My 2020 New Year resolution was to get out of debt. But we all know what happened next. COVID-19.
To be very clear, I was lucky during the pandemic. I kept my job. I didn’t get sick. I haven’t lost any income. I can work from home easily.
But seeing 40 million people suddenly unemployed was a wake-up call. My emergency fund was missing. Not knowing how bad things could get, I started saving more and making minimum debt payments. I also used the stock market crash as an opportunity to invest more.
As the fall drew nearer, it was time to start reducing my debt of more than $ 12,000. But here’s what impressed me as I scoured my budget: I’m really not so bad over spending too much.
I am not saying that I am perfect. I order to take away. I have three streaming services. I buy more beer than I want to admit.
I found about $ 400 a month that I could cut back easily. But my major expenses were the ones that couldn’t be easily brought down: my $ 1,425 rent, my car payment and insurance, and the cost of cooling an older home in the scorching Florida summer.
Putting an extra $ 400 a month into my debt could have been a good start. But I still held onto a goal that was becoming more and more unrealistic by the day. To quickly get rid of $ 12,000 in debt, it wouldn’t be enough to save money.
To slam the door in 2020 with no debt to my name, I had to make more money.
How Did a Personal Finance Writer Get $ 12,000 in Debt?
Yes, I am a personal finance writer who was $ 12,000 worth of debt. But I’m also human first and then a personal finance writer. Hey, I even suspect your cardiologist may have a cheeseburger from time to time.
My debt was just over $ 5,000 for my Kia Soul which I had financed at less than 2%. The rest was on credit cards, mostly on a card that still had a temporary 0% interest rate. I had spent most of the money becoming a certified financial planner, though I also had a small amount left over from a move.
I wasn’t dealing with out of control debt. I was able to afford my minimum payments, which were around $ 700 a month. My credit score was still in the high 700s.
But I know what it’s like to have so much debt that you feel like you’re suffocating. When I was 19, I ran into a lot of credit card debt that I couldn’t afford. When I got stuck on bills, I got scared and did the absolute worst thing you can do: I tried to ignore it.
I’ve spent years paying for it. Higher insurance premiums. Deposits for everything. A horrible 18% APR on a used car worth $ 7,700 when I had to sell my old Corolla for scrap metal.
Bad credit is very expensive, but that wasn’t the only reason I was snapping at debt back then. I was really embarrassed so I fought in silence.
Paying off debt is a lot easier when you have room to breathe. This time I didn’t fight for air. Instead, I got excited about all of the things I could do with an extra $ 700 a month.
By mid-September, I found two solid freelance clients to write and edit for. By then, I had come to terms with the fact that not everything might be paid out by the end of the year. That was fine. I could still make real progress.
A customer paid at lightning speed. If my work was approved, I was paid many times that day. I started going into debt every day that I was paid. Working one day and losing your balance the next was addicting. I wanted to work more. And i said to myself: There is still time to do this.
On October 5th, I decided it was game. Twelve weeks and three days remained on the clock. That’s not a lot of time to make an extra $ 12,000.
But I didn’t want to start in 2021 either because of the IRS. Since I was earning a substantial self-employment income, I had to set aside money for professional taxes. I decided to set aside $ 1 for every $ 2 I made. I was already spending $ 700 a month on debt to account for.
That meant my real goal would be to make close to $ 16,000 in 87 days.
How I paid $ 12K in 12 weeks
Let’s acknowledge all of the things I’ve done for my benefit here: I don’t have children, so I have the time to work long hours. I have the privilege of working from home during COVID-19. My job is not physically demanding.
Above all, I didn’t have any financial problems. I have a steady job, savings and good health insurance. Being able to pay off debts quickly is a luxury.
So none of that is supposed to say, “Here’s what I did and you should do it too.” However, if you are able to get your debt down quickly, these strategies have worked for me.
I worked 80-hour weeks for 12 weeks.
I didn’t say it was easy. My weekdays were like this: wake up at 5:15 am and work for an hour. Go with my dog Kermit. Go to the gym. Work eight or nine hours on my day job. Another three hours of freelance work. I usually work eight to ten hours on Saturdays and Sundays.
I was working on Thanksgiving. Christmas too. I used two weeks of vacation to work even more. Depressing? A little bit. But it’s a pandemic. It’s not like I had to be anywhere else.
I stayed with what I know.
My first freelance assignments were about topics that I knew well and that I could turn around in an hour or two. Then I got too ambitious and took an option trading assignment, a subject I know very little about.
I probably spent 10 hours writing it – for the same salary as these one or two hour assignments. Regardless of your industry, the takeaway is the same: to pay off debts quickly, stick with something you know. The time to learn new skills has come after you have paid off your debt.
I ignored my other goals.
I have failed many goals because of a terrible habit of trying everything at once. This time around, I ignored my other goals – like saving up for a down payment on a home and increasing my percentage of retirement savings – to focus on debt. Advancing rapidly on one goal was far more powerful than advancing slowly on three goals.
I rated my work by the hour, not the service.
This is a big deal for writers as we often get stuck with a word rate. But I decided that I would only take on jobs that cost $ 50 an hour or more and didn’t think about the rate per word. Freelancers often work so much just to find work – before they even make a dime. A steady stream of work that I didn’t have to constantly negotiate about was a compromise that paid off.
I’m wasting money on a few things.
When you work 80 hours a week, you can see how valuable your time really is. Some things that I once considered a waste of money looked like a bargain because they bought me more time. So I gave myself permission to waste some money. If I was short on time and ran out of groceries, I’d pay to have it delivered or to order UberEats. Paying an extra $ 10 for dinner delivery wasn’t a rip off if I could keep working non-stop for a few more hours.
I paid it out in increments of $ 500.
At first I made small payments several times a week. That was exciting. Then suddenly it wasn’t like that anymore.
Paying off debts gets old very quickly. It was frustrating to see my balance drop a little at a time. But I wouldn’t have been so energetic if I had just made one payment a month.
I chose $ 500 in payments. In a few weeks I would only do one. The other weeks I did four, depending on when I got paid to do freelance work. The size and frequency of the payments were just the right dose of motivation.
I annoyed people about it.
When I quickly paid off my debt, I left a flood of unanswered texts and declined invitations. I said “no” a lot more than I am used to. More importantly, I learned to take into account the cost of each “yes”. The cost of a Wednesday night happy hour wasn’t just the $ 20 I’d spend. What could I achieve if I wasn’t at happy hour?
I’ve been spending money in my head.
Most days I did a little bit of thought about all of the things I would do with my extra money. Sometimes I do research on places to visit once the pandemic has subsided. Or I scroll through Zillow on my iPad before bed. That helped me remember why I was doing this. I needed that. Because over the weeks I was just exhausted.
TFW You make your final debt payment
I had paid my credit card debt by the end of November. The only thing left to tackle was the roughly $ 3,000 I owed my car. By mid-December, I had brought the balance down to about $ 800. I knew I could pay this off my December 31st paycheck. Mentally, I circled December 31st as the day I would be debt free.
Surprise: A text dated December 30th informed me that money had been deposited into my account. Could it be my second stimulus check? Unfortunately that wouldn’t happen for another two days. It was a payment for two freelance jobs that I wasn’t expecting until mid-January.
I thought of cashing it out immediately. But it was morning on a working day. So I held back and waited until I could enjoy the moment. That evening after work, I made the final payment with a cold beer in hand.
You feel like confetti should explode from the ceiling the moment you make your final debt settlement. Really, you’re the only one who cares. You will receive a lame confirmation “Thank you for your payment”. But it’s OK. The $ 0 balance you see is a good consolation prize.
Should you pay off your debt in 2021?
It is liberating to know that I don’t owe anyone any money. But I actually hope to end 2021 with more debt. I want this to be the year I finally buy a house. I still work as a freelancer, but at a slower pace. Now the extra money goes to my down payment fund.
If you are looking to reduce your debt in 2021, let me repeat, if you can pay off debts quickly, it is a luxury. Less than a year ago, it was one I couldn’t afford. Before doubling your debt, I ask that you first get your emergency fund in order.
When you are ready to get a grip on your debt, do it with a plan. It’s okay if you’re not ready to work 80-hour weeks. Think about what you want to sacrifice and what your limits are.
I knew I could work 80 hours a week for 12 weeks because 12 weeks is not a long time. However, I don’t think I could make it for six months or a year. So when you have significant debts, focus less on paying it off quickly. It’s more important to find a solution that is sustainable over a longer period of time.
No matter how much debt you owe, remember, every single dollar you pay over your minimum payment is a gain to you and a loss to your bank. So be kind to yourself and celebrate the victories even if they don’t happen as soon as you would like.
Robin Hartill is a certified financial planner and senior writer at The Penny Hoarder. She writes the Dear Penny Advisory Column. Send your tricky money questions to [email protected].