The 2 Basic Tools for Paying Off Debt

$27,000 paid off in 3 years.

I realized recently that I can’t give a straight answer to the question, “How did you do it?” because there is no straight answer. A whole lot of life happened in the last 3 years, and most of the time it just felt like we were along for the ride. Saying yes every day to whatever was put before us.

The things we did- like not having smartphones or texting, driving one car, etc.- may not be things that you personally are called to or are even able to make work in your life. Like I have said, we didn’t do it to be radical, but because that was what we were called to do in a specific season of our life pursuing a specific goal.

But I have also realized that there are two really basic tools that we relied upon throughout our journey to becoming debt free, and those I can share freely.

Spending Every Penny

Way back at the beginning of this thing, we cut up our credit card and moved to a cash only system. We did this in conjunction with writing down a budget. And not just any budget. We followed Dave Ramsey’s advice (and even filled out his handy little budget forms) and started spending every penny of our income on paper before that money had even hit our bank account each month. We knew roughly what to expect from each paycheck, and wrote out a complete budget accounting for each dime.

The breakdown of the budget is something like this:

  • Fixed, non-negotiable items (like rent or insurance premiums, etc.): We set aside each month on paper the exact amount to pay these bills. Pretty simple.
  • Variable, non-negotiable items (like the utility bill, gas, grocery, etc.): NOT so simple. We set an upper limit for spending in each of these categories- something that seemed reasonable to attain. A SUPER helpful guide for determining what a “reasonable” grocery budget might look like is the USDA’s Cost of Food at Home stats, which they put out monthly. For utility bills, we look back at our twelve month history and budget the highest amount we have ever had to pay in this category every month (which means almost every month we get some “bonus” money that doesn’t get spent on utilities!) Another thing to keep in mind while you try to find the right number for each of these categories is where you live. My groceries and gas won’t cost the same as someone living in New York City. So if you poke around online and are trying to copy some of these super thrifty money saving blogs it’s helpful keep in perspective that prices are not all equal in all parts of the country. There is a different cost of living depending where you are.
  • Negotiable items (like the smartphone bill, or dinner and a movie out, travel fund, new clothes fund, etc.): These are things we can live without, but that we enjoy. Things we can easily cut back on (or cut out entirely) when push comes to shove and we’re trying to save a few extra pennies. Each of these items requires a lot of heart check every month- is it worth it to have $50 to go out to dinner this month, or do I really want to be that much closer to my financial goal?
  • Savings (or debt paying): After we mapped out our income and our budget for expenses, we allocated all the extra money first toward paying off our debts, and now toward savings. Many times we didn’t like how small this number looked, and so we would go back in and trim more and more of our negotiable budget. We did that regular heart check and decided we would rather be debt free than rock new clothes every season and go out to eat every week. It was hard, but to us it was worth it. We also committed any excess income- money we hadn’t already anticipated coming in each month- to paying off debt/the savings fund. I can’t say we pulled this off perfectly every time- but it helped having a goal for each extra penny that might find its way to our pocket. Without a plan it’s easy for that money to seemingly disappear.

The Old Cash Envelope System

Yep, super old fashioned here. Until recently we have been doing cash only (except, of course, for the regular bills we receive, which are paid by debit card or check depending). We took our budget and created a set of envelopes with the category name on the front. Each month we would pull out cash and stick it in the envelope- grocery, gas, entertainment being the biggest categories. Then that money was it for that category for that month. If we ran out of money before the month was out we had to get creative- cooking out of the pantry with some pretty interesting meal combinations, or staying home for long days when the gas tank was low.

We have found this system to be incredibly helpful in really giving us a concrete idea of where our money was going each month. To have a specific amount in cash for each category and see just how quickly that pile depletes each month- it was a real eye opener and really helped us to hone in on where our “money leaks” were each month.

And the envelope part? It’s important. We veered away from the categories for a while and just pulled out one big pile of cash each month, and found that it was much easier to blow through the cash than when we actually set it aside in specific categories. As silly as it seems, that simple act of planning really does help organize the way we view our money.

Now that we have spent a few years getting a handle on our money and where it is going, we have moved back to using our debit card (not credit) for some of these categories, and track our spending through receipts.

The Takeaway

The budget and the cash envelope system. The bare bones system for  how we paid off a ridiculous amount of debt in a short amount of time. There really isn’t any simpler formula- but it does take a lot of persistent hard work being committed to whatever your end goal is. It took monthly, sometimes daily, conversations, fraught with tears and frustrations as well as laughter and triumph, between Mike and I. It took commitment- to each other and to what we believe God was calling us to for that season. And still does as we move forward debt-free, looking ahead to what we are being called to pursue with our whole selves, moment by moment.