“My finances are a mess.” If this thought has ever crossed your mind, you’re not alone. Lots of people are struggling with how to make a financial plan, let alone how to achieve it.
But sometimes hitting rock bottom can be a blessing in disguise, as it can push you into a hard reset on your finances. At least, that’s what happened for these four student loan borrowers, all of whom learned how to make a financial plan and stick to it.
Here’s what led to their financial wake-up call, and how they turned their situations around and stopped struggling with their debt.
1. My bank account hit rock bottom
After graduating college, Jeremy Ong had trouble adjusting to the reality of holding down a job and paying bills.
“I was still in this imaginary world of mine where I didn’t want to work for anything,” said Ong. “[I was] escaping the reality and responsibility of having to work a day job or pay bills.”
But his mistakes came into clear view when he realized he had $4 left in his bank account.
“None of my friends wanted to loan me any money anymore,” said Ong. “I had a horrible credit score, and I couldn’t even pay for my own living expenses if this were to continue for just one more month.”
Ong made major changes to his lifestyle, which included getting a job as a waiter and taking up various side hustles, such as walking dogs in his neighborhood.
“I started taking responsibility for my own debts by restructuring my student and credit card loans,” said Ong. “I canceled almost all unnecessary expenses and lived on instant ramen for about a year.”
Along with his full-time job and side hustles, Ong started experimenting with online businesses. And although he had some hits and misses, he made sure to keep his expenses low and use any money he made to pay down his debts.
Today, Ong is debt-free and runs Hustlr, a site about personal finance and making money online.
“[My website is] dedicated to helping other people get out of the rut I was in and make the most out of their lives,” said Ong.
2. I didn’t want to bring debt into my marriage
After borrowing over $78,000 in student loans, Faneisha Alexander had resigned herself to having her debt in her life for the next 30 years. But a conversation with her now-husband transformed her approach to debt payoff.
“In a bit of a nonchalant conversation about finances while we were dating, my husband shared that he had completely paid off his student loan debt six months after graduating,” said Alexander. “His response jolted me into action and resulted in me paying off that $78,000 in less than three years.”
Alexander accomplished this huge goal through a combination of strategies.
“I leveraged opportunities to work overtime to increase my income and sold unused items in my closet,” said Alexander. “I also used windfalls of money from raises, bonuses, and tax refunds to put toward the debt.”
She also downsized her living situation, paused her retirement expenses, combined her income with her partner’s and reduced other expenses to free up cash. Although these sacrifices were tough, Alexander knew she didn’t want to bring her debt into the next stage of her and her partner’s lives.
“I needed to make a change in my finances and not bring such a huge financial burden to the relationship,” said Alexander. “So, I took his advice on how to pay off the debt and aggressively worked to pay off the majority of my debt before we said, ‘I do.’”
Now a certified financial educator and editor-in-chief of personal finance blog Girl Talk With Fo, Alexander helps others take control of their money and shed their debt.
3. My car loan overwhelmed my budget
After graduating from college with an engineering degree, Alysha Olson quickly landed a job with a high salary. But she owed $60,000 in student loans and took out a $30,000 car loan on top of that.
“Even though I was making $70,000 [per] year, I was struggling to pay my $500 rent with all of the debt weighing me down,” said Olson. “That was a huge wake up call for me. I was making more money than most of my fellow recent grads but didn’t have any extra money at the end of the month.”
With all this debt hanging over head, Olson knew she had to make some changes.
“I started working overtime whenever it was available and cut out any fun vacations for 18 months while I paid off all my debts,” said Olson.
Despite the sacrifices, Olson said this approach was “so worth it.” Today, she’s debt-free and has used her financial mistakes to move into a career as a financial coach, helping people reach financial peace by paying off their debt.
4. Having a child made us kick our debt to the curb
Although Tana Williams and her husband didn’t have an enormous amount of debt, they were sick of the 6.8% interest rate that came with it. Once their first child was born, they sprang into action to get rid of their loans once and for all.
“Her birth and the impending medical bills, coupled with not-so-great insurance, gave us the swift kick to get our finances in gear,” said Williams. “In approximately 10 months we paid off $20,000 in student loans at 6.8% interest by picking up a ton of side hustle work and budgeting like crazy.”
Williams says their daughter’s birth was the catalyst that got them started thinking about how to make a financial plan for their debt.
“We learned how to prioritize our debts and investments and be much more conscious of how and where we spend our money,” said Williams. “While it took us a while after that to pay off all of our debt, this was our turning point in starting to learn more about finances and what changes we needed to make.”
Today, Williams helps others with financial planning on her personal finance blog, Debt-Free Forties.
How to make a financial plan that sticks
Although no one wants to struggle financially, you can learn lessons from your mistakes, and feeling like your finances are a mess can motivate you to make effective changes. If you’re looking for help with financial planning, these tips can get you started:
- Believe that you can turn your situation around. Although money troubles can make you feel hopeless, remember that it’s possible to turn your situation around. Even if it takes a long time to resurrect your finances, there is a light at the end of the tunnel.
- Design a realistic budget. Before you can change your situation, you need to know what you’re working with. Take some time to write down your income and expenses, as well as to set goals for major spending categories. Use a simple spreadsheet or a budget-tracking app such as Mint or YNAB.
- Tackle high-interest debt first. If you’re drowning in debt, it can help to focus on paying back high-interest debt first, such as credit cards. That way, you won’t spend as much on interest. Alternatively, you could try the debt snowball method, which involves prioritizing accounts with the lowest balances first.
- Explore options for managing your student loans. If your student loans are burdensome, consider adjusting payments through an income-driven plan or student loan refinancing. Look at different repayment options to find the best one for you.
- Find ways to cut expenses and save money. If overspending is your issue, brainstorm areas where you can cut spending and save money. Think about your spending triggers too, so you don’t fall prey to emotional spending or “treating yourself” more times than you can afford.
- Search for ways to boost your income. Scrimping and saving will only go so far. Seek out ways to boost your income, as well. Ask for a raise, apply for a new job, or work a side hustle to bring in more money.
- Automate some money into savings. If you don’t have an emergency fund, it’s all too easy to go into debt when an unexpected expense comes along. By automatically setting aside some money into a savings account each month, you’ll easily build your savings over time. You might also automate some money from each paycheck into a retirement savings account.
- Don’t be afraid to ask for help with your finances. Money can be a taboo topic, which causes many people to struggle in silence. If you’re having financial troubles, asking for help with finances could lead to the guidance and support you need to turn things around.
Even if you’re clear on how to make a financial plan, the bigger challenge can be sticking to it. Old habits die hard, and setbacks along the way are inevitable. But as long as you get clear on your long-term goals, you can continue making progress toward them.