When Marcus Garrett graduated college, his debt amounted to just under a quarter of the national average for someone at his life stage, which is $37,172, according to Debt.org. He had $9,000 to be exact, which mounted from several small- to mid-size expenses. After graduation, Garrett’s debt skyrocketed to $26,000. Throw in a few new things for his first apartment out of school, and he was looking at paying off a debt of $30,000 or possible bankruptcy.
Fortunately, that wasn’t the end of the story. The auditor-turned-author and finance blogger sat down with GOBankingRates to explain how he whittled away that $30,000 mountain of debt in just five years.
Keep reading to find out just how Garrett paid off $30,000 in debt by age 30, and click through to learn about a way to pay down higher-interest debt faster.
1. Do Your Research Before Opening a Credit Card
“Like most college students in the early 2000s, I signed up for a credit card — multiple, eventually — in the main dorm when they were giving out T-shirts and free swag if you signed up,” said Garrett.
When used responsibly, a credit card is a smart tool college students can use to build their credit history. Plus, there are tons of different types of credit cards to choose from — like ones with cash or travel rewards. However, some consumers like Garrett can experience a surprise if they don’t fully research the ins and outs of the credit cards they select. If Garrett had paid his monthly balance in full every month, he wouldn’t have had to pay interest. Instead, his choices led to an increased amount of overall debt.
2. Don’t Incur Debt on Top of Debt
When Garrett had a chance to minimize his debt with additional funds, he, unfortunately, made the wrong decision to spend that extra money instead of applying it to his debt. After graduating from college, Garrett was excited to get his life started. He used his credit card to furnish his new apartment, but the expenses snuck up on him. The last straw was putting a $2,000 down payment on a used car he bought at sticker price to get to work every day. All in all, he ended up with a total debt load of $30,000 that accrued interest quickly.
3. Recognize That Something Needs to Change
Garrett didn’t have a plan in place before taking on debt and couldn’t seem to keep up with all the bill payments. “The ‘rock bottom’ portion of my story came when, despite working two to three jobs, I could barely afford to cover my minimum payments,” said Garrett. To set himself on the right track, he started to put together a plan to manage his debt. Deciding to make the change is the important first step. “I still emphasize that the mental decision to pay down debt and live within your means is very important to your financial well-being,” he said.
4. Define the Problem
As painful as it might be, the first thing to do is get an accurate picture of how much debt you actually have. Garrett’s debt was spread out across several bills he was struggling to keep track of. Like Garrett, you can get a free credit report online from all three major credit bureau reports at AnnualCreditReport.com.
The report shows your credit score and whether you’ve been timely or late on your bills, and can help you spot identity theft. This report shows how your debt is affecting your overall financial standing, but can also help you pinpoint your spending problem areas, so you can see where to cut down. This gives you an understanding of where you’re starting out and what your goal should be so you can get closer to paying down your debt.
5. Set a Reasonable Goal
Once you know the complete picture, take a deep breath and set a reasonable goal. Garrett shares that he had never created a detailed budget. Up to this point, his financial plan had focused on working more hours or taking on an extra job to earn more money to cover his increasing payments. When he realized that was not a sustainable way to live, he cut back on his lifestyle and mastered budget skills.
Garrett advises trying several online financial tools not only to create a detailed budget but also to calculate your total debt. He recommends using an online calculator, such as the debt consolidation calculator from Discover, to add up all your higher-interest debts to understand your total debt and see how much time it would take to pay down. The calculator also shows how much time and money you could save in interest if you were to consolidate your debts with a personal loan instead.
Be ready with your balances and current interest rates when accessing the calculator. You’ll also need to decide how much money you can allocate to paying your debt consolidation loan payment each month. If you want to be free from debt by a certain year or milestone, keep that in mind when calculating your potential debt payments and choosing a term length. This can help you set an achievable goal, track your progress, celebrate wins and stay motivated on your journey towards becoming debt free.
6. Explore Your Options to Get Out of Debt
After using a debt payment calculator online to evaluate his debts, it was time to explore ways to pay down his debts. To completely pay down his debts, Garrett knew he had to figure out a plan he could actually stick with. One option he came across was a debt consolidation loan. These loans combine multiple bills into one monthly payment at a fixed interest rate, leaving you feeling less overwhelmed by juggling multiple bills at varying interest rates.
Another option to help pay down debts is to create a monthly budget, allocating a certain dollar amount for debts but also for discretionary spending. The 50/30/20 budget, for example, allocates 50 percent of your net pay towards your needs like rent, groceries and car payments; 30 percent goes towards wants like traveling or going out to eat; and 20 percent goes towards savings or debt. This simple budget is easy to follow and helps you accomplish several goals at once.
7. Choose the Right Plan for You
There are many different ways to approach paying down debt, and some might make more sense for you than others. Garrett started with a plan, but every plan for paying down debt is different. Often, people like Garrett try to pay off their debts individually without assistance or a clear timeline, but it’s easy to slip up into old habits.
Some might not think to take out a loan to pay down debts; however, taking out a personal loan can save you money on interest, and can help pay down higher-interest debt faster. Some lenders, such as Discover Personal Loans, pay your creditors directly and have no origination or early repayment fees. With loans from $2,500 to $35,000, you can take out the amount you need to consolidate your debts and stay on track with a term length you choose.
Garrett started with his four-step process of how to pay down debt that he still recommends today, which includes defining the problem, setting a reasonable goal, implementing the plan and sticking to it unless it needs to change. In that case, he advised, “Change the plan, never the goal,” which for him, was freedom from debt. A debt consolidation loan wasn’t in the first version of his plan, but he soon revised it to include it.
8. Use Online Tools to Help Keep You on Track
Take advantage of reminders and notifications on apps to keep you on track. Garrett sets calendar reminders for himself to remind him to make loan payments and recommends treating them like advice from your parents. Some financial institutions already have this functionality built into their loan websites to make it easy for customers. “They work best when you listen,” he said. “I used to think as I got older my parents got smarter but in reality, as I got older, I finally grew wise enough to listen.”
“Sticking to the plan is the hardest part. I missed a few parties, weddings [and] major events … but I also gave myself the gift of becoming nearly debt-free, which is something a lot of people can’t say now, and some won’t be able to say ever,” said Garrett. “It was a temporary sacrifice for a long-term game.”
Don’t worry about penciling hours into your schedule to budget or forking out more money for debt help. “Most people can put together a budget and plan using budgeting apps or websites in 15 minutes. This 15 minutes can improve the next 15 years of their lives if they automate the plans.”
9. Automate What You Can
Make the process a no-brainer by automating what you can. Garrett uses his bank to automate 95 percent of his bill payments. By automating your bills, you’ll always pay on time and never face late fees. Just make sure to always keep enough money in your bank account to cover your bills. Automatic bill pay is offered by most major financial institutions, but if the service isn’t free through your bank, try a credit union or app.
He also automatically transfers his pre-tax 401k contributions to maximize benefits and employer contributions. “Automate everything you can, forget about it and go back to living your life,” he said. “A good plan will automatically lead to success.”
10. Apply Your New Habits Moving Forward
“Many of us weren’t taught personal finance,” said Garrett. “Life is the best teacher but least forgiving, so we end up in our 30s and 40s finally concerned about money for the first time; it’s never too late to learn good financial habits. The positive thing is you can learn to responsibly manage money just like you’ve learned to live outside of your means,” he said.