Case Study – Paying off $40k in debt in about 8 months
How it all started for me
So a little background to start things off. I’ve always been into business and making money on my own. When I was younger I use to buy and sell paintball guns. I loved the sport and it was a great way to make extra money and fund my lifestyle at the time. I still worked a job and banked all the money from working.
As I got older, I looked into more business ventures including building mobile apps. I wasn’t a programmer so I hired out all of the development. In my early years, I was inexperienced so I overpaid a lot for development. My first app cost me just under $10,000, my second app was about $6,000 and the third app which was the Android version of the first cost me $5,000. So right there, for 3 apps in about a year or year and a half put me back about $21,000. A lot of money for someone in their early 20’s.
At the same time, I was living life and partying it up. I still lived at home so didn’t have many expenses. Pretty much all my money went to business stuff, partying, and gambling. 3 very expensive things. When I released the apps I was expecting to make tons of money, I ran numbers in my head and couldn’t imagine how I wouldn’t make money. I was already planning the cars I would buy and everything. A lesson I learned to never repeat. It’s one thing to dream, it’s another to get ahead of yourself.
The apps flopped, well in my eyes they did. And at that point I was burnt out, I wanted to give up and mark it a loss. It was shortly after this I decided I wanted to move from Upstate NY where I had lived all my life down to Texas where I wanted to pursue real estate. I had my license in NY and wanted to get into investmentÂ properties. So, I packed my shit and moved down to Texas. No job. Barely any income. My parents were helping me with $500 a month for a year like they did with my brother and my apps were trickling in about $1,000 a month.
For me, apps had always been on and off. After my apps flopped, I bought a few off a marketplace that was making some money but not a lot. So here I was, newly in Texas with no friends or contacts trying to get in real estate. I had a “business partner” or so I thought from when I did real estate in NY who said he would raise the money when I found a project. Long story short, I learned that this was all just a waste of time. By this time, I was at about $40,000 in credit card debt.
There were way more costs involved with apps than just the $21,000 in development. Marketing. AcquiringÂ new apps. Development costs for fixes and changes. Websites. Graphics design work. Plus I had other business ventures that I lost money on. I blew through my savings and racked up the debt on my cards. I was even doing a “credit card shuffle” where I would sign up for new credit cards with zero percent on transfers and push balances from high-interest cards to those ones. I used the debt avalanche method.
Turning things around
I had the cliche entrepreneur moment one night trying to go to bed at 2:30am after working all night, I laid there for 30 minutes and said to myself “I can’t afford to sleep”. Now, I know people will jump and be like, “your parents were giving you money.” Yes, they were, but it was $500 a month and my income was about $1,000 and $1,500 just doesn’t cut it. My rent was over half that, plus utilities and other bills, and 5 or 6 credit cards I was trying to pay off. Back to my point, I got out of bed and started working.
I told myself I was going to put the real estate thing to the side and focus on my apps. I knew there was money to be made with apps and I could do it without a lot of capital, it would just take a lot of work. I will create an entire post on my app journey but for now, we will stick to the basics and talk about the debt I paid off. I worked 12-14, sometimes more, hours a day. I stuck to, slow and steady wins the race. Consistency every day will make things work. That is something I stick with to this day.
Growth came pretty fast, first, it was $2,000 a month, then $3,000, $4,500… before I knew it, I was making over $30,000 a month. That was VERY short-lived but I made decent money with apps. I had my debt paid off way before that though. I kept things simple, even when I started making money I didn’t change my lifestyle.
I lived a very frugal life, I never ate out, I would go grocery shopping once a week and spend about $300 a month. I barely left my apartment so I gassed up like once a month. The cell phone was a business expense, same with the internet. I didn’t have cable. I didn’t go out much. Every Thursday I would go out for 3 beers at the same bar, $10 with tip. Occasionally I would go to lunch with a friend and future business partner or grab dinner or go to a car meet with my other friend.
Every month I would literally look at my bank balance, subtract rent, utilities, etc. and whatever was left, I dumped on the highest interest credit card. At first, when I was making less than about $4,000 a month, it was a little hard. I wasn’t seeing much of a dent.
I repeated this every month for about 8 months until everything was paid off. I put away the accounts as I paid them off but left most of them open. Some of them had pretty high limits and it’s actually not good practice to close accounts when you pay them off. People think it’s a good idea but you want the available credit to lower your debt to credit ratio. After that point, I stuck to using just 1 account. I put all the other cards away and stopped using them and made sure I paid off the balance every month in full.
I learned my lesson from this. After paying it off, my business continued to grow, eventually plateauing and then coming back down, but I was able to put a lot away to continue to feed my personal salary and the business for years. I’ve lost money with business investments since then but I take that with a grain of salt because it’s business and that happens. I will write about those experiences at a later time. If you are interested in hearing about that, be sure to sign up for my newsletter.
One of the most important things I did was sat down with an accountant and figured out taxes and financials. I set up a real salary, made sure everything was in order legally, set up a retirement account, maxed out the contribution, etc. I still remember thinking when I initially went to meet with her everything was a mess, I felt like I was the guy with a shoebox full of receipts. The reality is I had most things printed out before and handed her a folder. She has always said I was one of her most organized clients and kept things in good order, did things on time, and was easy to work with.
I also remember calling the bank I have my retirement account and the lady being pleasantly surprised by how much I saved for my age and in the short period I was contributing. It took the severe events I went through to make me like this. I was always a saver but not like now, now I have things set up properly with a real retirement account. A retirement account isn’t all I use, I also make sure to save money with a savings account as well. I like being an entrepreneur but there are risks and uncertainty with business. I think it is extremely important to have a nice savings fund.