The Two Ways to Get Out of Debt

Tue, Apr 12, 2011

budget, debt, income, spending

At the height of my spending frenzy, my dad said something that made a lot of sense. Actually, he says many things that make sense, especially regarding finances. He should be the one with the blog! Anyway, this particular comment is one that I have found to be universally true: There are only two ways to get out of debt - you can either spend less or earn more.

At the time, I didn’t want to hear such nonsense because it simply didn’t apply to me. How could I spend less? I was broke! I couldn’t even afford to pay for the basics - there was no place to cut expenses. My dad was crazy! At the same time, I didn’t see any way to earn more money. I was working a full-time job with crazy hours. A minimum wage job would be a waste of time. So you know what I did with this amazing piece of wisdom? I ignored it, as usual.

When I finally decided to change my money habits, I remembered what my dad had told me. Despite my efforts to pretend his advice was useless over the years, my brain stored his advice for the day when I would actually need it. And as much as I hate admitting he’s right, there are seriously only two ways to get out of debt.

Spending Less

Think you can’t cut your spending? I used to think that way. Of course, that was before I actually started tracking where my money was going. I don’t care if you use a spreadsheet, budgeting software, or the back of a Walmart receipt; you’ve got to see it to understand it. Before I started, I estimated that I spent about $100 a month eating at restaurants. When I actually tracked it, I was spending over $400. Similarly, I bought cigarettes by the pack, fooling myself into thinking I spent about $70 a month. It was double that amount.

I was the queen of saying, “It’s only a dollar,” or “It’s only ten dollars.” Problem was, I said that multiple times each week! When I saw all my spending laid out on paper, I was spending about $200 more than I made in a month, when I should have had plenty of money to make it through.

Regular monthly bills are pretty straightforward. You know how much you pay for utilities, housing, and credit card payments. What you have to do is subtract those fixed expenses from your monthly income, divide the money into weeks of the month, and figure out how to live on what’s left. Don’t have enough to make it? Then you’ve got to find something to cut. It’s that simple.

I did a lot of small things to free up money. For one, I stopped eating out for lunch all the time. It was too hard to go cold turkey, so I started by taking my lunch every Monday. That wasn’t so bad, so then I added Tuesday. Then Wednesday. I do still allow myself to eat out on Fridays - that’s my reward for behaving all week long. So instead of $200 a month for lunches, I’m now spending less than $40. Savings: $160.

I cut back the minutes on my cell phone plan. I was scared to do this for the longest time; I didn’t want to pay overages. I eventually realized that 95% of the people I call are on my network, so calls to them are free. I had a billion rollover minutes. What was I saving them for? Savings: $30.

Just those two changes allowed me to contribute $200 a month to Roth IRA. I set it up to transfer automatically, so I don’t really think about it. It’s gone as soon as my paycheck hits the bank, and it’s up to me to stick to my budget to avoid running out of money. Pulling the money back out of the Roth is simply NOT an option.

Look at your spending. What can you reasonably cut back on? Don’t make it too difficult, or you’ll disappoint yourself. Start with small things and work your way up. Even savings of $20 here and $15 there can give you extra money to save or use toward debt, if you’re disciplined enough to take it away from yourself before you spend it.

Earning More

Personally, I think earning more money is harder than spending less, especially with the crappy job market right now. Most people can’t just go get a job that pays more or find a second job. People have kids, hobbies, housework, and plenty of other things to do. So what do you do when you’ve cut expenses and you still just don’t have enough income to do the things you want to do?

I started out by taking a long, hard look at my stuff. While it was easy to say, “Oh, I’m still rebuilding after my divorce. I don’t even have bedroom furniture yet,” I was overlooking all the things I did have but seldom used. I sold a bunch of movies, a small TV I wasn’t using, some clothes, and even some random video games. (I still have an original Nintendo and a Super NES with games for sale if anyone is interested.) None of those sales made me a ton of money, but it was extra money to put toward my debt.

I also spent several months contemplating a second job. It’s tough! I’m a single parent, I’m on call every third weekend for my full time job, and I wanted to make sure the pay was enough to be worth it. For a long time I didn’t think it was possible - until I thought about opportunities with the agency I work for now. Turns out they needed some help in the evenings, so I start a part time job this week that will increase my income substantially.

Think about your skills and how you could use them to make extra money. A friend of mine mows yards in the evenings and on weekends, and he’s making an average of $50 per yard. That adds up! Another friend makes these awesome baby blankets and sells them online. There is something out there for you if you’re willing to sacrifice some of your time to make it happen.

So there you have it - the two ways to get out of debt. What will you do to make your debt go away? Will you ignore it, like I did for so long, or will you work toward spending less and/or earning more?

16 Responses to “The Two Ways to Get Out of Debt”

  1. Dave @ Money In The says:

    Good post, Andrea! I saved a lot of money too by cutting out the lunches. When I first started working, I would go out with people for lunch everyday. I started to realize how expensive that is and cut it out. I now only go out for lunch 2 or 3 times a month. It really does make a big difference. Good luck with the new part time job!

  2. Ashley @ Money Talks says:

    Good for you! I think you are right that earning more is more difficult than spending less. Getting a side hustle is a fantastic way to make some extra cash. Plus you never know when your side hustle will turn into your full time hustle. Your friend might get rich making baby blankets.. who knows!

  3. Jeffrey says:

    Very good points, Andrea! I agree: for a lot of people, cutting your spending is easier. However, there comes a point when you just can't cut out any more without making yourself miserable. I think there are many people out there (and I'm not saying this is you) that could make more money (maybe just an extra $400 a month) if they were a bit more resourceful. And if you couldn't tell, I'm one of those people that needs to find a way to make a little more :)

  4. Khaleef @ KNS Financ says:

    This is a great post. I love how you identified easy ways to save money through your own experiences. It's usually the simple things that give us a quick kick in the right direction.

  5. Shay says:

    Great article. I've been spending so much time focusing on how to earn more, but I am starting to get overwhelmed by doing too many things. I really need to start cutting back. I stopped eating out so much, but I often go to a coffee shop to work (because I focus more there than at home) and I usually end up spending money on coffee and food every day. I really need to learn to break this habit!

  6. retirebyforty says:

    It's so simple when you get down to it. :) Our parents can do it so we should be able to do it too! Aren't you suppose to pay down debt before investing in Roth IRA?

  7. Andrea says:

    I'm a huge fan of Dave Ramsey, but I don't always follow the things he suggests. If I was drowning under crippling debt, I could understand not contributing to the IRA right now. But since my credit cards will be paid off by the end of the year, I decided I need to start saving for retirement NOW. I won't max out the IRA this year because of the credit cards, but I wanted to at least get started. Thanks for reading!


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