Buying a brand new car at 18 years old felt like a dream for Dyana King. It soon turned into a nightmare.
“I was up to my eyeballs in debt. I didn’t think I could find a way out of the mess I had put myself in,” says King, now a 30-year-old single mother of two. Before long, she realized she had accumulated over $35,000 in loans from various sources.
Rather than wallow in despair, the Arkansas-based mom decided to get serious about achieving financial independence, and created a plan in 2016 to become debt-free and build wealth for her family. Fast forward to today, and King has built a $78,000 net worth, paid off all her consumer debt, and secured a six-month emergency fund — all while earning less than $55,000 a year. Wanting to help other parents, King founded Money Boss Mama, a financial education platform that helps single moms take control of their financial lives.
If you’re managing debt and taking care of a family at the same time, here are King’s top four tips for taking control of your financial future.
Tip No. 1: Start Small — Even If You Feel Intimidated
When King turned 18, she decided to buy a new car to celebrate becoming an adult.
“I decided to get a new car because I defined financial success as owning material possessions,” says King. “I figured if I bought a new car, people would think I was doing well financially.” King didn’t have a credit history, so she relied on her mom, whose credit score wasn’t the best at the time, to co-sign for a loan. The auto loan came with a hefty interest rate and a payment that required half of her monthly income.
Her wake-up call came when she became pregnant with her first child and realized she could not afford to look after her baby (and herself) on the remaining 50% of her monthly income. King searched online for tips on reducing her auto loan, and came across advice from personal finance gurus using strange words unfamiliar to her.
“I’m a regular girl from Arkansas. I didn’t understand 99% of the terms I was reading in these articles,” says King. “I felt intimidated because the articles I was reading seemed like they were written for people who have expert knowledge in finance, and here I was struggling to understand basic terms like interest.”
Instead, the single mom focused on implementing one of the basics of personal finance: widening the gap between monthly income and monthly expenses. King created a budget and financial plan to become debt-free, and relocated outside of Little Rock to bring her rent payments down considerably. Whenever she received a raise or windfall of cash, she kept her expenses the same to avoid “lifestyle creep”, which is the tendency for expenses to go up alongside your income. She even squeezed out an extra $30 to $60 per month by switching to home beauty treatments and eliminating trips to the hair and nail salon.
“The hardest part about budgeting when you have a low income is staying consistent,” she says. “There were often unexpected expenses. I knew it was wrong to ignore my budget, and I got frustrated every time I didn’t honor my commitment to myself. But eventually, I got to a point where I knew if I didn’t stick to the hard decisions I was making, I would never be able to build the dream life I wanted for myself and my kids.”
Tip No. 2: Get Creative with Debt Management
Once she had a plan, King started looking for creative ways to earn extra money to pay down her debt or extend the term of her monthly payments.
“I used my tax refund checks, work bonuses, and even my COVID-19 stimulus checks to make extra payments on my car loans,” says King. “In the past, I would have blown any extra money in a matter of days, but since I changed my perspective, I treated that extra income as a vehicle to get me to my destination quicker.”
As she made regular and extra payments to her loan providers, King noticed that her credit score started to improve.
“At one point, I noticed that my credit score jumped by approximately one hundred points to 705,” says King. “I figured I could probably get a better interest rate on my car loan if I refinanced my loans at a credit union because they tend to have better rates than commercial lenders.”
King’s gambit paid off, and she refinanced her car loan at her local credit union. As a result, her monthly payments went from $495 to $345 per month, and her interest rate dropped from 9.2% to 2.6%. “I kept making payments at $495 because I knew the extra money would reduce my principal balance and pay off my loan earlier,” she says.
Once she locked her new car rate at the credit union, King then decided to roll over her credit card balance to a new card with an introductory APR of 0%. Shifting your balance to a 0% card can give you additional breathing room to make a dent in the outstanding balance during the introductory period.
Tip No. 3: Bolster Existing Income Streams First, Then Go After New Ones
As King got a grip on the expenses side of her finances, she realized that reducing monthly spending and eliminating debt were only half of the battle. She needed to make more money.
“My company had a policy that allowed employees to sell back unused PTO, so I earned an extra $500 to $800 for every 30 to 40 hours of PTO I accumulated and sold back to the pool,” she says. “I also realized I could not count on the extra PTO income, so I decided to double down at work and shoot for a promotion rather than find a new job.”
Her hard work paid off: she got a big promotion, bumping her income from $32,000 to $50,000 per year. Realizing her salary would be capped for a while, she took stock of how she could monetize her skills to create an additional income stream. She started freelancing because she had helped her friends write research papers, resumes, and other writing-centered projects in the past.
“I made an extra $200 to $400 selling writing services to my clients,” she says. “I tell my students that selling a service or product that comes naturally to you is easier than trying to build something from scratch.”
Tip No. 4: Start Investing Once Your Debt Is Under Control
It took King close to ten years of trial and error before she finally paid off her debt. Finally, she got into a rhythm that led to three years of consistent effort, which helped her increase her investment portfolio significantly. Today she has a net worth of over $78,000, based on documents reviewed by NextAdvisor.
“When talking with clients, I get them to focus on debt elimination before considering any investment options,” she says. The choice to pay down all debt first before starting to invest in a controversial topic in personal finance; King believes it’s challenging to implement two different personal finance strategies simultaneously, and advises building momentum in one area first before branching out.
King notes that she focused on investing in her 401(k) and Roth IRA and steered clear of volatile investments like cryptocurrencies. Though she doesn’t recommend any specific investments to her clients, she recommends index or mutual funds to confidence.
“It’s important to give yourself something to look forward to when you’re making progress in your journey,” she says. “Many people feel ashamed to treat themselves once in a while because they are inconsistent with their efforts.” Now, she’s built a six-month emergency fund and occasionally splurges on herself and her kids without worrying about her financial future.
When trying to achieve a massive goal like getting out of debt and attaining financial freedom, you have to do little things to inspire yourself and celebrate your wins so you can stay motivated. The happier you are with yourself and your progress, the more likely you will stick to your plan and achieve your goals.