By taking care of the tasks below, you’ll be able to tackle your debt with less stress. You won’t be “robbing Peter to pay Paul” any longer and you’ll have the funds needed to address irregular or unexpected expenses, which will keep you from accumulating more debt along the way.

Get current on all past due bills

If you are behind on any bills, you need to take care of those first before you start throwing extra money to your debt.

• Work with the companies to see if you can negotiate a reduction in the overall amount that you owe.
• Address the cause of why you fell behind in the first place.
  • Was it due to a lack of money?
    • Look for ways to reduce or eliminate other expenses. You can also, of course, find ways to increase your income.
  • Does the expense occur irregularly and you weren’t prepared?
    • You should set up a sinking fund in order to prevent this from ever happening again.

Write down all debts

It’s pretty hard to pay extra towards debt if you don’t know what all of your debt obligations are. Check your credit reports to ensure that you don’t miss anything and make sure you include any money you owe family and friends.

What you should list for each debt:

• Creditor name
• Minimum Payment
• Starting balance | Credit Limit
• Current balance
• Interest rate
• Repayment period (if applicable)

Create & stick to a budget

Hate the word budget? Okay, let’s call it a spending plan.

First, you need to see where your money has usually been going. You do this by looking at your bank and credit card statements (try to look at the averages for the previous 3 months).

Second, you create a spending plan based on your income, fixed and variable expenses, debt and savings contributions. Looking for a place to start? Check out our budgeting series, where we walk you through the step by step instructions on how to make a successful budget.

Or, you can just grab one of our budgeting templates and skip the hard work of creating a spreadsheet for yourself.

Save for known upcoming expenses

Many people are financially thrown off track by expenses they are aware of but don’t have the funds to cover. These expenses include car maintenance, birthdays, holidays, home upkeep, etc. Certain things happen every year, so you should start making a plan for them – you will be thankful you did.

To address these expenses, many people create sinking funds (or revolving savings funds). For each expense, you simply divide the total amount by the number of months you’d like to save for and then put that amount away every month.

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A post shared by DJ & Dannie – Debt Free (@penniestowealth) on Dec 7, 2018 at 6:35am PST

Save a starter emergency fund

An emergency fund keeps those “Oh Sh**” moments from sending you into financial despair. I always recommend that people aim for at least one month’s worth of living expenses – but don’t get discouraged, you can always start small and work your way up. $20 grows into $100 and eventually becomes $1000 saved!

Make sure you read our post on how to start an emergency fund, if you haven’t already.

Make a debt attack plan

Making a plan for how you would like to pay off your debt will help inform you of where you’d like to direct any of your extra funds. You can choose to pay off the smallest balance first to get a quick win or you could choose to pay off the debts with the highest interest rates in order to save money in the long run.

We chose to make up our own plan by doing a little bit of both while also reducing our credit utilization on our credit cards so that we could improve our credit.

Here are a few methods for paying off debt in summary form:

Debt Snowball

• List ALL debts from smallest to largest BALANCE
• Pay minimum payments on every debt except smallest
• Put ALL extra $$$ towards smallest balance
• Rinse & Repeat until DEBT FREE!

Debt Avalanche

• List ALL debts from highest to lowest INTEREST
• Pay minimum payments on every debt except highest %
• Put ALL extra $$$ towards highest interest
• Rinse & Repeat until DEBT FREE!

Our Personal Method

• List ALL debts from highest to smallest UTILIZATION
• Pay off highest utilization until it is below 30%
• Get all credit cards below 30% utilization (helps credit score)
• Switch to debt avalanche or debt snowball method

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A post shared by DJ & Dannie – Debt Free (@penniestowealth) on May 24, 2019 at 9:43am PDT

If you want to read more about the best methods for paying off debt, start here to read about them in more detail. Remember, it all comes down to knowing yourself and having an actual plan. What works for one person, may not work for you.

***
So there ya have it! Hopefully, these tips and resources will help you get on track to begin your debt-free journey.

Did I miss any steps? Make sure you leave them in the comments section below!

Stay Wealthy fam,
— Dannie

While our debt payoff was paused we:

• Rapidly saved money so we could buy our first home.
• Bulked up our emergency fund.
• Increased our investment contributions to our retirement accounts.
• Stashed away money so I could leave my full-time job.

We decided to do what was best for our family, but we felt that it was finally time to knock out our remaining debt and move on with our lives.

What’s Next?

We’ve had the money to pay off DJ’s last student loan saved since last fall, so our lives aren’t radically changed by becoming debt free. DJ’s monthly payment was only $67 (which won’t add much to our budget) but it will make my spreadsheet prettier!

We won’t be aggressively paying down our mortgage because we don’t plan on this being our “forever home”. 🤷🏽‍♀️

We already contribute 20%+ to our retirement accounts but we may increase that as our incomes continue to grow. We’d really like to get to the point where we can completely max out our retirement accounts each year.

We hope to travel more in the years to come and increase our savings rate to ensure we’re financially independent in ~13 years, once DJ retires from the Air Force.

Here is our debt breakdown:

Over the course of about 2.5 – 3ish years, we cleared $130,912 worth of debt:

• I sold my Kia Rio – $14,515
• We sold the RV that we lived in for 9 months – $50,244
• Paid off all of our credit cards – $22,699
• Paid off our student loans – $43,453

Much of our progress paying off debt was done on DJ’s income alone. We made a lot of sacrifices over time, but it was all worth it in the end because it got us to this point.

We hope that if you’ve been following us, you’ve been able to find some inspiration in our progress. The fact that we were able to become debt free means that it is possible for everyone.

Stay encouraged and keep working towards your goals friends! (Make sure you check out our videos below)

— Dannie

Check out our 1 minute recap on Instagram:

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A post shared by DJ & Dannie – Debt Free Fam (@penniestowealth) on Nov 17, 2018 at 8:32am PST

Watch our full debt free journey video on YouTube:

If you consistently carry a balance on your credit cards, use most of your available credit limits or make late payments, you probably have a low credit score and feel like you need help in order to turn things around.

You might not know this, but it’s actually possible to repair your credit for free!

How is free credit repair even possible?

When Dannie and I started our financial journey, our credit scores were in the 500s but they are now in the 800s. We never paid anyone to help us and we don’t want you to do that either. That’s because we know, for a fact, free credit repair is possible.

I wouldn’t go as far as calling credit restoration companies a scam, but most of the services they provide can be done for free if you know what to do and are willing to take action.

So, save yourself the $50 – $90 monthly payment you would be giving them and let us show you how to repair your credit on your own:

1.) Figure out exactly how bad things are.

Before you can improve your credit score you’ll have to figure out what issues are causing it to be low in the first place.

We recommend doing two things to get started:

• Sign up for a FREE account with Credit Sesame to view your credit score and some of the factors that are currently affecting it. – Sign Up!
• Request your FREE detailed credit report from each of the credit reporting agencies online or by calling 1-877-322-8228. – Request your report!

By doing these two things, you’ll be able to see what information is being reported to the credit bureaus. You’ll need to carefully read through all of your reports and verify that all of the information is correct.

When we did this, Dannie found out multiple errors were tanking her credit score.

2.) Fix any errors you find.

If you find any errors on your credit report, there are a few steps you can take to have that information permanently deleted. You’ll need to do the legwork here because the agencies aren’t responsible for fixing errors on your report unless you ask them to do so.

Getting rid of errors

Information that is clearly an error (i.e. not your name, you didn’t open the account, etc) can be disputed by sending a letter to the credit reporting agency. The FTC has a great guide for completing this process and each of the credit bureaus have information about this process on their websites as well.

Thanks to the Fair Credit Reporting Act, when you send this letter, the credit reporting agency only has 30 days to complete an investigation. (Make sure you send it as certified mail so you KNOW they got it). After those 30 days are up, they must either verify or delete the items in question. Dannie was able to get 8 items completely removed from her credit report this way. That caused her score to jump more than 100+ points. – Sample dispute letter you can send

Dannie is the queen of spreadsheets so she made a file to track all of the letters she needed to send!

Negative information

Negative information (i.e. items in collections, charged off credit cards, late payments, etc.) can only be reported for 7 years. Sometimes, this negative information will still show up on your credit report even after that time limit has passed. You can dispute these old accounts in the same way that you would dispute erroneous information.

Some people also have luck with negotiating settlement offers with collection agencies. Make sure you get something in writing that clearly specifies the amount you will pay but do NOT give them electronic access to your account.

3.) Don’t close or open any credit accounts.

Some financial gurus are famous for telling people to cut up their credit cards and close the accounts associated with them. If you care about maintaining or improving your credit score, this advice can actually be disastrous for your goals.

Credit history and credit utilization make up 45% of your overall credit score calculation. Each time you close an old account, it decreases your average credit age. It also decreases your available credit which may increase your credit utilization if you still have balances on your cards.

Try putting all of your credit cards in a cup of water and freeze them for a while. You won’t be tempted to use them when they’re frozen solid!

Your credit score will drop each time you apply to open a new credit account. You’ll have to get a credit check to open the new account and those inquiries stay on your report for 2 years. Each new account will also decrease your average credit age as well.

4.) Get your spending under control.

One of the biggest factors that affected our credit scores was our credit utilization. We had several credit cards, but most (if not all of them) were maxed out because we were living well above our means.

This is probably the case for most people, so you’ll have to get your spending under control in order to start making progress. The good thing is that your credit score will begin to rise, almost immediately, as you begin paying off your credit card debt.

Develop a game plan, create a budget and track your spending throughout the month.

5.) Start paying your bills on time.

Payment history is the biggest influence on your credit score, it accounts for 35% of the calculation. You HAVE to start paying your bills on time if you want to repair your credit score, even if you start by just making your minimum payments.

Catch up on any old bills and then never miss another payment. We built up a one-month buffer in our checking account and that helped us break the paycheck to paycheck cycle. This also kept us from ever having late or missed payments and eventually made it possible for us to start paying off debt.

6.) Pay off your debt.

Decide on a debt payoff strategy that works for you (i.e. the debt snowball or debt avalanche) and get busy. It doesn’t really matter which one you choose as long as you start paying off debt.

Try to prioritize paying off your revolving debts first (credit cards). Those debts have a higher impact on increasing your credit score. As your balances decrease, your available credit will increase. This ratio is your credit utilization and the lower that is, the better. You should try to keep it under 30%.

You can calculate your utilization yourself or you can see it when you check your credit score on sites like Credit Sesame.

7.) Stay focused.

Don’t be too hard on yourself when you take on the task of DIY credit repair. You didn’t get into debt and lower your credit score overnight, so don’t beat yourself up when you don’t see immediate results.

Personal finance is personal and your timeline will be different than everyone else’s. That’s fine, just stick to your plan and follow the steps I mentioned above.

You don’t have to pay anyone a monthly fee to fix your credit. Credit repair is pretty easy once you find the right information.

What you do with that information is entirely up to you!

Good luck!

***

$tay Wealthy Friends,

— DJ

When you have to pay off debt on a low income, you can often find yourself feeling overwhelmed and defeated. For many people, including us, your debt is a direct result of your lack of money.

It’s a vicious cycle.

The good news is that this cycle can be broken regardless of your current situation or past mistakes.

How can you pay off debt on a low income?

As you can see, there are two surefire ways to save money on a tight budget, get out of debt and break the paycheck to paycheck cycle.

1.) Decrease Expenses – Create a budget that shows everything you’re spending money on each month. Figure out what you’re currently paying for and what you can live without.

2.) Increase Income – Bringing extra money into your household will also speed up the debt payoff process. Find a great side hustle, change jobs, ask for a promotion, get bonuses, find part-time jobs, etc.

The fact of the matter is, progress is made once you increase the amount of leftover money you have at the end of the month. Decreasing expenses and increasing income will both help you achieve this goal. I’ll use our previous financial situation to demonstrate this point:

How did we pay off debt on a low income?

1. We created a budget

In 2015, we sat down to figure out exactly how much money we were paying out each month. With that information in hand, we were able to create our first budget. When we finished, we realized that we were in a bind.

We could see that we only had $128 once all of our expenses were paid. Income increases weren’t an option at the time and we were living solely on DJ’s low income from the military. We knew that we were going to have to make some difficult choices in order to achieve the progress we wanted.

2. We cut unnecessary expenses

The first thing we tried in order to pay off debt on a low income was to start cutting or reducing our expenses.

We got rid of our cable subscription, a storage unit, my car, DJ’s haircuts, my monthly hair styling and we stopped eating out as much. When it was all said and done, this was a reduction of ~$652 worth of expenses.

DJ’s Income – Reduced Expenses = $652 extra towards debt per month

That is the exact same exact thing as receiving a $7,824 yearly bonus at work because this extra money could now be used to pay off debt.

This graphic shows a few expenses you can try to reduce first

3. We made dramatic changes

The extra money we were able to save after reducing our expenses was great, but it still wasn’t enough. There was a large mountain of debt ahead of us and we wanted to make sure we could conquer it as quickly as possible.

We took a look at what our remaining expenses were and we realized that we were still spending most of our money on housing. Since we were renting a house, there wasn’t much we could do about the cost without moving. Moving was the best choice we could think of, so we started looking at our options.

Apartments in our area were the same price or higher than our current rent, so that was out of the question. Buying a house was also out of the question because we were broke. We couldn’t afford to pay for closing costs and our high debt to low-income ratio would make it difficult to even get approved for a loan.

With this in mind, we took drastic measures and moved out of our house in order to live in an RV for 9 months. This move dramatically changed our housing costs and helped us pay off debt much faster.

DJ’s Income – Expenses in RV = $1650 extra towards debt per month

4. We increased our income over time

About two months into our RV living experience, I was finally able to secure a full-time job after years on unemployment. In our minds, we knew that the universe was rewarding us for taking bold steps to fix our financial problems.

We were able to take my entire salary and apply it straight to our debt payoff since we were already used to living on one income.

DJ’s Income + Dannie’s New Income – Expenses in RV = $3650 extra towards debt per month

Increasing your income can actually lead to negative outcomes if you aren’t careful. Many people increase their income and increase their spending along with it. They fall victim to the trap of “lifestyle inflation”.

We kept our mindset the same, as if we still needed to pay off debt on a low income, even though that wasn’t exactly true anymore.

We were determined not to develop bad habits just because we had extra money at the end of the month now!

***

The magical thing about paying off debt is that you gain that payment back to do as you please. Each time we paid off a card or loan we put $50 -$200 back in our pockets.

We wanted to share these tips with you to show that it truly is possible to pay off debt on a low income. We want you to know that the process can be slow but you don’t have to be discouraged because of that fact.

It takes time to fine-tune your budget, cut your expenses and eventually work towards increasing your income – but that’s perfectly okay.

As you continue to revise and work your plan, you will make progress as long as you don’t give up.

$tay Wealthy Friends,

— Dannie