It’s so easy to rack up debt! Especially if you just keep spending, never really looking at the truth of the situation.
Banks automatically increase the limits on your credit card so you must be able to afford it.
Need a little personal loan? No problem.
Want that holiday? Just stick it on the credit card and pay it off. ‘It’s worth it, I deserve it’
Now there is plenty of blogs out there that probably cover what I’m about to talk about today, so this is really about sharing our personal journey. I hope if you have stumbled across this tale, you get some inspiration & motivation to change your situation. That’s what happened for us & I’d like to give back by sharing.
Now I’m going to share some details about our debt story but I’d appreciate it if you kept it between us. 😬
We both have a good job & a side business each. One of the businesses wasn’t doing so well, there had been some large out of pocket expenses & that ended up causing a cash flow problem. So to cut a long story short, we found ourselves with about $75000 worth of credit card debt & personal loans.
We are both in our early 50s so this was not good. It got so bad that we were unable to pay our bills because all of our money was going to debt. Oops, there was rock bottom! We both knew, something had to change!
I am a big fan of Pinterest & Blogs on every subject! So I started researching & pinning everything I could find on getting out of debt. There is so much information out there. I kept coming across a guy called Dave Ramsey. Now I’m an Australian, so I’d never heard of him. I read about him, listened to his YouTube series & got inspired! Real inspired!
Press on the link. Dave Ramsey
We decided we had nothing to lose so here goes! I’m going to list the steps we took, with a few links to tools we found.
We sat down with a stiff drink & a big piece of paper & wrote down every debt, the interest rate & the minimum monthly payment. It’s important to list absolutely everything you owe. For us that was two maxed out credit cards, 3 personal loans, numerous outstanding bills, and the two home loans.
Next list all your income.
I entered all this information into a Snowball Debt Reduction Calculator I downloaded. Its not mine, But it’s out there for anyone who wants to use it & I don’t think they will mind if I promote it.
It’s a excel file, it’s free and very easy to use. It’s based on Dave Ramsey’s debt reduction principles and has very clear instructions on how to use it. I LOVE it!!
Click on the link Snowball Debt Reduction Calculator
This gives you a map of how you can pay down your debt, the time line & is fully customisable to suit your situation.
Setting a budget!
We found a budget tool which I shall share the link for. I customised it to suit us, and you of course would do the same. This is a zero balance budget, so every dollar gets a job, be it debt repayments, living expenses or savings. For now we have set our selves a goal, to be debt free in 7 years so every extra cent we can save is being paid off the credit cards. They have the highest interest so they go first.
In about the 3rd week of the month, eg December 2015, I select SAVE AS, and resave it as January 2016. This gives you a new copy to start planning for the next month. Monthly payments will remain in place, but this is when you can budget for any one off expenses, such as gifts, bills that aren’t paid monthly etc. Make sure you update your income with any extra cash like overtime, or if example if you sold something for cash.
Cash Flow Budget
- JUST KEEP GOING! This process is going to take a couple of months to get running smoothly, so don’t be too hard on yourself if things arent going perfectly.
- Make sure you put some money in the budget for FUN! This is a long term ongoing commitment so you still need that, otherwise it’s going to be difficult to remain committed.
- Do set up cash envelopes. We found this to be the most helpful part of the process. Our envelopes are Groceries & Spending Money as these were our problem categories. Also it’s harder somehow to part with cash. You do not have the same connection with cards.
- Look for ways to make extra money & pay it straight off the debt you are attacking. That way it won’t get frittered away.
One of the unexpected bonuses of being on this journey, is how much happier we both are. We have a plan, we are sticking to it, every month those debts are going DOWN & life is good.
Until next time
Loraine & Pete