I’ve gone through two significant debt repayment stints in my lifetime. Round one started in 2011. My husband and I were young and newly graduated, and together we earned less than $50,000 per year. At that point, I owed about $38,000 in debt between my student loan and car loan. My minimum monthly payments ate up 25% of our combined net income.
Paying off that $38,000 debt was hard. I did everything I could to slash my budget to the bone. I lived in a 400 square foot cottage in the middle of nowhere for almost two years to send more money towards my debt. I had a bare-bones wedding that only cost $3,000. I ditched haircuts, contacts, yoga classes, and new clothes. It was the most anxiety-filled two years of my life.
Round two of debt repayment happened last year – four years after I became debt free the first time. This time, the debt in question was a $20,000 car loan. This time, my husband and I earned over $100,000 per year between the two of us.
Take a wild guess at which debt repayment stint was easier.
Even though our expenses had increased threefold during that time (having left the cottage behind in favour of a small home in the big city), paying off that debt was so much easier. Instead of cutting our budget to the bone, we hustled, tightened our belts a little, and got that debt paid off within a year.
There is a massive difference between those two debt repayment experiences, and it wasn’t how much we cut our budget or deprived ourselves of basic life necessities. It was how much we earned. Earning more money made paying off that debt so much easier. If this is the case though, why is most of the content online about debt repayment focused on slashing costs?
Take the latte advice, for example.
Stop Saying Cutting Out Lattes Will Help with Debt Repayment
Conventional debt repayment advice usually starts with slashing your budget, right down to cutting out your weekly (or daily) latte habit. It’s true that cutting your budget down to the bones can help with debt repayment, particularly if you focus on the big stuff like moving to a cheaper apartment, selling your car, or ditching that landline, cable, and internet package. Those changes can add up to thousands of dollars per month, which will have a real, measurable effect on your time to debt freedom.
But where this advice goes too far is when smaller expenses are targeted, like your daily latte. Telling someone to give up their daily coffee is useless advice for two reasons:
First, if you were anything like me when I was in my first round of debt repayment, lattes weren’t A Thing in your life anyway, because money was so tight.
Second, when you’re struggling under thousands of dollars of debt, adding $15 per week to your debt payoff strategy is not going to make a big difference.
I’m sorry, but it’s not.
Cutting your budget only goes so far. Eventually, you’ll hone your budget to the point where the only way to speed up debt repayment is to make more money. This is the debt repayment advice you never hear.
Stop Saying Anyone Can Just Up and Pay off $100,000 of Debt in Two Years
I know that “Couple Paid off $100,000 in Debt in 2 Years” stories are super popular, but I have a problem with them: most of these articles are written to give helpful advice to the average reader, but these articles often skate over one critical piece of information – how much the subjects earn.
Inevitably, once I get past the headline, I find out that this couple earns from $200,000 to $300,000 annually, and suddenly their debt repayment story doesn’t seem that impressive. In fact, the only remarkable part of the story is how the couple managed to incur so much debt on such a high income in the first place.
The budget cutting and money-saving tips offered in these articles only cover half of the story. The primary reason these families pay off their debt so quickly is because they earn a lot.
The Real Key to Debt Freedom is Making More Money
I’ve paid off copious amounts of debt precisely two times in my life. The time when my husband and I earned over $100,000 per year was vastly easier. This is why, if you’re in mountains of debt, wage growth needs to be your number one priority.
If you're earning minimum wage, no amount of living on ramen in a basement one-bedroom apartment is going to save you from the crushing burden of owing thousands of dollars in credit card debt.Click To TweetThere are a thousand ways to grow your income, and there is no one-size fits all solution, which is why giving concrete advice on how to do it is difficult, and why articles like “7 Ways to Slash Your Budget” are so much more click-worthy.
My version of earning more money might look entirely different than yours. For example, I’ve doubled my income since 2011 by aggressively growing my responsibilities and skill set at my full-time job and taking on freelance writing clients on the side. I didn’t have to go back to school.
My husband was also successful in growing his income but hit a wall last year. The best way for him to continue his wage growth was to return to school and obtain additional training, an investment with an upfront cost of about $20,000, plus of the significant opportunity cost of 16 months of lost income.
Your version of wage growth might look different again, and might include switching careers, starting a business, or finally getting serious about your search for a more competitively compensated job with room to advance.
Telling someone they need to earn more money to get the life they want is not easy or sexy. It’s certainly not as clickable as “This Family Slashed Their Budget by 50% and Paid Off Their Mortgage in 3 Years!” But it’s the truth. If you want to get out of debt, slashing your budget will only take you so far. So get that budget until control, but then put your focus on increasing your income in whatever way makes sense for you.
It won’t be easy, simple, or comfortable, but you’ll get there eventually.
Photo by Matthew Henry