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We paid off $40,000 in debt in two and a half years: Here is our best advice

"Spend with intention and take shame out of the equation."

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Daniella Flores is the founder of I Like to Dabble.
Photo by Daniella Flores

When it comes to debt, everyone's experience is different. After a stint at community college, I initially took out $15,000 in student loans for my undergraduate degree, with some help from my family for additional expenses. 

By the time I got serious about repaying the debt, the balance had ballooned to $20,000. When I finally paid off my student loans in May 2019 after eight years of struggling to make payments — it was the biggest money goal I had accomplished to that point.

It was a hard-won victory. During that eight-year period, I had been fired from jobs and laid off twice. My spending habits and not staying on top of bills led to me frequently overdrafting my bank account. At one point, I decreased my student loan payments down to the lowest I could contribute. At another juncture, I put the loans in forbearance, hoping that problem would disappear.

On top of the student loans, my wife and I were also dealing with old hospital bills, credit card debt, and an auto loan. In 2017, I'd had enough, and I knew that our approach had to change to get some peace of mind and focus on the future. 

After we made some changes, in total, we paid off a little over $40,000 in debt in about two and a half years. Here is how we did it. 

Spend with intention and take shame out of the equation

One of the most important things I realized on our debt payoff journey was that my impulsive approach to spending came from an emotional place. I felt shame around my spending habits. 

When I would try to adhere to more traditional saving advice, all I would see was the ways I was falling short, and the cycle of fear and anxiety would start again. Rules about what I could and couldn't purchase, even things like coffee, dinners out, the occasional splurge, felt irritating and restrictive. And the resentment I felt made it even harder to face my debt head on. 

But in 2017, I came across financial educators that talked about money in a way I had never heard before. Tanja Hester and Ramit Sethi were probably the first two whose philosophies really resonated. Their main advice was to spend your money on what matters to you.

If you enjoy going out to eat, go out to eat. If you enjoy buying coffee in the morning at Starbucks, buy the coffee. But cut back on spending that you don't care about. For example, cancel subscriptions you forgot about and cut the emotional spending you can't remember when you get your bank statement.

That advice actually made sense to me. It wasn't overcomplicated and helped me be clear in my intentions when I was spending. This gave us a heightened sense of awareness about our financial goals and provided motivation to pay off debt so we could move forward with building real wealth for our future.

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Look for ways to increase your income

You can cut all you want from your budget, but eventually you'll hit a wall where you can't cut any further. That is why I recommend looking for ways to increase your income, too. There were a few different ways we boosted our earnings. 

When it came to my 9 to 5, at the point where I didn't see any more room for growth in my current role, I started looking for new opportunities. I jumped from an annual salary of $40,000 to $95,000 by moving on to new companies who saw my value and paid me what I was worth. 

And I made a point to advocate for more money every time I took on more responsibility. It's not enough to negotiate your salary when you get a job offer. Take time to document your work and accomplishments and use that as evidence for why you should earn a pay increase, in your evaluations and annual reviews with your supervisor. 

Side hustles were a big help for me. Since discovering the potential of side hustles, I've been able to create nine different income streams from my side hustle and a total of 12 income streams, including my day job, in the past four years.

If you are feeling burned out from your day job, side hustles can be a great creative outlet. Side hustles can give you skills to put on your resume, and give you confidence. They can also compound as an asset over time and become a mostly passive source of income — especially if you build an online digital product, blog, or YouTube channel that resonates with an audience. 

Side hustles can give you skills to put on your resume, and give you confidence. They can also compound as an asset over time and become a mostly passive source of income.

Pay off the highest-interest debt first

If you have several different types of debt like we did, identify which ones you should focus on paying off first. Before you jump all in, you have to know where you can make the biggest impact. 

With debt, the impact is in the interest. The higher the interest rate, the more you pay on that debt over time. The lower the interest, the less you pay.

This is why I recommend the "avalanche method," where you pay off the debt with the highest interest rate first (which is what we did by paying off credit cards first). You make the minimum payments on the debt with the lower interest rates and allocate any extra funds to your highest-rate debt until it is paid off. Then you continue down the chain until all your debt is gone.

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High-interest debt typically tends to be credit card debt and student loans. But before you do anything, I recommend logging into all of your accounts online to verify which ones are the highest for you, and then plan accordingly. 

Don't wait to save and invest while paying off your debt

While all the above is very important, my best advice is to avoid tunnel vision with your debt payoff. You have to look at the bigger picture. Before accelerating your debt repayment, I would build an emergency fund. It's crucial to have something to fall back on in case anything happens with your current income.

Many financial experts recommend 3 to 6 months of expenses in an emergency fund, but that isn't something you are expected to have instantly. We personally started with a three-month emergency fund, and currently have one that covers six months. 

Start with setting aside small amounts every month into a separate high-yield checking or high-yield savings account designated for your emergency fund. Do what you can and increase when you feel comfortable. Some emergency fund is better than no emergency fund.

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When you reach your goal for your emergency fund, then start accelerating debt repayment with the avalanche method. But it's important to still make saving and investing for other goals a priority while paying off debt.

Automation helped us a lot with this. Once you designate how much you want to allocate to each goal — whether it is your debt, savings, or investments — set it up to run automatically with autopay and autosave. Do the same thing with investing and start building your 401(k), if you have one, or an IRA. Set aside small amounts to send to those accounts weekly or monthly, or whenever you can while paying off your debt, to build more wealth over time.

The longer you wait to do these things, the more you will have to play catch-up. That doesn't mean you have to save and invest a huge amount every month, but do what works for you. Even if you are investing $20 a month, that will grow your wealth faster than if you waited until after your debt was paid off to start saving and investing.

Your finances have all of these moving parts, and it isn't just about debt and no debt. It's about the bigger picture and ultimately the freedom you gain from having each part work together. 

Daniella Flores is a software engineer, serial side hustler, and creator of the blog I Like to Dabble. She has grown I Like to Dabble on the side of her full-time job to become a globally recognized and Plutus Award-winning side hustle and money resource with 100,000 monthly users between the website and social media. She has been featured on Business Insider, MSN, Huffington Post, CNBC, Refinery29, L.A. Times, and more. 

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