How to Live With Debt

Debt has nothing to do with money and everything to do with our values, habits, and mindset.

Back in January 2016, I started my journey towards eliminating $50,000+ of debt. It comprised of government student loans, a private line of credit (“professional student loan” as the financial institution called it), and a sprinkle of credit card debt. Although there are plenty of people out there who graduated school with much more debt than I did, I felt that these loans were insurmountable. It was the first time I was in debt, I had no guaranteed job, and I knew nothing about personal finance.

If I could go back in time and read one blog post about how to manage my debt, it would be this one. If you are currently struggling with debt, read on. The obstacle can be overcome.

How to Pay Down Debt

Track. Before you do anything, you have to know where your money is going. At least for the first three months, track every single purchase and bill payment that you make. At first, it’ll seem inconvenient and burdensome — but realizing how frequent money leaves your bank account or how often you swipe your credit card is important. You can either write down all your purchases and their amounts on your phone in real-time (my preferred method) or sit down once a day or every few days and write down all your recent expenditures.

Budget. Wait until at least a month before you create a budget. Why? Because you’re going to be sorely disappointed with yourself if you create an unrealistic budget that you are unable to stick with. The key to paying down debt is about motivation. And motivation is fostered with a sense of belief that what you’re attempting to achieve is attainable.

A solid budget involves separating your expenses into two different categories: fixed expenses and variable expenses. Fixed expenses include: rent, car insurance, cell phone bill, transit pass, gym memberships, etc. Variable expenses include: groceries, pet supplies, eating out, entertainment, healthcare, etc. I also include an additional $100 as, “miscellaneous,” in case an unforeseen expense comes up.

The goal isn’t to restrict yourself; it’s to set reasonable boundaries. For example, if you really enjoy buying fancy lattes, go ahead and do it! But give yourself X amount of money per month for them. Once you hit that number, you have to either a) wait until next month when your budget rests, or 2) be willing to use money from another category. This prevents your spending from becoming automatic. You start to ask yourself questions like, “Should I buy a latte now or buy one tomorrow when I have that two-hour meeting?” A budget is not there to punish you. It’s to give you permission to spend a reasonable amount of money on the things that you want.

Save. Most of my anxiety came from knowing that I was living paycheque to paycheque. Although I was making a decent wage (at the time my salary as an articling student was about $45,000 per year), I didn’t have any savings. For a 25 year-old with no dependents, I should have been easily paying off some of my loans, but I wasn’t.

When I started getting my act together, I built up an emergency fund, which gave me more peace of mind than anything else. It started as $300 then $500 then $1,000, and then $1,500. There was no magic to that number. That was enough to cover a month’s expenses and it wasn’t so much that I felt that I should be putting that towards my debt.

One month ahead. I was fortunate to get every two weeks, so that meant during the months of June and December I receive three paycheques instead of two. When June came, I used that additional paycheque, in combination with some of my savings, to get ahead one paycheque. To clarify, that meant I used money that I already had in the bank to pay for my July expenses, which meant that the paycheques I received in July would be used in August. This allowed me to stop living paycheque-to-paycheque, because I would always have the money that I needed this month — I would no longer have to wait until my last paycheque of the month to cover rent or groceries. Once I was able to get a month ahead of my bills, I started to build my emergency savings back up again to $1,500.

Attempt something radical. I didn’t realize I was capable of making radical changes until I did. Around July 2017, I decided to sell my car. Granted, it was old and the expenses outweighed the benefits, but I was scared of limiting my freedom. Up until that point, I always had a car at my disposal. I also didn’t like the idea of how long commuting via public transit would take (especially in Toronto). But I did the math and I knew it would make a significant difference in my debt repayment. I thought, “I’ll get a car as soon as I’ll be debt-free.” But now, I quite enjoy living car-free. I walk more. I (sometimes) get to read on public transit. I rent a car via an app whenever I need one — and I don’t have to pay for gas or insurance (just a mere $75 deductible each year). While you might need your car, is there anything that makes you feel uncomfortable living without? Maybe try it and see what happens.

How to Live With Debt

Forgive yourself. When there’s no one else to blame, it’s hard not to turn inward. But realize that beating yourself up about past mistakes (or in some cases — unavoidable situations) is neither healthy nor productive. Acknowledge your situation, accept this as an important lesson, and ascertain what lessons you can glean from this obstacle.

When I was in debt, I wasted so much of my energy kicking myself when I was already down. But I now realize that that was an important lesson for me. Without being in debt, I would’ve never learned how to manage my money and invest in my future. It’s time to stop tormenting yourself and figuring out a solution to your problem.

You are not your debt. You are not the number in your bank account. How much you earn, what car you drive, and the clothes that you wear, say little about your character and how you treat others. Remember: You could be the richest person in the world and still be someone no one wants to be around.

Seek help. There are times when your anxiety is too overwhelming to conquer alone. When I started taking anti-anxiety medication, I remember thinking to myself, “Wow, I had no idea this is what people normally felt like.” Sometimes we don’t realize how bad our anxiety is until we speak with a professional. There’s no shame in getting help.

Stay motivated. Repaying debt is a long journey. My goal was to be debt-free in three years, but I feared that I would give up long before the end thus I utilized mini-goals. For every $5,000 I paid off, I celebrated with treating myself to a guilt-free dinner out. I also told my girlfriend so that I would stay accountable. In order to keep up the momentum, I devoured personal finance blogs, books, and podcasts. I also wrote about it publicly on my blog, on Medium, as well as other websites. I found a community of people, like me, who were motivated to free themselves from the chains that banks, the government, and credit card companies were using to bind us.

I suspect that this is indicative of my privilege, but paying over $50,000 of debt has been one of the hardest things that I’ve ever had to do. It’s a simple plan — spend less than you earn, save a bit, and throw the rest towards debt — but the psychological hurdle is tough to overcome.

Evaluate my priorities? Forgo indulgences? Downsize my car and home? Sell, trade, or let go of some of my possessions? And do all of this consistently for over two years?!

If it’s one lesson I’ve learned from paying down debt, it’s this:

Debt has nothing to do with money and everything to do with our values, habits, and mindset.

The burden of debt forces us to build self-discipline, evaluate our long-term goals, and eliminate harmful aspects of our lifestyle that we’ve grown accustomed to. Eventually, as we cross the finish line and become debt-free, all that will remain is a more resilient, positive, and confident version of ourselves—who we were always meant to be.