Inspirational debt payoff stories and some great tips on how to reach debt-free in a year or less
If there is one type of post in the personal finance space that is most popular with readers, it’s stories of how someone was able to pay off their debt in a year.
At the financial bloggers’ conference I go to each year, you don’t have to look far for examples of someone that reached debt-free and paid off tens of thousands in the blink of an eye.
These stories are motivating and educational – helping readers shuffle off their own chains of debt oppression.
The problem is…I’m more of a debt agnostic on my student loan debt.
I was able to refinance in 2003 for 2.75% so am paying off my $40,000 in undergrad and graduate loans as slowly as possible. I don’t have any mortgage debt and I pay my credit card balances each month.
That’s not a very exciting debt payoff story!
But I wanted to share some of my favorite debt-free strategies so I reached out to my friends with amazing debt payoff stories.
The roundup below includes not only some inspirational stories of debt-free in a year but also tips on how to pay off your own debt. Between the four bloggers, they are paying off more than $100,000 a year in debt!
Getting Started on Your Debt-Free Plan
Getting started on your plan to become debt free is actually pretty easy. You need to know how much you’re spending, how much you make and how much you owe.
Money management isn't magical. Just tricky. To come up with extra cash to use to beat down debt, you can spend less, make more, or do both.
Take a couple of weeks to truly track your spending.
- Do not spend any more money on anything not necessary to the survival of you and your family.
- Do the same sort of analysis with your time. Cut out all time-wasting activities like TV and watching all those cat videos on the internet.
- Then use the extra money towards debt and the extra time to make more money to put towards the debt.
I'm a living example of paying off $50,000+ in mortgage debt in just about a year. I started a business online while I still had a regular job. It meant working 100+ hour weeks for right around a year, but we put all the extra money towards our first home's mortgage and towards a 20% down payment on our current home.
Now we have a paid off rental house, live in our dream home, and I'm 100% self-employed.
You’ll see that side-hustle idea come up in other debt-free stories. Your current income is probably a big contributor to the debt problem you’re in and you might not be able to pay off your debt fast without bringing in extra money.
The upside is that your side-hustle can quickly turn into a full-time, work from home dream job that brings in more than you thought possible.
Danny at LiveFrugalee is tracking his progress on paying off $190,000 in mortgage debt over 58 months. He says he’s falling a little behind but that seeing the progress he’s made so far keeps him motivated to keep saving.
If you want to be debt free in a year or less, sit down and set a goal, make a plan to attack that goal, and track your progress on that goal. Break down the debt into 12 months or whatever increments works for you.
If you don't think you can pay off the debt with your current income, you need to either get an extra job or side hustle, get a different job, reduce your expenses, or take a little more time to pay off your debt.
Goals are so important to any debt-free journey but most people don’t know how to really use goals to motivate themselves.
You can’t just say, “I want to be debt-free in a year,” and expect that to be enough motivation to keep you on a budget.
Effective goal-setting means thinking about what your life will be like when you reach your goal.
- What extra things will you be able to do?
- Where might you be able to go because you’re less burdened by debt?
- How will it feel waking up every day knowing that you don’t have to bust your ass just to pay debt?
Build a mental picture around the answers to these questions. Take that mental picture out regularly to keep you motivated to keep saving and paying down debt.
Four Simple Steps to Paying off Debt in a Year
Alaya of Hope + Cents offers a four-step process for getting started on your one-year debt freedom plan.
If your goal is to be debt-free within a year, you will first need to take a hard look at where you stand to see if that is realistic in your situation. Add up your total debt and divide it by 12 to roughly see how much money you would need to throw at it each month.
Once you have that number, you’ll know if paying off your debt in a year is within reach or if you need to adjust your timeline a bit.
In either case, the following steps will help you become debt-free.
- Stop incurring more debt.
Sounds like a no-brainer, but if you want to be debt-free, you must make the decision not to add any more debt of any kind to what you already have.
- Reduce your expenses.
Comb through your expenses and reduce them to the necessities. Follow a written budget each month to ensure you keep your spending in check.
- Increase your income.
Look for ways to bring in more money. You could work overtime, pick up a side job, sell items, etc.
- Put as much as you can towards your debt each month.
All the money that you've freed up by reducing your expenses and increasing your income should go towards making extra payments on your debt.
Depending on your situation, paying off your debt within a year can be doable with some effort and 100% commitment on your part.
A Unique Cash Flow Method for Debt-Payoff
Most people attack their debt on a monthly basis but that risks coming up hundreds short before you even realize it.
Stephen from Lending Robot shares his story and a unique cash flow method for debt-payoff.
In college, I went $25k into credit card debt by making a bad business bet. Here's how I paid it off within two years, while attending school full time and working nights and weekends.
I got a monthly calendar, a red pen, and a green pen. I calculated my daily “fixed costs” by dividing my rent, internet, phone bill, insurance, and other monthly expenses 30, then wrote this amount in red on each day of the calendar.
Before I went to bed each night, I wrote down how much money I made that day in green, and how much I spent in red. Then I subtracted the two red amounts from the green amount. This was my daily “cash flow.” It was my goal to only have “green” cash flow for each day. Each week, I added up each day's cash flow and made a credit card payment in that amount.
Knowledge is power. Just being aware of my daily cash flow let me control how much I spent each day, and pushed me to find opportunities to make a little extra cash using side gigs.
Putting it All Together for the Ultimate One-Year Debt Payoff Strategy
April from ConsolidatedCredit.org didn’t have a debt payoff story of her own but a great strategy she’s learned from years of counseling others to pay off their own debt.
You have to be ready to do whatever it takes! Sell things online, get a second job or take on freelance work for a short time. Tighten up your budget by cutting cable, lowering your cell phone and internet bills. Call your utilities and ask about specials for lowering plans.
This one is a no brainer – stop using credit cards. It is mentally much harder to part with cash than it is to swipe a credit card.
Really get serious about paying off debt and switch everything to cash payments.
Review your budget to craft a strategy to pay off your debt. To assess this accurately, you need to know:
- How much total credit card debt do you have?
- How many accounts do you have and what's the interest rate on each?
- How much extra cash do you have available in your budget?
- Can you cut any expenses to free up more cash flow? If so, how much?
- What's your credit rating?
Once you answer those five questions you can assess your ability to pay off your debt. A credit card debt calculator can be extremely useful for helping you do the math in this step.
For example, let's say you have $9,000 in credit card debt on two different credit cards, each at around 15% APR, and you have the ability to make cuts in your budget to pay $450 monthly.
In this case, making payments of $450 per month you can eliminate your debt in full in 24 months. That's actually a reasonable amount of time, but then you have to decide if you can double that amount to get out of debt in 12 months!
That might be a bit harder.
Now let's say you have $15,000 in debt spread out over five credit cards ranging from 15% APR to 22% APR on a few rewards credit cards. If you transferred the balances to a balance transfer credit card with a 0% APR introductory period for 12 month, you'd have to make payments over $2,000 to pay off the balance in-full.
When you're looking to get out of debt, there are three basic options to consider:
- A credit card debt reduction plan – pay off debt using freed up cash flow, buckling down on all nonessential expenses, and bring in extra income.
- A credit card balance transfer –you transfer balances from existing credit cards to a new credit card with 0% APR for an introductory period; be careful with balance transfer fees that will add to your debt and make sure you can pay off your debt before the introductory period ends.
- An unsecured debt consolidation loan – this is where you take out a personal loan at a low interest rate to pay off your balances, leaving only the loan to repay; make sure to only use an unsecured consolidation loan, since using something like a home equity loan puts your home at unnecessary risk of foreclosure just to pay off your credit cards.
Call your creditors to see what they can offer. People often have a knee-jerk reaction of avoiding creditors, but you're a customer who gives them business, so it's in their best interest as well to help you.
Reach out and see if they'll be willing to work with you to get your debt under control. If you have good credit and you've always made payments on time, call the creditors to negotiate. They may be willing to lower your interest rates so more of your payments goes towards the debt.
Again, based on the new rates they're willing to offer, use a debt calculator to see what this does to your repayment schedule.
Nobody said paying off all your debt in a year or less would be easy but use your goals to keep you motivated. Don’t worry if you’ve got too much debt to pay off in a year, just use the payoff strategies above and give yourself a little more time. Pretty soon, you’ll be sharing your debt-free story with everyone else and enjoying the financial freedom it brings!
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.