Yahoo Finance I’m Upper Middle Class: 6 Ways I Stay Out of Debt
Heather McAfee, age 54, business development principal for a worldwide engineering and research company, knows a lot about paying off debt. After raising two children as a single mom and working as a teacher for many years, she found herself in about $35,000 worth of debt that she wanted to pay off promptly.
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For years, she lived on a teacher’s salary of barely more than $40,000 in Virginia. “You can barely live on that income as one person, let alone a family,” she said.
To get by, she put basics on credit cards and wound up taking on yet more debt after an ex-husband filed for bankruptcy.
In 2012, she left her teaching job and got into government contracting, doubling her salary to more than $80,000. Today, she earns $150,000, planting her solidly in the upper middle class.
By 2019, she was ready to pay off her $35,000 in debt and drew upon the financial savvy she’d developed over the years. She signed up with a debt management company that helped reduce the interest rates on her credit cards and was scheduled to pay off her debt in five years. An inheritance from her mother’s estate paid off half, but even without it, she said she would have paid it off in three years, instead of the two that she ultimately did.
And she’s relieved she was able to — “Interest is a big curveball when you’re already in debt,” she said.
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Budgeting Basics
To pay her debt down aggressively, McAfee said, “I stuck to my budget. It’s one thing to have a budget, another to actually look at it and follow it. I followed it.”
That meant she lived within her means and even below them. It helped that her children were grown and she was only supporting herself, for the most part, though she helps her adult children out financially as needed.
She didn’t engage any fancy budgeting programs, either, just “an Excel spreadsheet my ex-father-in-law created in 1990 — it’s that old.”
The budgeting sheet breaks down into common categories, like utilities and insurance and then food, clothing, entertainment, mortgage/rent and so on.
“I adjust it annually or when I get a raise,” she said.
She finds that, although most people in the upper middle class are college educated, few people ever actually learned budgeting in school, so it takes some intention.
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DIY What You Can
Another way McAfee has kept under budget to have enough to pay down debt is to not spend money paying other people to do things that she can do herself.
“When you get to the $100,000 to $150,000 income level, you have to decide what your hourly rate is, so that’s how I justify doing things myself versus paying someone else,” she explained. “I won’t pay someone $100 to detail my car, but I’ll pay $15 to take my car to the carwash. I color my own hair, which is $15 per month instead of $200.”
She said that the COVID-19 pandemic had people paying for more expensive things like DoorDash and UberEats, bad habits that take a big chunk out of your budget. “That doubles the cost of your food budget. So either half what you normally eat or don’t do it.”
Review Your Subscriptions and Bills Annually
Every year, McAfee revisits all of her subscriptions and bills, and she does it by hand. “I look for apps I’m paying for on TV. I look at subscriptions for credit card companies. I look at my auto insurance and renters insurance and I will go to five to 10 [different] sites to get quotes and I compare.”
“Those nickel and dime things will kill you,” she said.
Learn Self Discipline
There was no “secret sauce” to her spending less money so she could pay down debt, McAfee said, other than: “I learned to tell myself no. As a single person, I don’t have anyone to answer to but myself, so it’s self discipline. If I say yes three times in a row, maybe the fourth time, I need to say no.”
While she does tend to take a YOLO approach to life, and her spending vices are “entertainment, clothing and travel,” she doesn’t consider herself materialistic and knows how to live without.
In the months that she underspends, she just rolls that amount over to the next month to allow a little leeway.
Build an Emergency Fund
Through all of this, McAfee has also built up an emergency fund in a self-directed mutual fund where she can keep her money “liquid,” and retirement funds, which she maxes out.
There are always emergencies and unexpected expenses, especially with children — her daughter was recently unable to work, and McAfee increased the amount she sends to her — so having those funds on hand makes it more likely you can avoid putting money on credit cards.
Don’t Let Credit Control You
Though credit cards are necessary at times, McAfee worries that people don’t always have the financial education to know trouble when they see it.
“People don’t understand that credit card companies are offering you these cards because they’re making money,” she said. “If people became more educated on money and stopped thinking the money was controlling them and that they could control the money, it would make a big difference.”
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This article originally appeared on GOBankingRates.com: I’m Upper Middle Class: 6 Ways I Stay Out of Debt
