Debt-Free Diet

She’s currently brainstorming ideas to pay off the remainder of her student loans, including selling some clothing items on eBay and using income she earns from Weekend Rum Cakes, a three-way partnership with friends that projected revenue earnings of $5,000 in 2011. Moreover, she started a new side business, Harps Financial Coaching, last March, earning $2,000 in gross revenues for 2011. Harps says any remaining funds from her two ventures go toward paying student loan debt.

Her lifestyle may sound austere, but she finds inexpensive ways to enjoy life. She allocates $40 every payday to leisure activities, goes to dollar cinemas, and participates in endurance running events around the country.  “I learned that personal finance is more about behavior than it is about math,” she says. Being able to pay off the small debts gave me a sense of accomplishment and reinforced the idea of becoming debt free.”

HOW SHE DID IT
• Commit to change. To make this approach work, you must modify your relationship with money. “If you’re not committed to becoming debt free, you could buckle. If you have a budget, stick with it and resist the urge to spend. Why? Because you’ll risk breaking your word, says Harps, and money, regardless of the amount, will add up. “It’s like trying to lose weight,” she says.

•  Plan. Budgeting is a must for those seeking to be debt free. “If you don’t tell your money where to go, there’s no telling where it will end up,” says Harps. She recommends completing a budget every month and updating it on paydays on a spreadsheet. She used the Rapid Debt Reduction Calculator and CNN’s money calculator to estimate interest savings.

•  Manage taxes. In addition to managing her debt, Harps has also been careful about her tax obligations because of her new business and other income-producing ventures outside of her job. She advises saving receipts and keeping good records. “I have a tax accountant who helps me understand my business taxes. I have been advised to save 35% to cover taxes.” Harps says that her tax accountant helped her navigate tax rules and provided clarity about tax forms that small business owners need to use.

• Use bill pay. Setting up automatic bill payments through your bank will ensure that you pay bills on time and avoid late fees. Harps uses automatic bill pay to pay all her minimum payments on a monthly basis; she made extra payments when her budget allowed. “This really helps to keep you and your money focused on the goal,” she says.   

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