Millions of Americans live paycheck to paycheck, with very little room to survive missed paychecks or sudden financial hardship. In fact, 4 in 10 Americans say they would not be able to cover a $400 unplanned expense without racking up credit card debt, according to a 2018 report by the Federal Reserve. According to Nerd Wallet, about half of households reportedly carry credit card balances of nearly $7,000 from month to month; across the U.S., that amounts to about $944 billion in outstanding credit card debt. When that’s combined with things like home, car, and student loans, the the total personal debt for Americans comes to an astonishing $13.5 trillion.
So when you find yourself financially adrift or deep in the red, how do you begin to pull yourself out?
We talked to three people about how they did it, whether it meant becoming more financially responsible or making drastic lifestyle changes.
When you get divorced with no safety net: “I never thought, if he leaves, can I afford this place by myself?”
When Ashley Davidson separated from her husband in 2016, she was suddenly saddled with maintaining a lifestyle that had been affordable with two salaries but was exorbitant with just one, especially living in Washington, D.C. “I never moved into a place thinking, if he leaves, or if I leave, can I afford this place by myself?” she says. “Divorce was never, ever, in a million years, on my mind.”
It wasn’t just rent. Davidson had to start footing her own health insurance and replace many shared household items when her husband moved out. He had always earned more than Davidson did, to the tune of an additional $15,000-$20,000.
While married, the couple didn’t live paycheck to paycheck, but they never prioritized building up a robust savings account; Davidson says she usually had no more than a few thousand dollars saved at any given point. And since money had been tight for Davidson in college and immediately after–which was compounded by high student loans–she wanted to spend more freely on things like travel when she came into more money. “We were living that young, twentysomething life,” she says. “We were starting to make a little bit more money in our later 20s, and we were having fun. We weren’t afraid to go out and eat because we could afford it.” But by the time they got divorced, Davidson had virtually no savings–more or less the situation she had been in before getting married at 24.
After their separation, Davidson found herself with about $12,000 of credit card debt, between paying thousands for a divorce lawyer and spending money she didn’t have on social activities and seeing friends. “When you’re going through a divorce and your friends say, ‘Hey, come out, you need to get out of your house and stop sitting around watching Netflix,’ you say sure,” she says. “I wanted to get out and have fun and forget about the fact that I was getting divorced. But the social budget kind of blew everything out of whack.”
About six months in, Davidson knew she had to do something about her debt. “I was finally like, this is insane,” she said. “Not having a plan was just suffocating.” She took on additional work–a freelance writing gig–and put all that money toward paying off her credit card; she did the same with her yearly bonus. Once her lease was up, she moved into a cheaper apartment (though she still had to borrow money from her parents for a security deposit). Davidson paid off the debt in just over two years.
Now, she immediately puts part of her paycheck into her savings account and has heavily cut back on social spending. “I think the biggest thing is, I’ve learned to say no,” she says. “I’ve learned to stay home and eat in. For me, personally, it was these small changes I could make, and those add up significantly.” The experience has also shown her the importance of being transparent about finances with a significant other, which wasn’t always the case in her marriage, so Davidson has carried that into her new relationship.
“I don’t ever want to experience that again, but I think it takes being in that to wake up,” she says. “It’s a little disconcerting to know that I’m turning 33 next month, and I’m not where I want to be. But unfortunately I had a curve ball thrown at me, and that’s the situation I ended up in.”
When a recession hits after you retire: “We decided to just take off and live in a tent”
Richard and Laura Pawlowski took a more drastic approach to pulling themselves out of debt than most people would. In 2010, the Pawlowskis were retired and both on the verge of turning 70, but they had been hit hard by the recession. Their investments bottomed out while their monthly house payments and credit card debt climbed higher. “We had to live on our social security income,” Richard says. “Our savings were pretty much wiped out, and we were going back into debt again, and then deeper into debt. It was traumatic.” They considered selling their home in Los Angeles where they had lived their whole lives and finding an apartment instead, but even that felt like a stretch financially. “The prices were going up around us, so we felt we had to learn something new about another place,” Richard says. “It was kind of a wrenching decision, but we had to do it.”
So they gave up their home and became “homeless by choice,” as Richard calls it. “We decided to just take off and live in a tent,” he says. “We had been camping most of our lives, for two or three weeks at a time, so we took it on as an adventure.” For two years, the couple camped out in national parks across the western U.S., pitching their tent in 15 parks and across 10 states. “The way we lived for this two-year period allowed us to not only get out of debt–we had crawled into a pretty deep hole there for a while,” Richard says, “but living this way and traveling, we saved a lot of money because we didn’t have to pay rent and our car was paid off. It turned out to be a great blessing in disguise.” The couple had a laptop on hand and sought out libraries and Starbucks locations wherever they went, which made it easy to manage their finances on the road.
They hadn’t planned on camping out for two years–the goal, when they had set out, had been to find a new place to settle down. Eventually, they found themselves drawn to the central coast of Oregon, where rent was cheaper and there was no sales tax. “We found some nice older people that were renting out a triplex—a great 600-square-foot apartment with a 180-degree ocean view,” Richard says. “We landed on our feet. Medicare and everything is covered. And I’m just trying to stay relevant by writing books now and sharing what we’ve learned.” (The Pawlowskis have already published an e-book detailing their experience living in a tent for two years.)
You could say the Pawlowskis’ experience is an extreme version of the method Marie Kondo espouses. They were forced to part with most of their possessions when they hit the road, which meant carrying important documents and photos on a flash drive. But one of their key takeaways is that as hard as it is, people can pare back their life to survive financial hardship. “Go without for quite a while,” he says. “You can always get stuff. But don’t let your trappings define who you are.” In fact, sometimes, the Pawlowskis miss those two years on the road. “It was fun,” he says. “We wish we had done this sooner in life.”
When you live outside your means: “I didn’t have a logical approach to money”
“I didn’t have a logical approach to money,” Kassandra Dasent says of how she managed her finances in her twenties and early thirties. “I was working and looking forward to my payday every few weeks, and most of the time, I had already planned what I was going to spend it on.” As she puts it, Dasent spent on her “wants” first. The little she had saved for retirement was because she had to maintain a minimum contribution to ensure her employer would match it.
Growing up, Dasent had been privy to her mom’s overspending. A turning point in her mom’s financial life was when she had to file for bankruptcy after losing her job, but Dasent didn’t interpret that as a lesson. “I looked at it from the point of view of, well, she’s still managing her money day-to-day,” Dasent says. “She’s making it work. I figured I could make it work, too. I had a bigger income to work with than she did.”
By her early thirties, Dasent had gone through a divorce and was carrying a whopping Canadian $55,000 in debt (nearly $42,000 in U.S. dollars), between her credit card, car payments, and a business loan that went sideways. At the time, she was earning around $50,000 CAD (about $38,000) before bonuses. While she had put away $20,000 CAD (about $15,000) in retirement savings, Dasent was otherwise living almost paycheck to paycheck. (She also points out that even her retirement savings were minimal, given she had worked for more than 10 years and lived at home early on.) Had she earned more money, Dasent says, her financial habits wouldn’t have been any different–if anything, she would have spent more.
In 2009, the debt began to consume her. “I started to feel physically anxious,” she says. She gave herself a crash course in personal finance and mapped out a plan to pay it all off in five years. She got a sizable raise at work, which gave her a leg up; she started charging money for her side hustle as a singer-songwriter. “The biggest decision I made, which was very hard for me, was to give up my apartment and move into a roommate situation for a year,” she says. “That cut my living expenses in half.” Dasent heavily pulled back on discretionary spending, from shopping (“I don’t think I saw a store for the first two years”) to travel.
“It was the first time I really started thinking consciously about, What am I spending on and why am I spending on it?” she says. Dasent realized that as someone from a low-income immigrant household who grew up in a more affluent environment, her overspending was partly tied up in her self-worth. “I was constantly thinking one day, I’m going to be able to show that I’m successful and can have nice things,” she says. “I had to figure out that I don’t need money to say that I’m a good person; I don’t money to show that I am successful and worthy. So much of our experience with money is rooted in how we feel, and how we’ve experienced money in the past.”
Dasent finished paying off her debt in 3.5 years, right as she got remarried. Now, Dasent and her husband try to live on just one income. “One of the biggest things was spending significantly below our incomes, so if one of us were to lose our income, we could still survive,” she says, adding that her earnings have increased. “That remains the No. 1 thing for us.” Dasent uses Personal Capital to monitor their spending, and the couple has retirement and brokerage investments; Dasent says they no longer need to stick to a stringent budget. “We’ve reached a point where we are controlling and directing our money,” she says. “It’s a really interesting place to be in, compared to where I was 10 years ago.”
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