Get yourself out of debt, you really can do it! Like so many other people our debt was in control of our lives. We were using the next paycheck to pay our current bills. How I managed it for so long is beyond me. Three years ago we started the Dave Ramsey Financial Peace program, I am not a spokesperson for his company, it’s simply the program we chose to use and we are so grateful we did. I used the audio CD and listened to it over and over again. We followed the program pretty closely but I found the cash envelopes didn’t work for the both of us.
We started with $90,000.00 in credit card and loan debt. Three years after starting Financial Peace we have only $15,000.00 left to go. Crazy right? I’ll admit it was a daunting task at first, how do I start? We have no extra cash flow so where is the money going to come from?
- Set a goal, make a plan and stick to it.
- If you’re married make sure your spouse works with you to reach your goal of financial independence.
- Girls night out? How about girls night in instead?
- Don’t let others influence you by pressuring you to take vacations or spend money on anything that deviates from your goal. It’s ok to say no and explain that you must get your finances under control. They may mean well they are not living with the stress of your debt, you are.
- Use raises, tax refunds, escrow refunds etc to pay down your debt.
- There will be some bumps along the way. Run over them and get back on track.
- Be patient and don’t give up! It took us about 3 paychecks to get used to our new system. Adjust your budget as you need too.
Where to start
Going back 3 months, make a list of every monthly living expense you have, rent/mortgage, cable, phone, electricity, paper delivery, food, gasoline etc. Include everything from eating out, movie rentals and coffee stops. I pulled my actual numbers from my bank statements. Total each column then add all columns together. Write down the day that each payment is due as well.
Make a separate list of your loans and credit cards. Write down the minimum monthly payment, the total balance of each one, the interest rate of each one and when each payment is due. Total your minimum column and your total balance column. I did not include the mortgage.
Make a budget
We get paid every other Friday so I make a budget every 2 weeks. I broke our bills in half as closely as I could based on the due dates so that we have about the same amount left over each payday. This includes splitting our mortgage payment in half. I write down which bills get paid from which paycheck on a calendar. I look at the calendar each payday and pay the bills listed that day regardless of their due date. I paid only the minimum due on all of our credit accounts.
Because I went back 3 months I know how much we spent on food, gas etc. Be sure to include enough money for those expenses in your budget. If there is any money left over at the end of the 2 weeks I put it in our savings account and started the next 2 week budget over with the new paycheck.
Reduce your expenses
Look at each and every bill and expense closely. What are you paying for? Can you reduce your cable bill, phone bill, auto or home insurance? Can you reduce you food and entertainment costs? YES. I called each company, told them I needed to cut costs and asked if they had any offers that would help me.
- Our satellite bill was reduced by $30 a month by cutting channels we didn’t watch = $360 a year.
- The phone company made some changes to our account that saved us $60 a month = $720 a year.
- I called an insurance broker about our homeowners insurance and saved $900 a year reducing our monthly mortgage payment! A broker works with many companies so they will save you the time and aggravation of calling multiple companies yourself. Our coverage didn’t change.
- I also called around for auto insurance, I found that the local Farm Bureau could save us $797 a year including their annual membership fee of $35. Our coverage didn’t change.
- We refinanced our mortgage saving an additional $400 a month! It took us almost a year but we didn’t give up and take no for an answer.
Now look at your food, gasoline and misc expenses. Can you make any changes to reduce those numbers at all? I began couponing and cut my grocery bill by 70% regularly and running errands more efficiently saving gas. We treat ourselves to take out about twice a month and rent movies instead of going to the theater etc. These changes save us about $600 a month consistently.
Don’t forget about those cards and loans. Call and ask if they will refinance at a lower rate and ask the card companies if they will consider reducing your interest rate. It never hurts to ask, they may have a hardship program they can offer you.
In one day of making phone calls I added $2777.00 a year, $231 a month back into our own pockets without costing us any services.
We now have about an extra $1200+ a month that we were paying other people.
Pay down your debt and build your savings account
I put all the ‘extra’ money we now have into our savings account along with any money left over from our budget until it reached a couple thousand dollars. That is our emergency fund and we don’t touch it for monthly expenses. If you have to use it replenish it as soon as you can. From then on I add 10% of our ‘extra’ money to savings each payday and use the rest for bills.
Once you have your savings account established hit your debt. Pay down your lowest balance first, not your highest interest rate. Use every dime you can until it’s paid off, once paid, take that money and target your next lowest balance debt. It will seem like you aren’t getting ahead very quickly but you are getting ahead. As the bills disappear you will begin to see your debt disappear pretty quickly.
Our exceptions to the rule
The last bill we are paying off is a loan that allows us to write off the interest we pay so we chose to pay it off last and targeted the credit cards first regardless off balances. We also had an interest free loan that we put at the bottom of the list even tho it was a lower balance than the credit cards.
It may sound like we were really restricted along the way but we weren’t. We still did things we wanted too we just paid attention to how often and how much we spent.
What can you do with some extra money in your pocket?