What up debt destroyers? I love debt payoff stories, and today I have one of my favorites to date! These two (Zack and Jenna, who now blog at FreeUp) are legit. Their story is pretty straightforward. Basically… they started living in a camper to pay off their debt. Read on, you won’t be sorry. Enjoy! -M$M
It all began about a year ago after my wife and I returned from our dreamy honeymoon in the Bahamas. We settled into our new life together in our cozy downtown apartment and began planning for our financial future– we had no idea that we’d soon be living in a camper. It was in those early planning days that we realized our financial situation was grim.
Together, we brought $49,000 worth of debt from student loans and car payments into our marriage. We were crushed when we realized how long it would take us to pay off our loans by only paying the minimum payments each month.
If you’ve ever had any large sum of money you owed someone else, then you know it is a paralyzing and daunting feeling to even figure out how to get started. We knew we had to get our financial situation under control so we headed to the whiteboard and created our “Get Out Of Debt Plan.”
I’ve included three specific steps that have been crucial to our progress.
Step 1: Seeing our actual financial picture
We listed all of our assets and liabilities. In short, everything that we owned and everything that we owed. In order to understand what we needed to pay off, we needed to know what we were bringing in and what was going out.
Your assets will be things like cash in the bank, 401(k), market value of your home, estimated value of your car, etc. Your liabilities are debts, such as student loans, credit card debts, car loan, mortgage, etc.
M$M tip: If you want an easy way to track your assets and liabilities, plus what’s coming in and going out, Personal Capital is a free online tool that aggregates all of your financial accounts into one place. You can read more here about Personal Capital and how they stack up against Mint.
Think of this step as pooling everything together, liabilities and assets. While we weren’t doing this to figure out our net worth, it’s the same process. Would you be in the positive or the negative after factoring everything in?
We were very motivated to get to a positive number and seeing our real financial picture was the first step for us.
Step 2: The debt payoff plan
After we figured out where we stood, we needed to strategize about how to pay off that $49,000 worth of student loan and car debt, and we knew we couldn’t just make the minimum payments.
There’s a lot of information out there right now about the most effective debt payoff strategies, so here’s a quick breakdown of the most popular methods:
Debt Snowball Method
This is the method Dave Ramsey preaches, and even if you don’t like the guy, it’s an effective method. It’s a strategy that focuses on quick wins to get you motivated because paying off debt takes serious willpower.
Here are the steps to paying off debt with the snowball method:
- List all of you debts in order from smallest to largest.
- Commit to paying the minimum payments on all of them.
- Come up with an extra amount that you can put towards the smallest debt.
- Make those minimum payments each month while paying extra towards the smallest debt until it’s paid off. Side note: Make sure you tell your lenders that you want that extra going towards the principal not towards the next payment. This is especially important with student loans, mortgages, and car loans.
- Take the amount you were paying towards that smallest debt (minimum + extra) and apply that to what you are already paying on the next smallest debt.
- Repay that one, and keep the process going until you have paid everything off.
The snowball method is effective because of the psychology behind it‒ early wins equals positive feedback, equals motivation to keep going.
Depending on who you talk to, some will say your mortgage shouldn’t be part of this, some say you should stop retirement contributions during your pay off, some say it costs you too much in compound interest.
You know, if you’re paying off your debt, that’s awesome. We chose to live in a camper as part of our debt payoff plan, so whatever works for you!
Debt Avalanche Method
Before we decided that living in a camper was part of our payoff, this is the method we started using to attack our debt. The avalanche method targets the highest interest rate debt first, and if you are disciplined enough to follow through, you’ll pay off your debt faster and save a lot on interest charges. Here are the steps:
- Order your debts so that those with the highest interest rates are at the top, go down from there.
- Commit to paying the minimum payment on each.
- Come up with an additional amount you can put toward your debt.
- Pay the minimum payments on each debt, while putting extra towards the debt with the highest interest rate until it’s paid off. Again, make sure you tell your lenders that you want that extra put towards the principle, not future payments
- Take the amount you were paying towards the debt with the highest interest rate (minimum + extra) and put that towards the next one on the list.
- Repay that one and continue until you’re debt free.
Our highest interest rate loan was my wife’s car, so we focused our extra on that loan. It also happened to be the smallest loan we had (not always the case) so it made sense to pay that off first. We made $2000 payments each month towards that loan until it was fully paid off.
This accomplished two things, it gave us momentum to stay motivated because we saw progress quickly and it also eliminated the highest interest rate loan, which saved us money over the long run. I guess we sort of had a combination of snowball and avalanche, but it really started by attacking that high-interest rate debt first.
Related posts about debt payoff: 11 Strategies You Can Use To Pay Off Massive Debt
Step 3: Find extra money to put towards debt
Debt repayment can feel daunting because it doesn’t always feel like there is extra money sitting around to throw towards your debt. We decided that if we really wanted to get serious, we would have to cut back on our spending.
We identified ways to save on our largest recurring monthly expenses. Things like: rent, insurance, phone plans, and eating out. We found a new insurance provider, got our cell phone bill paid by our employers, and decided we would allocate $300 per pay period for spending money. Additionally, we swapped our high-speed internet for a cheaper plan, cut Netflix, Hulu, Audible, and other subscriptions.
M$M tip: In addition to cutting your spending, finding extra ways to make money can speed up your progress towards debt freedom. My favorite side hustle is by running Facebook ads for local businesses. The M$M Facebook Side Hustle Course teaches you everything you need to know to get started. I have students making $1,000 in their first month, and some have already hit the $5,000 mark in extra money each month.
Since implementing those three steps we’ve paid off our smallest amount and highest interest rate loan in roughly six months. At the time, we still had one problem: our largest recurring payment each month went to our landlord.
Until one night, we were enjoying dinner and a life-shaping discussion came up. I said to Jenna, “Why don’t we downsize and try living in a camper to focus on paying off our loans?” We both laughed and smiled nervously at each other while I did the math on the back of a napkin… “Nine months and we could be debt free,” I said to my beautiful and nervous looking wife.
We sat quietly smiling at each other and Jenna said, “Okay, let’s do it!”
We decided on a budget of $3,000-$4,000 for the camper and knew we wanted to be able to connect our car to it. We searched craigslist day and night and researched what was out there. We found a great deal in a 30 ft. TrailManor camper for $3,000. We also knew that refinishing it and adding some sweat equity would allow us to sell it for more once we paid off our debt and were finished living in a camper.
Within a few weeks of our original conversation, we had our future home. We worked late nights and weekends to fix it up. We remodeled it just enough to call it home and started living in a camper as the next step to paying off our debt.
Make no doubt about it, this was a stressful transition, but it’s been completely worth it. We sold our stuff, donated half our wardrobe, and rented a storage space for the rest.
We were able to park on some family property and paid for electrical hook-ups. We had a shoddy internet connect and only had three channels on our TV. Living in a camper wasn’t always the romantic dream some fantasize about. It’s close quarters, things break, and it takes getting comfortable in your space to finally see the thought behind the idea that “living in a camper is just like being on vacation.” Fortunately, we eventually got to that point.
After 11 months of living in a camper, we finally reached debt freedom. There were ups and downs, but sticking to our goal and seeing those sacrifices pay off was life changing.
Although this is about our financial future, that part of our life was more than just a quest to get debt free. It’s taught us how to dream together and work to make that dream become a reality. It’s gratifying when you unite together around a common goal with your spouse. It’s made us realize that anything is within reach when we work together.
We’re no longer in living in a camper, and we have good internet again (thankfully), but we have learned some very positive life lessons about tackling debt and the power of living with less.
We now run a personal finance blog where we share our experiences living in a camper, crushing debt, and basically how others can reach their financial milestones. You can find us FreeUp.
If we can do it, you can, too. Write out a plan that works for you and stick with it. The way we see it, if your plan is not challenging your lifestyle, it’s not changing the way you see your money.
ZACK AND JENNA
Zack and Jenna reside in Oklahoma with their Border Collie, Banjo.