UR MONEY: 5 Ways To Break The Debt Cycle in Your 20’s


UR MONEY: 5 Ways To Break The Debt Cycle in Your 20’s

Written by Josie

Last year, I chose to take a trip that I knew was outside of my means, but I was sure I could put some of it on my credit card and have it all paid off about a month later. What I couldn’t anticipate was being pulled over for expired tags a week later.  The entire incident was a big blow to my wallet. With Murphy’s Law sticking close by my side, the next week I found myself needing new tires. My two weeks of car drama ended up costing over $1000–and that didn’t factor in the cost of the trip I’d just taken. With no savings and a paycheck-to-paycheck lifestyle, it all went on my credit card.

My total debt was relatively small, about $2000, but it seemed like an insurmountable obstacle on my salary. Despite steadily making payments towards my debt over the next few months, things kept coming up that I couldn’t afford on my own: emergency vet bills, unexpected computer costs and let’s not forget the expense of being a bridesmaid for the umpteenth time (which could be a whole other article). It seemed for every $100 I paid down, $200 was being charged back, plus the mounting interest. Things were not moving in the right direction, so I dove into reading financial books, sites and blogs, and then I made a game plan based off the collective advice. It took me a little over a year, but I’ve finally paid off debt and stopped living paycheck to paycheck. Here are the steps I put in place:

1. Make a Budget (a Good One)

I’ve used a budget for years, but it was padded in the areas I enjoyed spending most and it did not leave much room for emergencies. It came down to the fact that I was trying to live in-step with my friends–most of whom make double or triple what I earn in salary. So, I trimmed my budget way back on non-necessities: excess clothing, dining out and entertainment. I resolved to only shop when I needed something. I cut back on going out to eat, instead opting to cook at home. When I did go out with friends, I pushed for more affordable restaurants so that I didn’t exceed my newly trimmed food budget. I became more selective about the movies I saw in-theater. I cut cable but kept Netflix. After just one month, the savings were surprising and I didn’t miss as much as I thought I would.

Odds are you have one (or more) spending drains of your own. Identify those drains and either trim the costs back or eliminate them. It may hurt at first, but you will adjust. And all that money you’ve freed up with your new budget? It can help you break the debt cycle.

2. Automate an Emergency Fund

It seems counter-intuitive to not throw every extra cent at your debt. Since I was still living paycheck to paycheck, though, any unexpected bill just ended up back on my credit card. To break the cycle, I set up a free savings account with my bank and arranged for a small amount of money to automatically deposit into my savings on the 1st and 15th of every month. Having that money in a separate account is important, emotionally. It reinforces that it’s “other” money and not “extra” in your pocket. Having it automatically deduct into savings means you won’t forget to save or be tempted to skip it.

I started saving $50 per paycheck (easily the minimum of what I used to spend on non-necessities every couple of weeks). Proportionally, most of the money freed up in my new budget was still going towards paying down my debt, but seeing a small percentage accumulate in savings did wonders for my anxiety. In a few months, I had a little bundle of money set aside without giving it a second thought. As my credit card debt grew smaller and more manageable, I even increased the amount going into savings. Your first goal should be to save $1000, with a secondary goal of having a 3-4 months of living expenses set aside to serve as your safety net.

Make a promise to yourself, though–savings are for emergencies and unexpected bills only. Those new shoes you want don’t count as an “unexpected bill.”

3. Make More Money

The truth is, you can only whittle away your budget so much. The ideal option with long-reaching benefits is to determine if you’re in a position to take a better paying job or ask for a raise, but there are also smaller ways to bring in extra income. Work at your favorite shop on Saturdays, sell your unwanted belongings on Craigslist or eBay, or take on a freelance project. Any way you look at it, extra income is a sure path to speeding up debt relief. I chose to stay at my job but also accepted a freelance gig writing web copy for a few months. The extra paycheck took a dent out of my debt much quicker than I could have managed on my salary alone. Remember, adding to your workload for additional income is temporary and puts you on a faster track to being debt free.

4. Set Something Aside for Yourself

Much like when you’re dieting, you may find yourself on a spending binge if you deprive yourself too much. After weeks of cooking dinners and counting pennies, you’re likely to throw up your hands one  weekend and go out on the town. Now you’ve blown your budget and your diet. The solution? Don’t deprive yourself completely. Work into your budget a little “you” money. When you begin to feel like your entire world is focused on pinching pennies and paying down debt, you’ll have a little something that allows you to indulge a bit without feeling guilty for undoing all of your hard work.

5. Be Patient

Breaking out of the debt cycle is a process. It took a year for me to pay down my debt and hit my first savings goal because things kept popping up to slow my progress. It can be frustrating, but life happens. Recognize that finding the balance between paying down debt, building savings and living your life will take some time, but if you make a smart plan and stick to it, you will get there.

Josie lives in Atlanta, GA and she writes about her life and interests on her personal blog, Hello Josephine. Josie is not a financial advisor or financial anything and the opinions voiced in this article are solely based on personal experience. The Urban Realist intends this article to serve as general information only. Josie can be found on Twitter at @HelloJosephine_

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