to get rid of debt as soon as possible.

Now that I am out of debt, it’s like a weight has been lifted off my mind. I have savings now. I am invested in the stock market (by the way, there will always be opportunities to invest. You’re not missing anything).

I have way more freedom and fun in my life after taking all that time to get myself out of debt. My mindset has been permanently changed as well. I know what happens if I spend frivolously and get myself into debt. I now pay off my debt as soon as possible, and I wouldn’t hesitate to use my savings not to have debt. Debt is a severe issue for me, and I am NOT, repeat NOT, going back in.

Today, my financial life has no limits. It is only going up. I can see above the water, and the view is glorious. I love it.

And you can do it, too.

  1. Decide to make a change and get out of debt. Prioritize your highest interest debt and focus on it until it is gone.
  2. Look at all your statements, know where your money is going, see what you can cut out, cut it, and make a budget.
  3. Have a manifestation to get out of debt and change your mindset on your purchases, no matter how long it takes.
  4. Keep that mindset as you build wealth.

Getting out of $20,000 worth of debt by myself is one thing I am most proud of doing in my life. I know that sounds weird because I am the one who got myself into debt, but the fact that I changed my mindset, made a plan, and followed through with tangible results makes me proud.

Now get yourself out of debt.

Your future self will thank you. Mine does.

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