The guest post comes from Rob Berger. He is the founder of the popular personal finance blog the Dough Roller.
I remember the moment I pledged to become debt free as if it were yesterday. It was nearly seven years ago. I was 40 and my wife and I had about $250,000 in non-mortgage debt. Dave Ramsey’s podcast was playing while I cleaned out my workshop.
If you’ve ever listened to Dave’s show, you’re no doubt familiar with what I call the debt-free battle cry: “I’m debt free!” His listeners call in to the show and shout for joy once they’ve climbed out of debt.
I wanted that same feeling of freedom. I wanted it more than a new car, nice clothes or expensive vacations. So at age 40, I vowed to be debt free by 50. At the time, the goal was beyond unreasonable. We had no way of paying off that much debt in 20 years, let alone 10. We did it in five.
Ironically, we ignored much of Dave Ramsey’s advice
As loyal readers of Five Cent Nickel know, Dave is bad at math. While I find him inspirational, when it comes to the nuts and bolts of getting out of debt, he and I had to part company in several respects.
First, I absolutely took advantage of zero-percent credit cards. Ignoring Dave Ramsey’s disdain for plastic, my wife and I transferred tens of thousands of dollars in debt to zero percent balance transfer cards. When the no- interest offer expired, we’d transfer the remaining debt to a new card that charged no interest. Our primary card of choice was the Discover card, but there are many options available.
The benefit to this approach is twofold. You of course avoid paying hundreds if not thousands of dollars in interest. In addition, you pay off your debt faster. Failing to use this tool will cost you dearly and significantly increase the time it takes you to pay off your debt.
Second, we did not keep $1,000 in an emergency fund as Dave recommends. Much of our debt was in the form of a home equity line of credit. So rather than locking money away in a low interest savings account, we put all extra cash on the line of credit. If an emergency did arise, we could always pull the money back out.
Finally, we tackled debt with the highest interest first. While Dave recommends paying off the lowest balance first, that approach can be costly. In our case, most of our debt was at very reasonable rates. But we nevertheless listed our debts based on the interest rates and chipped away at the highest rate debt first. This enabled us to pay off our debt faster and for less money.
We lived below our means
You may have heard stories of families who lived a meager existence to pay off debt. That doesn’t describe us. I’ve never been one to reuse Ziploc bags to save a few pennies. But we did live below our means.
We didn’t buy new cars. When I received a raise or bonus, we applied it to our debt. Tax refunds went to pay down debt. While we took vacations, they were generally low-cost affairs to a nearby beach.
And most importantly, we vowed not to go into more debt for any reason. This was where the inspiration from Dave Ramsey’s show really helped us. We even turned down zero-percent financing on some furniture we purchased. We paid cash instead.
We monitored our credit
You may think that your credit score isn’t important if you plan to avoid future debt. Nothing could be further from the truth. In our case, an excellent credit score helped us in several respects.
First, it allowed us to qualify for the best balance transfer cards I mentioned above. Second, it allowed us to qualify for the lowest possible interest rate on our home equity line of credit. And finally, a solid credit score enabled us to refinance our primary mortgage to rock-bottom rates.
It’s not an exaggeration to say that our good credit has saved us tens of thousands of dollars in interest.
We earned a side income
Finally, we managed to earn a side income that enabled us to supercharge our debt payments. It was a bit by accident, but in 2007 I started the personal finance blog the Dough Roller. While it was never my intent to build a business from blogging, over the next several years the site grew and started to earn a modest income.
The key here was that we used every dime earned from blogging to tackle our debt. We could have used the money to expand our lifestyle. Instead, we focused entirely on our debt. While blogging may not be for everybody, finding a way to earn extra income can accelerate your efforts to become debt free.
In our case, it was part of what enabled us to pay off $250,000 in debt in just five years. Your debt hopefully isn’t that much. But whatever debt you have, commit to paying it off as quickly as possible. I hope some of the above tips will help you reach that goal.