4 Things I Learned While Budgeting and Paying Off Debt

4 Things I Learned While Budgeting and Getting out of Debt

Budgeting was not something that came naturally to me. Rather, it was something I learned out of necessity. I knew that the only way I could get past this mountain of debt was to have a plan to get to the other side. Keep in mind that the amount of student loan debt that my husband and I had amassed was almost $1,300/month in repayment over 10 years (if we chose to go that route)

Preparing a budget for how we would get out of this mess was not a luxury for our household… it was a necessity. So here is how we did it. In reading this, I hope you can get something out of it that might apply to your life situation.

  1. Set a goal to get out of debt that has an end date

If you have read up on goal setting, or have a business background, than you have heard about S.M.A.R.T goals .They stand for specific, measurable, attainable, realistic and time bound. Some people fail to achieve their goals, not because they don’t have the desire or the intention, but because they have not defined these 4 aspects of their goal. Without having a clear picture of this, a goal can quickly become a “wish” or a “dream” without even realizing it.

So here was how I broke down my SMART goal:

Specific: Pay off $120,000 in 2.5 years (by the time I am 30 years old)

Measurable:  2.5 years, 30 years old; approximately $4,000/month

Attainable: Yes, generally decent dual income (nothing to go crazy about), use all additional income windfall like tax refunds ($14,000 over 2 years) and overtime income (a few thousand dollars) and bonuses (from hubby’s work)  to reduce $4,000/month repayment over the 2.5 years; $10,000 of emergency fund to cover unexpected expenses over the 2.5 years in the event that crap happens (I need to make a disclaimer that not all of the $10k was used for emergencies, some of it was used for leisure spending in addition to unexpected expenses); one vehicle to reduce transportation expenses, no kids and renting to reduce initial high costs of home ownership.

Realistic: Yes, determined, driven and capable. Also, see attainable

Time bound: 2.5 years or 30 months

Of course this goal was accompanied by a very detailed spreadsheet of the debt repayment breakdown on a pay cheque to pay cheque basis and a debt-ometer as a visions board for motivational purposes. Doing the SMART goals however, gave me the confirmation I needed to know that I could do it.


  1. Have a budget and implement it.

I have never met anyone that has a large amount of debt that has stumbled out of it without a budget in place and a game plan to get the debt gone. Unless you win the lottery, get an inheritance or are entitled to a large trust fund, you pretty much need a game plan.

I have mentioned earlier about developing a “needs and wants” budget in my previous post here.

In the needs and wants budget, you break your expenses not but category (i.e. food, transportation, utilities, memberships etc.), but rather, all your expenses are broken down into need and wants expenses. It sounds simple, but the mental process and honesty required to make an effective needs and wants budget that works is really hard.

The general gist of it is that your take home pay MUST cover the cost of all of your needs. If not then either: a) income must go up   b) revisit the cost of your needs and bring some of them down. If you are able to cover the cost of all of your needs and you have some extra money at the end of the month/paycheque, you can work at covering your wants expenses.

The general rule for me that worked was, the more aggressive my desire to get out of debt, the more my wants expenses were very low pay cheque to pay cheque and all extra income was used to cover my “needs”, of which debt repayment was a top priority.

  1. Divide your bill payments evenly over the course of the month

Compound interest can work for you (investing), or against you (debt). In saying this, it’s important to understand that the importance of structuring your bill payments so as to maximize interest costs in your favour. In short, try and reduce the amount of interest you have to pay towards your debt as much as possible, so more of your hard earned money can be put towards the principal.

The best example to use is making mortgage payments. Making weekly payments towards your mortgage reduces the interest you pay towards your mortgage more than making semi-monthly or monthly payments, even if the overall payment amount you make is the same.  For example if your monthly mortgage payments were $1,500/month, you could also translate this to $750 semi-monthly or $346.15/weekly (assuming a 52 week calendar year).  Making $346.15/weekly payments would reduce your interest cost in the long term quicker than making $1,500/monthly payments. This is because the more frequently you make payments towards your debt, the more often your interest amount gets reduced and less it grows; allowing more of your payment to go towards principal.

I used this same logic with our $120k student loan debt, because compound interest works the same regardless of the type of debt.

When preparing our budget, we based our budget on our pay periods and divided the cost of all our bills (i.e. rent, utilities, food etc.) over a biweekly basis. So for example our electricity bill is normally anywhere between $60-$65/month. Instead of using one paycheque to pay it off, we distributed it over 2 weeks at $30/biweekly. We did this for all of our bills including rent, insurance etc.

We used this approach because of the following:

  • We use an online bank that does not charge us anything for making bill payments regardless of the number of transactions
  • To avoid being late on any of our bills we prepaid all of our bills by 2 weeks in advance. This allowed us not to have to worry about timing our paycheques with when our bills are due. For example, our monthly auto insurance payment is $80/month. Before our debt repayment journey, we “overpaid” this bill by $40 (half the amount or 2 weeks’ worth), then started making regular payments as if we owed the full $80 again. This allowed us to have a credit balance on all of our bill payments without having to worry about timing bills with paycheques.
  • It worked for us.

By taking this approach, we were able to spread most of our expenses over the course of the month. This freed up the extra cash we needed to go towards the debt repayment. Even though the total amount of the cash going towards the debt would have been the same over the course of the month, the frequency in our payments increased, allowing us to reduce our interest expenses over time.

  1. Use windfall income to accelerate debt repayment

As much as increasing the frequency in which you make your debt repayments will help reduce your interest expense, the fastest way to reduce the interest you pay on your debt is to make lump sum payments. The larger the amount the better.

As much as it would have been tempting to use our tax refunds or overtime income/bonuses to buy the latest electronics, go on lavish vacations etc. debt repayment was our first priority.

Some people may confuse my determination, for getting rid of so much debt quickly as a “depressing” way to live or “not realistic” in the long term, but that was not the experience I had. In the 2.5 years we devoted our time and energy to getting out of debt, I learned and grew tremendously. I learned what was really important in life (health, friends and family), I learned how to be grateful for what I had and to count my blessing and I learned how to be frugal. Was I perfect at it, absolutely not, but the experience changed me for the better and I carry many of those same values because of it.

Also, deciding to get out of $120k of debt in 2.5 years by going at it aggressively was a temporary strategy my husband and I consciously decided to take because of other personal goals we wanted to achieve in the future. This was not a full time life style change that we were signing up for, but a desire to get ahead and not become a statistic. With the additional income we now have with our debt being gone, we enjoy many recreational activities together and with friends.

I don’t feel like I lost anything from putting my life on hold for 2.5 years to accomplish this. In fact, I feel like I have gained more in wisdom and financial planning than I could have ever hoped for if I did not take this journey.

Regardless of my income and what life has in store for us moving forward, our debt repayment journey has taught me the following, which I hope to live buy:

  1. Always live on less than you make
  2. Save 10%-20% minimum, of your income for retirement savings
  3. Be grateful for what you have and use those resources/possessions wisely
  4. You receive more with an open hand than a closed fist
  5. Use income increases to increase savings, not to increase standard of living (costs)
  6. Don’t be quick to follow the crowd. Use logic and reason, not emotion and social pressure to make financial decisions
  7. Trying to keep up with the Jones’s will make you broke and keep you there
  8. Don’t buy a home without a minimum 20% down payment & the income to support the upkeep of that home moving forward. If not, then rent modestly and invest the rest in stocks, bonds and other financial instruments to appreciate your assets over time
  9. Money is a tool.
  10. Your possessions do not define you. We all came into this world with nothing, and we will leave it the same way.

In 2014, former CEO Richard Zimmerman of Hershey’s Kisses from 1983 to 1993 died at age 82. When the accountant/executor managing his estate was asked how much he left behind, upon his death, he responded “everything”.

What strategies have you used in the past to get out of debt? What worked and what didn’t?


























Categories: Budgeting, Debt

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14 replies

  1. Pamela, your information is so helpful. It provides a realistic and practical approach to budgeting. I have seen several blogs here about finances, but I am drawn to your blog because of its simplicity. I am going to take more time to devote to going through your posts because I find your information valuable. Keep up the awesome work, and congratulations on your student loan debt be paid off in 2.5 years, what an awesome task! Do you have a post or maybe I overlooked the one explaining how you and your husband accomplished this task.


    • Thanks so much. I am glad that you like my blog. I also enjoy alot of information that i have found out on your blog. There we multiple income streams that we used to pay off our student loan debt, with the largest ones being our incomes and sizable tax refunds. One of the plus sides of paying soo much in tuition is the tax credits that one can use when they finally start to earn an income. The post that I outline this information in greater detail under my “How I paid off $120k in 2.5 years” post. We both make a 5 figure income so we are not wealthy by any stretch. The biggest accelerator for paying off our debts was living on one income (which is very hard to do in calgary, alberta) & using the other income to pay off debt/save and renting instead of owning to reduce our maintenace & upkeep costs. I hope this helps.

      Liked by 1 person

      • Thanks Pamela, this is very helpful, especially considering having different streams of income to apply to the student loan. I will check out the blog post. Thanks for responding.


  2. Paying off $120k in 2.5 years is awesome!!!! We wouldn’t be able to afford $48k in debt repayments annually even with both our incomes and a tight budget but income is also obviously a factor too so I will just assume we make quite a bit less than you both 🙂 Our housing expenses are also really high (mortgage, utilities, property tax) BUT our property is also single-handedly responsible for our Net Worth. The mortgage payments acted as a forced savings of sorts for the period we weren’t as frugal and determined to meet savings goals (and the interest portions were tax-deductible due to the rental income.) But still hoping to pay off the rest of the ~$12k in the next 7 months or less!

    Liked by 1 person

    • We lived on one income (we both average incomes for where we live) during the time we were paying off the debt and still save now but allocate room for having fun as well. I would say renting & using our windfall income like tax refunds and over time pay really helped to expedite things. Those 2.5 years were challenging though. All our vacations were staycations, and we didn’t do too much activities that cost us any money, plus we have no kids. Overall though, I think making an effort to recognize and reduce your debt is the most important thing. Thanks for leaving a comment!!

      Liked by 1 person

  3. Bookmarked your wonderful site. Thanks for the tips. Budgeting is not my forte so this will help.


  4. What a concise well articulated post and plan. Seriously, we sometimes have to defer the pleasure of somethings for greater good and planning is really key. It’s a sweet achievement to whittle down one’s indebtedness and live free of such encumbrance.


  5. What an incredible game plan you provided. I always say the ONE letter in the alphabet that represents TWO words that motivate a change in behavior is “P”. It stands for “PAIN” and “PLEASURE”. If something produces enough pain (ex. debt or self inflicted health problems) or pleasure (ex. the benefits that regular exercise creates) change will eventually occur. I just wish more people chose “pleasure” instead of waiting for the eventual ramifications that “pain” inflicts.


    • Its interesting that you mentioned that. I use to listen to Toni Robbins in my 20’s and he would talk about the pain and pleasure principle all the time. how the human mind is designed to avoid pain and seek pleasure, even if the pleasure is temporary but will cause greater pain in the future. I found it all so fascinating. I never thought of it that way though. Thanks

      Liked by 1 person

  6. Great post. That’s a huge goal in 2.5 years. Awesome job!

    Liked by 1 person

  7. This is a great post. I remember the time when I had to pay my debt off. I was eager to pay off my debt so the interest won’t be that high and at the same trying to save as much as I can.

    Like you, I paid my debt using the windfall strategy. I wanted to make sure that my interest payments in totality was lower so that’s why I chose the windfall. In addition to that, I made frequent payments. Instead of doing one payment every month, I made one payment at the beginning and one in the middle of the month. This way my interest kept on decreasing.

    As far as my saving went, I did allocate twice as much as I allocated for paying my debt off. I figured that it would be in my best interest to save more than pay off my debt right away because of emergencies or unforeseen events that could have happened during that time.


    • Wow you saved double to paying off debt than to saving, that’s amazing. We were fortunate that no major emergency came up beyond the $10k we had saved. Its nice now to be able to boost up my savings more and invest for the future.