How I’m Slaying a $30,000 Debt Dragon

Photo by LendingMemo, via flickr

Photo by LendingMemo, via flickr

I am in debt. It weighs me down and refuses to let up. With every decision I make regarding money, I immediately think of the how the decision will impact my debt. Buying milk at the grocery store, those dinner plans with friends at my favorite restaurant, even my cell phone bill all nag at me telling me I should be putting that money towards my debt. I’m sick and tired of listening to that internal monologue, and I’ve decided to do something about it.

From an early age, I began to intertwine money and my self-worth. There was always someone I knew with more, and those feelings of inadequacy were reflected in all of my interactions. I was insecure, preoccupied by what I imagined people thought of me, and generally uncomfortable in my own skin. When I went away to college and received my first credit card offer, I jumped at the chance to change my feelings through spending money.

I racked up credit card debt. I would tell myself, “I’ll pick up extra shifts for the next few weeks and pay this outfit off,” or “I won’t go out to eat this month and then I’ll have more than enough to pay off my balance.” Months would come and go, my attempts at self-control were but a distant memory, and I had accumulated more debt. Or I would miraculously pay off a card, but would celebrate by buying clothes or taking my friends out to dinner. This pattern would continue through my twenties and into my thirties.

In hindsight, I didn’t like myself enough to think other people could like me for me. My time wasn’t valuable because I wasn’t valuable. I had to spend money on people, or buy jeans from that popular clothing store, to have friends. I believed that to my core.

I have had to do some heavy lifting to change those beliefs. It was uncomfortable to start asking for separate checks when I went out with friends. The first ten or so times I did that, I had to step away and call a close friend who would tell me it was perfectly acceptable to just pay for myself. It was humiliating, at first, to tell people I couldn’t afford to go out. Just yesterday, a new friend invited me out to dinner, and I had to tell her I couldn’t afford it. I immediately felt a twinge of that same humiliation. She reacted kindly and it subsided. True friends are happy to discover you’re taking care of yourself, even if that means you have to say no sometimes.

I’ve read my share of money management books and articles. I’ve listened to friends and colleagues explain their methods of staying in the black and out of the red. Taking all that information into account, I picked out my favorite, and most likely to stick with, strategies that will help rid me of debt permanently, start controlling my money, and live a more authentic life.

Strategy #1: Seeing my money

The idea of tracking my expenses day to day is so mind-numbingly awful that I don’t approach this lightly or with ease. Yes, I need a spreadsheet to see where my money is going, but I pity anyone in my vicinity if I have to write numbers down every time I buy a cup of coffee.

I simply put my expected monthly expenses, the ones that typically don’t change, in one column. This includes minimum debt payments, groceries, rent, etc. I get a haircut every six weeks or so, so I put half the cost of the haircut in the month’s expenses. Because I get an oil change on average of every three months, a third of the cost for an oil change per month. A small percentage of my salary is set aside every month for unexpected expenses. I also gave myself the elbow room to have some fun money and put that in the expenses too. In the next column, I write my monthly salary.

Strategy #1.5: One debt instead of many

Along with looking at my budget, I learned what I really owed to my creditors. I’ve always estimated, but never knew the actual dollar figure. That was my denial hard at work. The bills all came at different times in the month and I considered each one separate. But they’re not separate. It’s all debt and I need to see the whole picture before I can make an attack plan.

On the same budget spreadsheet, I wrote out each creditor, the balance, interest rate and minimum payment. I added the balances. I owe $30,000 in all. To whom, it doesn’t matter. $30,000 of my salary for the next few years doesn’t belong to me. No more anxiety when a credit card statement arrives in the mail. I know what I owe.


Credit Union


S. Loan 1

S. Loan 2

S. Loan 3

S. Loan 4



Interest Rate

















Minimum Payment









Minimum Payment %








Additional Payment




Strategy #2: The Avalanche method

I ordered my debts from highest to lowest interest rate. From doing my budget, I know the total minimum payments and how much above that I can put toward my debt. I call it my additional payment. I make the minimum payment for all of the debts except the debt with the highest interest rate. With the highest interest rate debt, I’ll pay the minimum payment plus my additional payment. I will continue doing this until that debt is paid off. Then I’ll apply the money I was spending on that debt to the next highest interest rate debt, and begin the process again. In addition, every time I receive extra money (e.g. I sell something, birthday cash or my tax refund), I put it toward the highest interest rate debt.

I found a great tool to use that did the math for me at

Strategy #3: Micropayments

I am earning interest every day based on the balance of my credit cards and student loans. If I take the amount I was going to pay and divide that into smaller payments, or micropayments, throughout the month, the balance will continue to drop. In the long run hundreds or thousands of dollars can be saved in interest.

Right now, I’m making payments to all my creditors every time I receive a paycheck. Two or three times a year when I receive three paychecks in a month, the creditors are receiving an extra payment, helping me get out of debt sooner.

Strategy #4: The Envelope system

After doing my budget, I see what my monthly bills are and the rest I allocate to envelopes labeled with the categories groceries, restaurants, gifts, etc. I like this system because I have a difficult time spending money in some areas that, in moderation, are fine. For example, when I go out to eat, I feel guiltier with every bite. “This money could have been put in savings or toward my debt,” I think. By the end of the meal, I haven’t enjoyed the food or experience. With this system if I look over my budget and see that I can afford $40 on dining out every month, I can enjoy a meal or two without beating myself up.

Dave Ramsey, who popularized this approach to cut spending, insists a psychological pinch happens when I pay for something with cash that doesn’t happen when I pay with plastic, even if it is with my debit card. It hurts a little more to break or part with that twenty dollar bill. Spending cash will force me to consider the value and necessity of every purchase.

Perhaps the bigger idea with this strategy is that I’m no longer balancing last month’s ledger with this month’s budget. “Last month I spent $30 more on entertainment than I had allotted, so this month I’ll spend $30 less on groceries.” Now, once the money in an envelope is gone, I’m done spending in that category. The good news is the other areas of my life don’t suffer.

Strategy #5: Separate accounts for debt payments

I recently set up a second checking account, essentially an electronic envelope, just for my debt payments. A percentage of every paycheck is automatically deposited into this account. I know how much will be sent to my creditors every other week, because of my micropayment schedule. This way, I don’t have to worry about accidently spending money that is for my debt payments on other expenses. It may be my weakest strategy, but I like the idea.

Strategy #6: A balance transfer

My highest interest rate is 12.9% on a school loan. Because balance transfers aren’t always the answer, I had to write down the pros and cons. Pros: Less interest to accumulate over the lifetime of the loan. Money I would be spending on interest would be put toward other debts. I would have breathing room if there was an unexpected large expense. Cons: The interest rate will spike to 16% after 18 months if the card isn’t paid off. I’ve done this before and it didn’t help me in the long term, what’s different now? Will having another credit card lower my credit score?

I felt the pros outweighed the cons, so I decided to do it. I’m still not sure it was the best idea, but only time will tell.

Strategy #7: The savings account

I’ve never been a saver. At my best, I’d throw $50 in a savings account every few years. Though it’s tempting to pay down debt as fast as possible, I can’t spend every dime I make on my expenses and debt payments. If I do, and my car breaks down, or a good friend decides to get married out of state, I would have to rely on my credit card. Not an option anymore. I will be depositing a percentage of every paycheck automatically into a savings account so I don’t have to incur more debt in the event something unexpected happens.

The Timeline

The time it will take to clear the wreckage of my past is relative. It took years to do the damage, so it will take more than a few months to clean it up. I estimate it will be well into 2017 before my debts are paid off. It is what it is. My thought is this: 2017 is going to come. I’ll be three years older, there’s no changing that. I can make the decision to be three years older and debt free or three years older and still in debt. Three years older and living life without worrying about my credit card and school loan payments, or three years older and continuing to weigh every decision around my debt.

Which one sounds better to you?

This post was written by Aaron Sherman, a field education representative for Colorado PERA. Would you like to write a guest post for The Dime? Send us an email at 

Budgeting: Utilizing Percentage Benchmarks

Photo by 401(k)2013, via flickr

How much is too much to spend on rent? A mortgage payment? How about utilities and insurance? The truth is, there isn’t a one-size-fits-all number to answer any of these questions. It all comes down to what you earn, what your debts and financial responsibilities are, and where your financial priorities lie.

That’s why some experts lean heavily on offering benchmark percentages that can help individuals with drastically different financial situations determine if they are on track with their budget.

Elizabeth Warren, Harvard bankruptcy expert and new US Senator, believes in the 50/30/20 rule – 50% of your income should be spend on “needs” (housing, utilities, transportation, etc.), 30% should go towards “wants,” and the remaining 20% should be used for debt repayment or planning for the future (retirement, savings, etc.).

However, a post on The Simple Dollar aptly points out how easy it is to over exaggerate your needs and end up with a much smaller chunk than is suggested for wants and saving for the future.

So perhaps the answer is drilling down the category of needs in order to really tell how smart you are being with budgeting your money. Here is the general consensus I found among experts when it comes to budgeting by percentages.

Housing: 25-28%
Mortgage Payments (including property tax and home insurance) / Rent

While there isn’t a precise number that experts seem to agree on, the general consensus is that your housing costs should fall between 25-28% of your income. However they vary greatly on whether this should be your gross income or net income. Dave Ramsey believes that you should spend no more than 25% of your net income. Others lean towards taking the percentage from your gross income.

 Suze Orman suggests determining if you are equipped to buy a house by taking your rental costs and adding an additional 45% which would cover maintenance, property tax, etc.

Utilities: 5%-10%
Phone, electricity, water, Internet, gas, trash

This category is relatively straightforward and most experts agree on the 5-10% benchmark – although this article on The Nest suggests going as low as 2%.

Transportation: 10-15%
Gas, insurance, maintenance, license, registration, or public transportation passes

Dave Ramsey suggests keeping all transportation costs at 10-15% of your net income. This does not include your car payment (this should go in in the “debts” category), but does include everything else you need to keep your car running from year to year.

This likely means you’ll have to break down your insurance premium, registration costs and average maintenance to get an accurate monthly allowance.

Food: 5-15%
Groceries, meals in restaurants

While Dave Ramsey suggests the broad 5-15% range, Kiplinger leans towards the higher end at 15%. Take note that this includes all food from groceries to that $1 you spend at the snack machine every day.

This may seem like a large amount, but studies have shown that the average American actually spends less of their disposable income on food (including eating out) than those in other countries.

Saving: 5-10%
Emergency savings, big-ticket items

Suze Orman is constantly stressing the importance of building up an emergency savings account that covers at least 6-8 months’ worth of your expenses. On the other hand, David Bach, author of The Automatic Millionaire, suggests setting aside 3 months’ worth of living expenses.

If you’re starting from square one, this could take a substantial amount of time to accumulate, but if 5-10% is what you can afford right now, it’s a great place to start.

Retirement: 10-15%

Dave Ramsey actually includes retirement in his “savings” category, but his suggested rate of 5-10% for everything (emergency savings, retirement, college, big-ticket items) seems less than meager compared to what other experts suggest.

Former Money Magazine editor Walter Updegrave suggests starting at 10% but putting away more if you are able and if you want to ensure your financial security well into your later years.

Medical: 5-10%
Health insurance, copays, medication, medical bills, disability insurance

This might seem like a small percentage considering the rising costs of healthcare, but the average American family is already managing to stay under the 10% mark. In fact, the Bureau of Labor Statistics found that the majority of Americans spend approximately 6.56% of their income on this expense.

Debt Repayment: 5-15%
Car payment, credit card debt, student loans (everything you owe except your mortgage)

According to Elizabeth Warren and her 50/30/20 rule of thumb, any minimum payment counts towards your “needs” (the 50% category) and anything over the minimum counts towards your debt repayment (the 20% category).

Dave Ramsey, on the other hand, bunches all consumer debt payments – everything you owe except your mortgage – into the debt repayment category and suggests that 5-10% of your net income goes towards that expense.

Personal/Recreation: 5-15%
Entertainment, vacation, subscriptions, gifts

This is another category that without an agreed upon percentage, but experts seem to agree that “wants” should fall between 5-15%. Some include dining out in this category, but most bunch that in with the general food category.

However, this does include alcohol on nights out, movies, clothing above and beyond what is needed, vacations, and anything else that you could easily do without.

It’s important to keep in mind that everyone’s financial situation is different. If you don’t have any consumer debt, then you are likely to have more to go towards the savings category or the personal/recreation category.

However, these percentages are a great jumping off place for creating a healthy budget and improving your overall financial well-being.

If you’d like to see where your money is being spent each month along with a percentage conversion, check out this great budget calculator from the Washington Post or Dave Ramsey’s online budgeting software.

Do you follow percentages when creating your budget? Share your experience and tips by leaving a comment.

Other articles you may be interested in:
How to Create a Budget That Works For You
7 Simple Ways to Start Saving Today