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In 2014, Michael Lacy and his wife set a goal of paying off $21,000 of credit card debt in one year. But eight months into the journey, he was laid off, and his wife's chronic autoimmune condition required her to take an unpaid leave from her job.
Despite the setbacks, the Lacys got their credit cards down to a $0 balance in 16 months, just four months longer than their original goal. Through it all, the couple learned the most carefully plotted goals don't always go as planned — which is why they've learned to be flexible.
Instead of choosing a single payoff plan, the Lacys used what they call a "hybrid" approach between the snowball method, and their own "cash flow" method, a plan they created out of necessity.
The Lacys found it difficult to imagine what life would be like if they cut travel, shopping and dining out from their budget while they temporarily pivoted toward paying off their debts. But with $21,000 in debt across six credit cards, they had almost three times more credit card debt than the average American. Plus, they were also paying off two substantial car loans.
It took years for the Lacys to accumulate that much debt, as often happens with "credit creep." But Lacy remembers the precise moment when he knew he had to face the problem head on.
"It hit me when we were on our honeymoon," he tells CNBC Select. "I realized we were marrying our debt. There we were at an oceanfront resort, and I'm starting to panic."
Lacy tried to downplay his anxiety until after the honeymoon, but it surfaced one afternoon on a snorkeling excursion. "It started raining, and the guide asked if we wanted to reschedule or get a refund."
He told the guide they wanted a refund, which signaled to his wife that something was on his mind. So right there in the middle of their vacation, they started to plan for their financial future.
"My wife was not really on board with the budget I presented her," Lacy recalls. "She was sad to get rid of all the fun stuff. So that was when we had an honest conversation."
The couple added up the monthly minimum payments across all of their credit card accounts and car loans, and they were startled to find that, combined, their minimum payments alone cost them $2,000 each month.
"I asked my wife: If we didn't have to spend $2,000 per month on minimum payments what could we do instead?"
Upon reflection, the couple realized they cared most about travel. The other expenses (dining out and shopping) were simply not as important once they realized what they could gain in the long run, and it made short-term sacrifices a lot easier.
The Lacys set an ambitious goal of paying off all $21,000 in debt in one year. At the time they began their journey, Lacy was the leading sales representative at his company, and they had considerable income to devote to getting out of debt.
"I was working extra trying to make extra commissions to make the debt payoff faster," he says.
Many people use a balance transfer credit card, like the Citi Simplicity® Card or the U.S. Bank Visa® Platinum Card, to pay off existing debt. Both of these cards offer a way to move old balances to a new card to save on interest for a set period of time thanks to an introductory 0% APR offer.
But the Lacys were making good salaries, and they were able to put $3,900 a month toward their debt in the beginning. They originally planned to use the snowball method and pay the minimum payments on all of their balances, then apply extra money toward the smallest balance until it was all paid off. It only took a month for them to see a win when they completely paid off a $1,200 balance on one of their cards.
While many financial planners recommend the avalanche debt repayment method (where you pay the balance with the highest APR first), the Lacys found they were more motivated when they saw the first payoff happen almost instantly.
For eight months, the couple put every spare dollar toward paying off debt. But one day, Lacy received unexpected news.
"I got a call that the company was restructuring and was told that in two months, I wouldn't have a job. It was completely unexpected," he says.
Even with that news, the couple was still committed to a debt-free future with more time to spend traveling and raising their kids. "We already had the important conversations about what we wanted our life to look like. I was determined not to fail on this journey," Lacy says.
So Lacy got a job delivering food while interviewing for new positions. His wife made a steady income as a teacher that was enough to support them temporarily. "There were days where I was crushed, and my wife uplifted me," he says, "and vice versa."
But then his wife's autoimmune disease flared up from stress, and she had to take two weeks of unpaid leave. At that point, the couple decided to take a break from debt payoff and focus on saving an emergency fund.
After four months of delivering food, Lacy got a new full-time job. But instead of jumping right back into paying off their debt using the snowball method, they decided to tweak their plan and pivoted to paying off their car loans first.
Even though many financial experts argue that paying down the balance with the highest APR should be your first priority, Lacy decided he wanted to focus on paying off his highest minimum payment first. After getting through the stress of Lacy's layoff, the couple learned how creating an emergency spending plan is just as important as an emergency saving plan.
An emergency spending plan is what Tiffany "The Budgetnista" Aliche calls a "noodle budget." Basically, it's a list of your minimum monthly expenses, including rent, insurance, transportation and credit card minimums. It's good to know this number if and when you ever need to cut back during a financial emergency.
Once the Lacys were able to focus on their debt again, they wanted to knock out a major monthly expense by paying off their car loan, which had a $500 monthly payment. Typically your credit card minimum payment is 1% of your balance (plus fees) or $35, whichever is higher. So while you should always try to pay more than the minimum payment, it is helpful to know that in an emergency you may only be on the hook for $100 to keep your account in good standing.
By taking care of their car loan, they lowered their monthly fixed expenses, making their emergency spending plan even more manageable should they face another lay off in the future.
Your debt payoff journey is unique to your circumstances, and your situation may change regularly. While strategies like the snowball method and the avalanche method are excellent guidelines, they are not dogma. As the Lacys learned, flexibility is one of the most important factors in achieving your personal finance goals — even as you stay focused on the future.
Before committing to a plan, take time to think about your goals and needs. By developing their own plan, the Lacys were able to find a way to aggressively pay off their debt while freeing up money in their budget they thought they might need in a pinch.
And remember, you don't have to do it all alone.
"Ask for help," says Lacy. "We didn't, and looking back I wished I asked for lower APR from my lenders."
The couple did call their car insurance, cable and internet companies to negotiate lower monthly payments, but with the recent economic downturn, card issuers like Bank of America, Chase, Discover and others are offering temporary payment forgiveness, forbearance and deferral programs.
For example, American Express may waive your late fees and interest if you need more time to pay your bill. So if you have the Blue Cash Everyday® Card from American Express, the Blue Cash Preferred® Card from American Express, the American Express® Gold Card or another Amex card, you can call a customer service representative and ask how to delay your payment. Terms apply.
"No company wants to be the company that doesn't help people at this time," says Lacy.
Information about the Citi Simplicity® Card has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.