My Family’s Debt Diet:Update

5/23 Update:I am SO excited that on 5/17 we paid off a LARGE debt that we’d been working on for 3 years.  It was so motivating to pay that off.  In fact, I called them and asked them to send me a confirmation that the debt has been paid in full- just so I can have it to remind us if we ever contemplate pulling out a credit card or taking a loan out!

Has anyone else started a Debt Diet?  I’d love to hear your stories!

*The following is a post I made about a month ago!
I’ve written briefly about my family’s journey towards paying off our debt before. I just wanted to tell you something that may sound funny “I LIKE paying bills now”.

We’ve been a one income family for a long time (going on about 8 years now) and we’ve had many struggles. From major emergencies to travels out of the country (trust me it wasn’t for leisure!) and we racked up some (ok a lot of debt). For years (yes years) we rolled that credit card debt from one 0% interest card to another – each month we were making minimum payments and we’d pay off one here or there…but we really never made any REAL headway. Please don’t think we were out buying luxury items we couldn’t afford- we’ve always been frugal but we made choices to put things on credit cards instead of trying to find other ways to pay for them. We took the easy way out- plastic-and paid for it!

I felt like we were living with our heads in the sand…never really sitting down and adding it all up- adding up the total debt, the total interest charges, the total monthly payments….the total number of years it was going to take to pay it off at minimum payments.

I am SO excited that we have now paid off both of our cars (both of which are used- non-luxury Hondas). We have paid off 75.8% of the consumer debt we had at the beginning of December (when we pulled our heads out of the sand and started our “program”).

We should be nearly debt-free (meaning we will only have a mortgage on our home) by the end of August. July!

If you are living like we were- here is what we are doing & it has brought me to the point that I actually get excited to sit down and pay our bills! And I do each time I pay off a credit card I write “PAID IN FULL” in bright red letters on the bill and put it in a pile- since December that pile has grown.

*Disclaimer: I am not a financial adviser, accountant or any other “money” professional. I just hope some of the tactics we have taken may help other people!

• We sat down and added it all up. Yes, it was VERY scary. As the number kept growing…I got more and more upset. I won’t even lie- I cried. It was a big number. But pretending it doesn’t exist doesn’t make it go away. We had to face that number in order to turn it into a “0”. We did this together so there was no “hiding” anything.
• We created a plan ( I used this amazing Snowball calculator) . There are two basic thoughts about paying off debt: Start with highest interest rate or start with the lowest balance. We chose the lowest balance. Most of our debt had roughly the same interest rate and so we needed, and wanted, the satisfaction of paying off several small ones. We felt it would give us the incentive to keep going- and it did!
• We got rid of the plastic. We only carry a debit card with us now. Credit cards were cut up (except for two: Target and Kohls- they are both used to get additional savings in the stores when necessary and then paid off immediately upon arrival at home). I keep a prepaid card on hand to buy things online.
• Stick to the plan– even on rough months! We put every single extra penny not used elsewhere in our budget towards our debt. There are some months an amazing deal came across some daily deal site or in a store and I passed because it just wasn’t in the budget that month. I’d tell myself- “The deal will come around again- but that credit card debt won’t be going anywhere!”
• Don’t give up too much. We didn’t wipe out our entertainment budget. We didn’t cancel the Netflix. We kept some “luxuries’ but kept them to the bare minimum. We never had a big cable plan so the $8 in Netflix and $7 in basic cable each month was necessary to keep me sane (I work at home alone all day long…gotta have something running on the TV to keep me from talking to myself!). Keep some money aside to eat out occasionally, to rent a Red Box or go to a ball game! If you feel that you have nothing fun in your life- it will be harder to stick to the plan. If you don’t have a few “extras” when you get a windfall- it may get blown on other items instead of debt.
• Try to get your interest rates as low as possible. Call the credit card companies. Look for a card you already have with no balance that you can transfer under a 0% interest rate. We did not close the accounts. My research showed that would be harmful to our credit score.
• Cut expenses where you can & add those savings to your debt payments. We were able to save $20 a month on our car insurance- that went into the monthly payments on our debt. We cut a bit off our cell phone bill (we don’t have a land line). We started doing more to reduce our electricity bill (keeping blinds closed during the day to keep the heat in or out depending on the season, unplugging coffee makers, etc not in use). We paid more attention to how much water we were using. At the end of the month any money budgeted to those bills not used on them were split between savings accounts and debt repayment.
• Keep track. I printed an Excel spreadsheet with the amounts I was paying towards each bill each month. As I paid off each bill I highlighted it in a BRIGHT color. Now I have a sheet of rainbow colors to show how far we’ve come! It actually makes me happy to pull it out and highlight another as we pay them off. I tell my husband I am going to frame it to remind us of how hard it was so we never ever have to walk this path again!
• Build savings at the same time. We never had an actual “emergency fund”. Again- we are a one income family who lived paycheck to paycheck- there was always an emergency but no fund! So whenever we get “extra” money it gets split- 1/2 to the debt and 1/2 to the savings account. This way as things come up during our journey- we aren’t reaching for plastic! (Such as the $400 in dental bills we just got hit with- paid for in cash! What a liberating feeling!)

The benefits we have reaped:

• Our credit score has skyrocketed. In one month alone our credit score jumped up 53 points because we used our tax refund to pay off a lot of debt! We’re actually in the “Excellent” Category now! (Check out Credit Sesame – I LOVE this program)
• We feel more secure. Having so much debt paid off makes me feel secure- if something horrible happens I know that if I absolutely had to I could easily afford minimum payments. I hope that it never happens- but it’s’ nice to know if I had to I could.
• We’ve learned. We’ve learned A LOT. We’ve never been extravagant or wasteful with money but we’ve learned what real emergencies are. We’ve been more inclined to make do with what we have. Yes- I’d love to replace my dishwasher (which stinks at washing dishes). Instead, we do better at pre-washing them. My dryer door broke and some Google Searches- we figured out how to rig it so it works for just a $1 part from Lowe’s Home Improvement.
• We have a goal. We want to take our kids to Disney World. It’s that little carrot hanging in front of us. I remember the joy of going when I was a kid & I want my kids to experience it! Within 3 months of paying off our debt- we will be able to afford to pay CASH for this vacation!

We’re SO close that I can taste it- I can see the light at the end of the tunnel. The only debt we will have when we are finished this plan is our home. We plan to use the debt money over the next 6-8 months to make large repairs and improvements to our home (we purchased this as a foreclosure that sat empty for about 3 years! So it has LOTS of repairs and improvements waiting for us). We plan to replace all the windows (25 years old), have several large (and scary close to the house) trees removed, have work done on our deck (again 25 years old) and several smaller plans. We also plan to take our children to Disney World. At the same time, we will be placing 1/2 of what we used to pay towards debt into our savings accounts.

Answers to a few questions I’ve gotten about our “debt diet”

Q How did you figure out how much to pay each month?

A: We took our income, and made a budget. We took out the highest amount for all our regular bills , including the minimum payments of our debt (i.e. if our power bill’s highest monthly amount is usually $175 that is the amount we budgeted for all the months of the year.) If one month the bill was only $125 we took that extra $50 and split it 1/2 to debt and 1/2 to savings. Once we had all the regular bills deducted from our monthly income- I took out a piece (for us it was 15% or so) to put into savings. I put another 10% aside for entertainment and other little things that come up (field trips, etc). The rest was added to those minimum required payments.

The minimum payment + the extra amount is the new monthly amount I am paying towards debt.

Q: What if you can’t make that payment one month?

A: First, I would sit down and analyze exactly why I think I can’t pay it. Is it because I want to spend that money on something else instead? Sure getting my hair done or buying new curtains may be much more exciting…for the moment….but in the long run being debt free will be so much better! If there is an actual reason I cannot make that payment (i.e. the dog ate the paycheck and I have to wait 30 days for a replacement) I would not “skip” it but rather delay it. I refuse to make that a common event though.

Q: What do you do if you get extra money, such as a raise?

A: My husband got a raise, albeit small, last month. Instead of allowing that money to go into our checking account, those few dollars are instantly diverted into our savings account. While it’s not much, I could also have put that towards our debt repayment but with only 3 months left to go- it won’t make a big dent in to the debt but will help build the savings account.

I would LOVE to hear your stories of being debt free! I’d like to point out again that I am NOT a professional financial adviser of any sort- but these tips have worked for us and we are almost there!
These are some good sources for additional resources {free}

Daily Worth

LearnVest

Credit Sesame