Carmen Perez was like many 30-something ladies, post-college and living her best life — but she was in debt.
$57,000 worth of debt, in fact. (Gasp! We know.)
But, not even three years later, that debt is gone — and she managed to get rid of it WHILE planning a wedding!
So how did she do it? Carmen was generous enough to break it all down for us, step by step. Take notes, ladies!
As Carmen explains, "I made every money mistake possible," including borrowing against her 401K and racking up credit card bills with interest as high as 18.5%. As a result, she had — in her own words — a "terrible" credit score, which was so damaging, she says, it led to one company actually rescinding a job offer to her.
Can you imagine?!
So how did she turn that around? By doing the one thing she knows people hate hearing: budgeting.
How Did Carmen Budget to Get Rid of Her Debt
As much as she knows people had to budget, she promises, "It was single-handedly the most effective tool to tackle my debt."
And her favorite form of budgeting? The "cash envelope system."
As Carmen explains, the cash envelope system calls for setting up envelopes based on categories, such as food, rent, toiletries, date night, etc., which you should organize from most to least important.
For instance, your rent or mortgage is #1, as you need a roof over your head! Miscellaneous "wants"? We know they’re important too, but they go to the bottom.
Once you have all of that worked out, you take your paycheck, divvy it up into the various envelopes depending on how much you need for each category, then spend what’s in each envelope as needed.
And ONLY what’s in each envelope. That means when one envelope is empty, that's it — you have to wait until your next paycheck.
Wait! What Happens When the Envelope Money Runs Out?
"When one envelope is empty, that doesn't mean you whip out your debit card and make the next purchase," says Carmen. "It means you have to get very creative about what you’re going to do next." (That "wants" envelope might help out here!)
It’s hard — she knows, she’s been there! — but in the end, she says, "You start building the habit of getting a tighter grip on your spending."
I.e. Not spending more than what you have! So that your credit card bills don’t go up — and your debt can come down.
Does Carmen Have More Budgeting Tips?
We’re glad you asked! Carmen’s got plenty more tricks up her extremely mindful sleeve, and this one specifically relates to interest rates.
First, figure out the interest rates for all of your debt. Once you’ve organized it all from highest to lowest interest rate — regardless of the balance of each card or loan — Carmen says to go against the advice of most financial gurus: tackle that HIGH one first.
"Try to put as much money as possible from your budget and anything extra towards the debt with the highest interest rate," she says.
Once it’s done, you roll the money you were paying on it towards the next highest interest rate balance and so on, until it’s all gone.
In the End, You Will Be SO Happy to Be Debt-Free!
"The most gratifying part of this entire process," says Carmen, "[were] all the options that I had available to me once that debt was paid off."
Just a few? She was able to buy a home with her wife AND was able to quit her job and get into another career: finance-minded content creation. (You can follow her at @MakeRealCents on Instagram — alongside the 33.1K people who already do so!)
"Once that debt was paid off, I had a limitless world in front of me," she says. "And that was the coolest part of the entire journey."