How I Paid Off $10,000 of Debt in One Year

When I first went to college at UT Austin, I knew very little about personal finance. But I knew that it was important to learn about it so I could keep myself afloat. As the first-born son of immigrant parents, I didn’t have the knowledge on how to manage personal finances, so I knew I had to teach myself if I ever wanted to achieve financial freedom. I started off well, budgeting every dollar of financial aid that came in as if my ability to attend college depended on it (which it did).

Eventually, I got comfortable as I realized that if I ran low on funds, I could just take out more student loans to cover myself in the short-term. Never mind the long-term consequences. It’s hard to consider those as a newly-free 20-year-old. So, the student loans started piling up semester after semester. It wasn’t totally out of my mind though; I clearly remember thinking “I’m going to be paying off this burger for years after I graduate.”

As graduation approached and I had secured a full-time job post-graduation, I realized that I could take out debt on 0% interest (introductory APR) credit cards and transfer the balances to new 0% intro APR credit cards and just pay off the debt once I graduated. I made the common mistake of taking from my future self (I’ll dive more into this concept later in the article).

As I graduated college, I was about $45,500 in debt. $35,500 from student loans at around 4-6% interest, and $10,000 in credit card debt at 0% introductory APR. I started to realize that the path I was on was unsustainable and it was time to buckle down and save. With a full-time job offer lined up for August of my graduation year, I built a debt payoff model that forecasted paying off my credit card debt before the 0% intro APR ran out, as well as the student loan minimum payments.

I got to work paying down my debt, tracking my expenses closely each month to be sure I was hitting my monthly debt repayment goal. There were road bumps of course, for example I didn’t forecast having to pay $160 a month in toll road fees, but that underscores the importance of building room for error into your budget. I cut back in other areas and focused on my debt payoff goal, and in just one year I was able to pay off the $10,000 of credit card debt and still max my 401k employer match (though I didn’t open my Roth IRA until later)

That first year of focused saving set the stage for how I would manage my finances going forward. I realized that the key to wealth building was to rigorously maintain my expenses lower than my income and use the difference to pay off debt and invest. Of course, that is easier said than done, but here are some lessons learned through my first year of debt payoff that you can leverage to help you create financial freedom in your life:

Saving as a form of future-self empathy

Think of saving as a way to help your future self. Instead of consuming everything you’re able to buy in the present, by saving and investing, you’re giving your future-self more optionality. For example, if you were to lose your job, having 6 months of expenses saved in a savings account can mean the difference between being able to take your time finding a job that’s the right fit, and having to take the first job offer you get just so you don’t run out of money.

Saving with a goal in mind to shape behavior

Saving with a goal in mind makes it much easier to take the daily actions that are going to help you reach your goal as opposed to saving for the sake of saving. Having a clear goal creates a target for your mind to focus on and yields a sense of accomplishment once that goal is achieved. Use the S.M.A.R.T goal framework to make sure your goal is Specific, Measurable, Attainable, and Time-Bound.

Here’s an example of a SMART goal for debt payoff:

“I want to pay off $10,000 of credit card debt in 12 months.”

This goal is Specific because it contains a clear dollar-amount to pay off. It is Measurable because I can clearly measure how much has been paid by looking at the remaining balance. It is Attainable because I can pay off the debt within that timeframe as long as I stick to my budget. It is Relevant because paying off that debt would put me in a much stronger financial position. Finally, it is Time-Bound because I am committing to doing this within one year.

The mental benefits of debt-payoff

Lastly, I want you to understand that there is a huge mental benefit to paying off debt. Once you start paying off small debts and eventually larger ones, you’ll realize the power of diligently saving and living below your means. Building savings and buying things with cash instead of taking on debt allows you to avoid having to pay interest. High-interest debt for depreciating assets (cars, consumer goods, etc.) is a wealth-killer. With the right mindset, income, and budgeting strategy, a debt-free life is absolutely possible and within your reach.