The road to becoming debt-free is not an easy one. Our society puts so much value on debt. Seriously. Look around. Everyone offers payment plans for everything. Even small things that cost $100 you can take out debt for! (Seriously, if you are going to take out a $100 loan, you should not be buying whatever it is you are buying. Save up the 100 bucks!) But, becoming debt-free is totally possible and so worth it!
In November 2010, we read Dave Ramsey’s "Total Money Makeover", and it changed our life. Before we read this book, we really had no plan for our money. We knew that someday we would want to retire, probably. And, we would like to buy a house. And, we’d like to help our kids pay for college. But, how would we do all of that?! We had no clue. Our biggest take-away from this book was that debt is bad, and we needed a plan! (Also, did you know that the #1 source of marriage conflict is money?! To be on the same page about finances and feel like you are working together as a team to accomplish something is really great for your marriage! It was for us, anyway!)
(Saying that we paid off $17,000 in 16 months makes it sound like we found over $1000 a month to pay off our debt. That’s not how it happened. We were making about $20,000 a year when we started this plan so that was not even a possibility for us! It may be for you, though! Some of it was medical debt. We were able to talk to the hospital and reduce our bill. Most of our debt was from school loans.A lot of it was paid at tax time when we got our refunds. Instead of buying new computers or taking a trip or whatever else you are tempted to do with that refund check, we acted like we didn’t even see it. It came into our account, and went straight back out to pay off debt!!! But, we did cut our monthly expenses and use all of our extra money to pay off debt over time. And, Chris found extra work everywhere he possibly could so that we could have even more to apply to our loans.)
Dave Ramsey’s plan says this: Quickly build up a $1000 emergency fund, so that you have something in case of an emergency. (Because emergencies always come up! Be prepared!!!) Have a garage sale, sell stuff on craigslist, etc. Do whatever you need to do to come up with $1000, put it in a savings account, and don’t touch it!
Then, start your debt snowball. This means that you list out all of your debts from smallest to largest, and start paying them off. (Pay the minimum amount due on all loans, then take all your extra money and apply it to the smallest loan first, regardless of interest rate! Then, when that one is paid off, focus on the next biggest one.) This is a really encouraging way to do it because you have small rewards along the way! Every time you pay off a loan, you realize you are closer to your goal, and it’s awesome!
Here’s how we made our budget:
On the left-hand side of your page:
List all of your monthly bills
List “extras” (Birthdays, allotments, etc.)
Add them up.
On the right-hand side:
List your sources of income for that month.
Add that up.
On the bottom of the page:
List your debts from smallest to biggest.
List the starting debt amount, what you will pay, and the ending debt amount for the month.
Then, add it up! (It’s exciting to see that number go down every month!!!)
The goal is for your expenses to be less than your income!!! Then, figure out what bills you have to have and what can be trimmed so that you can pay off your debt more quickly!!! Dave Ramsey says something to the effect of, ”Live like no one else right now, so that later, you can live like no one else!”
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- Set aside spending money every month. (Allowance, allotment, whatever you want to call it, set something aside to use on whatever you want! While we were paying off debt, we allotted $20 each per month. It wasn’t a lot, but it helped us feel like we weren’t “starving” to spend money. Chris liked to buy breakfast tacos, I liked to buy clothes... :) When we did not have allotments, we would end up blowing a big chunk of money at once on something that we wanted because we had a built-up tension from not spending any fun money! Then, we were kind of frustrated at ourselves. Trust me, it is better to just allot $20 a month...)
- Sit down and make a budget together. (...or atleast, go over it together. Every month, I sit down and make out our budget and then get Chris to look over it and make any changes that he sees. If only one person is making the budget, it is easy for it to feel like they are “in charge” of the finances and working alone. It will feel like less of a team effort, and could cause some tension. Throughout this process, you are learning to deny yourself of the instant gratification that our society so loves, and it’s tough! So, do it together!)
- Give your friends and family expectations. (Let your friends and family know what you are doing and set limits for holidays and birthdays. While we were paying off debt, we set a $10 limit for birthday presents and $15 for Christmas. I always try to stretch our dollars as far as we can, so I scour the internet for deals and find the best gift I can for each person. Remember, it’s the thought that counts. If they aren’t happy, and there will be some that aren’t, remember that you are on a journey to do what is best for your family and you got them something to show that you remembered them! Feel good about your efforts and move on!)
- Drive an old beater car, and be proud of it! :) (Have a giant car payment? Sell your car, and buy a beater! We drove an old, crappy car with pealing paint because we didn’t have a car payment and our insurance costs were low! And no, not every old car is about to break down! I always thought that “old” meant “about to die” but that’s just not the case! Every now and then, we did have to fix things, but the money we put into that car wasn’t even close to what a car payment would cost! Your car doesn't have to be a complete beater, but it should be whatever you can pay CASH for!)
- Prepare yourself for criticism and to be the butt of jokes! (Our friends and family made fun of us all the time. We have been called all kinds of names, and I wear those badges with pride because guess what?! I don’t have any debt! We have chosen to live like no one else so that eventually we will be able to live like no one else! Think about all of the extra cash you will have when you have no debts and are able to pay off your mortgage early!)
- Celebrate the little wins! (Every time we paid off a debt, we had a little “team celebration!” Nothing big or fancy, but we would bake chocolate chip cookies or make a special meal that is maybe a little more expensive. Just something to celebrate our little win, and be excited that we are completing goals!)
Hope this helps, y’all! Are you on a debt-free journey?? What tips would you add? Leave me some “love” in the comments below! I love to hear from y’all!