Pay dirt: A journey out of debt

PAY DIRT KARA MCguire

After Amanda Grimm gave a speech on tackling her debt to her Toastmasters Club, fellow member Craig Ostrem wrote me a letter urging me to share her story with readers.

"She's a young professional, thoughtful, creative, and willing to share," he wrote. "She's in that demographic that seems to be struggling with the financial costs [of life and] has found a way to make it all work and pay off credit debt."

Given the downright depressing economic news these days, I took Craig up on his suggestion and gave 28-year-old Amanda a call. We could all use a reminder that with hard work and sacrifice, we can say goodbye, debt, and hello, financial freedom.

Amanda's first credit-card purchase was her $150 prom dress.

"I hated that dress," she said while sipping a latte (my treat) at a coffee shop near her St. Paul apartment. She figures she's still paying for that decade-old prom dress today.

In college, she managed to charge up roughly $6,000 in debt in about a year after a bad breakup. "I had the best clothes," she recalled. A small inheritance from her grandparents wiped the slate clean.

"Then I went back and did it again." By August 2005, she had an $8,000 car loan, nearly $10,000 in credit-card debt and a $45,000 student loan bill. She realized that at the rate she was going, she'd be indebted forever and would never own a home. So she decided to get serious.

First, she culled through three months of receipts, credit-card statements and bills, tallying up her spending and splitting it into categories until her head hurt. She saw "unbelievable amounts of money spent on nothing" -- drinks, trips to Target, fast food.

Then a girlfriend sent her a spreadsheet and she modeled a budget based on past spending, cutting back where needed until her spending and debt payoff fit her modest paycheck. She uses legal-size envelopes filled with cash for various spending categories to keep track.

Next, Amanda cut up her credit card, depositing the pieces in different garbage cans around the house. She recalled how scared she felt "because a credit card is there just in case there's an emergency, you know. And you have to learn what's an actual emergency."

No cash for happy hour? Not an emergency.

Cat surgery? An emergency that set her back $1,300. She had no choice but to deplete her clothing fund, Target budget and part of her grocery budget for August to afford it.

No one said living within your means is always fun. Instead of going out, Amanda got serious, reading personal finance books and surfing moneycentral.msn.com and financial blogs. She cuts coupons, bikes to her job at Hamline University and eats noodles at the end of the month.

Holiday cheer

She announced to her family, "Christmas is over. My birthday is over. I don't want presents from people in debt. I'm not going to be putting myself further into debt to give you a Christmas present," she recalls.

Amanda still made mistakes, miscalculated, spent too much. Change doesn't happen overnight.

When in need of inspiration, she turns on get-out-of-debt guru Dave Ramsey's show to hear the segment when listeners call up and scream, "I'm debt-free." It's cheesy, but she gets teary-eyed when she listens, thinking, "I'm going to be there one day. And that's sometimes the only thing that gets me through."

E-mailing friends and family after the first year telling them she paid off $10,000 in debt kept her going, too.

Since August 2005, she's paid off $22,932.51 (no thanks to compound interest), while never making more than $33,000 a year. Today, she has just shy of $4,000 on her car loan and about $1,000 in credit-card debt.

She acknowledges it's easier for her, being single and not owning a home. But it's still been a really long road. Anyone who wants to succeed must "find the thing that motivates you to keep going."

Her goal is twofold. She wants to own a home free-and-clear one day. Her goal with a much shorter time horizon is to give a motivational speech at Toastmasters -- hopefully by year's end -- about how she paid off her car and became credit-card-debt-free.

How did you get out of debt? Tell Kara McGuire at 612-673-7293, or at kara@startribune.com. Blog your get-out-of-debt strategies: www.startribune.com/kablog.