DEBT. Gross. That word just holds so many bad feelings, memories and associations. I can tell you that I have a really LONG and tumultuous history with money in general and debt specifically. Maybe in another post I will get more into the “how I got here” but for today, let’s just stay positive and see where I am GOING and how I am getting there! 🙂
The last two years I have been much more focused on my finances – and it took a lot of ugly moments for me to get my mind right. By right I mean “in a place of honesty” more than anything. I had to get really honest about why I was spending my money and what drove those purchases. In a previous post I wrote about one part of this – ONE reason (of the many) about WHY I spend. However, some of the mindset shift happened by sheer, brutal assessment.
Since I vowed to get my financial fitness under control in 2020 – I have made some small but mighty changes, in both tangible action and mental perspective:
- I laid out ALL my debt. I LOVE me a good spreadsheet – so I used that, created one and started filling it out. I put what the debt was, how much I currently owed and the interest rate.
- I organized these with a sort of hybrid between what Dave Ramsey would call the “debt snowball” and the “debt avalanche” – which you can read about more in depth here. For me, this hybrid was about knowing what could help me stay motivated. I know that progress and seeing my numbers go down would motivate me most, even if it wasn’t the debt with the highest interest rate first.
- I chose to get rid of ALL my credit card debt, first and foremost. This meant consolidating it all into one loan. I chose this logic, because for me, loans I can’t touch again. They are just debt that accrues interest and has no re-use purpose (unlike a credit card) – so I knew I would be MUCH less likely to accrue more debt.
– ALSO – I knew that SEEING that “zero balance” on my credit cards would make me SO much more likely to not want to use them again. NOTE – I did NOT close those accounts – I just paid them off. I didn’t want to negatively impact my credit score at this moment and that drastic reduction of credit:debt ratio would have likely hindered my ability to qualify for a loan. Instead, I had my credit cards “frozen” or “locked” so that they couldn’t be used. This is my mechanism to force myself to think about a purchase before I use them, since I would have to meaningfully and purposefully go get them “unlocked” before I could make any purchase.
- I consolidated all my debt into two loans, which I have those two loan payments, my car loan payment and my student loans. We aren’t talking about my student loans in this post since that’s a WHOLE other animal. I staggered these two “debt” loans so that one would be paid off in about 2 years time and the other in about 4 years time (if I only make the minimum payments), to allow myself the chance to still make my payments, AND if I could, adjust my budget to allow myself to pay more.
- To get rid of debt you either have to 1. make more money or 2. re-direct the funds that you make to pay off your debts faster. Ok – let’s try both.
- Step 1 – Where can I cut my spending? I have been budgeting for years, but I’ve not often made changes to it. I use the “everydollar” app (check it out on the Dave Ramsey website) and I love to use the “zero based budget” idea since I have a “typical” job that has a set/level income every paycheck. **He does have budget tips/tools for those with irregular incomes too in case you don’t get paid a set amount at the same frequency every month** I looked at my historical budgets and saw that there were things I could “tighten up” and also things I could do without. I know I estimate about $70.00 per trip to the grocery store each week – so I set my budget around that, based on the amount of “full” weeks in the month. I then decreased my “restaurant” budget to allow myself only $65.00 for the month. I stopped my boxing gym membership ($50.00 per month), my OTHER gym membership ($20.00 per month), renegotiated with my auto insurance and saved myself about $20.00 per month, and stopped all my recurring monthly amazon shipments and similar type delivery services, with the exception of the ones most meaningful to me.
- Step 2 – Where can I find money? I have a (temporary) small amount of money ($280.00 per month) that started coming in around Thanksgiving and will end in February, so I said I would put all that toward debt. I also said that the money cut from things in Step 1 would go back into the budget. I cleaned out my closets and my house, and started putting things up for sale. So far, with my clothing/accessories sales alone, I have accrued about $150.00. I have been diligent about taking the time to do “mail in rebate” offers for things (hello, little $30 visa card in the mail just yesterday!), and also closed out every old bank account AND any other lingering money I could find, even if it was only $5.00 – because as my mother says “you would stop and pick up $5.00 on the street, so why wouldn’t you get your money?”
- Step 3 – Just do it. I decided “I want to pay off my auto loan first” which was around $5,100.00 at the start of January. I found that if I would stick to my budget, plus allocate every spare dollar, I could pay about $500-$700 per month toward my car (my monthly payment is around $250.00) and pay my car off within this next 6 months! Doing that math I got SUPER excited/motivated and sure enough – to date, I have made $700.00 worth of payments in January alone (it’s the 18th) AND I have already calculated ways that I KNOW I will make another $700.00 worth of payments in February.
Just for clarity – I don’t make a ton of money. I have a good job, and I make enough to call myself “comfortable” – but that doesn’t mean I can’t tighten the purse strings a bit.
ALSO – I have savings accounts that are funded by allotment – so before I get a paycheck, money automatically goes to those savings accounts. The “budget” money I reference above is after savings happens. I have one savings for “emergencies” and where my student loan payments come out of. This is capped at at specific amount for emergency money and the equivalent of 2 months of student loan payments. I don’t like to fear that I couldn’t make a student loan payment for WHATEVER reason – so I just keep two months worth of payments to ease my own mind. Anything over that total amount gets transferred at the end of the month to debt.
I have a second savings for Travel. This is a lesser amount – but still every month I have money put in there. I haven’t lived at home since 2003 and my family lives in various states across the country, so I know that if I want to see my parents or go home for the holidays, it will be at LEAST $400.00 or more for a plane ticket. I also know that I have a relationship with a man who lives in another country – so for us to see each other once or twice a year, we will spend at least another $2000-$3000 dollars to make those visits happen. Travel for me is a necessity – because I love my family and my boyfriend – but also just because I want to see the world. Read more about my travel tips and budgeting practices here.
My last “savings” is an app called Qapital. This app has saving, budget, and investment options. I currently only use it for saving for “sinking funds” – which are things that maybe are a one time saving event – like a vacation, a Christmas gift budget, or a trip to buy new glasses that is a bit more expensive but not “an emergency” that would allow the money to be taken from the “emergency fund”. It is “rule” based so YOU pick the rules that apply to you – and it helps you save! I have used the “set it and forget it” – which is just an automated weekly preset amount. I also use the “round up” which you can set to round every purchase with your linked card – to the nearest dollar (or more!), and save your “spare change”. I have found this to be incredibly helpful because it takes the guess work out, I just round up to the nearest dollar and put it in my budget app! It’s also very fun (for me) to see how much that little bit of change adds up. Since November 2019, I have rounded up to almost $175.00 in my savings! That’s pretty crazy in the context of quarters, nickels and dimes!
For a long time I have put into practice the utilization of multiple checking accounts. I have one primary account for my “bills” aka non-negotiable monthly expenses (aka rent, utilities, gas, cell phone, etc) and I have a second one that is for my “fun money” – which is predetermined by the budget I set at the start of each month. I like to keep my pools of money separate – because there’s NO way I want to miss a payment for something and then get charged MORE money for either overdraft fees, or late fees, etc. Also – I want to have the “fun” money balance be SUPER easy to see, so I am not given “false” hope or urge to spend because I see a large balance in the bank, even though that money is allocated for already.
I like to “preplan” other miscellaneous incomes as well, just so I have a set direction for that money and I am not tempted to “forget” what my goals are. If I get a bonus from work I go “half for me, half for the debt”. If I get a raise/pay increase I increase my retirement fund by the same monthly percentage. If I get a tax return it’s “savings to the max that I allow (for the emergency fund), a small percentage to my travel savings and the rest to debt”. If I get random things like “birthday money” or some sort of dividend payout, it’s “half for me, half for debt”. It may SEEM boring – but having a PLAN for those instances allows me to have a feeling of control and peace, instead of being like “WHOOOOO I HAVE SO MUCH MONEY, let’s PARTY!” or some other crazy sort of thought process.
GIVING – I LOVE giving gifts. I am GOOD at getting people things they want or would like. HOWEVER – it’s the year to be selfish. It’s the year to get crafty, creative and/or sentimental because people will get a small THOUGHTFUL gift/card from me, but I didn’t plan a budget that is big on gifts.
I have put other little “challenges” in place for myself as well – like my “Starbucks 2020” plan – to make $100.00 on my Starbucks card last THE. WHOLE. YEAR. I am also still “cleaning” and “decluttering” so there’s likely to be more things I attempt to sell, and if I sell them, that money is going right to the debt.
In the ^ Starbucks post – I also talk about why I have a budget of $65.00 per month for eating at restaurants. It seemed like a good idea at the time – but damn if it’s not difficult! Today was one of the first times I have really been challenged to see if I could adhere to that plan – and I ate some food before meeting up with some friends. I knew we were going to a restaurant, so I had lunch at home beforehand, and didn’t eat brunch/lunch. It. was. tough. It was more than tough, but it was worth it. It was tough IN the moment – but after the fact, I know I saved myself a bill of at least $20.00 (at a minimum) and I still got to take part in the primary reason we met up – which was to catch up, chat with each other and enjoy each others company.
ALSO in the Starbucks post – I talk about “using what I have” and replacing as I run out instead of just buying enough to stockpile for the apocalypse. Seeing this in action – I realize HOW MUCH I BUY. Like seriously – I have currently in my pantry: at LEAST 6-8 bottles of body wash, 3-4 tubes of unopened toothpaste, 6-8 packages of personal/baby wipes, 4-6 never used toothbrushes (I have an electric toothbrush soooo?), 2-3 packages of electrolyte tablets, 4 containers of differing pre-workouts, 4 bags of my favorite pasta (I’ve eaten maybe two last year), 4 spare hand soaps, 2 unopened boxes of swiffer dust pads (dry floor type), and the list goes on. It is utter madness. Amazon and their damn “subscribe and save” definitely got me – and half of the things I didn’t even need because I have SUCH a surplus that I will be lucky to use them all up in 2020! At least I’m saving money on some stuff … but really I already paid for it (on my Amazon credit card *slaps self*). I am ONE human. I seriously don’t need that much “in case of emergency” back stock, because I am not a one woman Costco. Seriously – if you want some body wash – let me know, I’m willing to give away at least four of them for free lol.
Looking around my life, I KNOW in my little heart of hearts, there is NOTHING that I NEED. With the exception of consumables (because I do NEED food) there’s nothing I don’t have. I have clothes, I have a roof over my head, I have a car to get around in, I have electricity (and WiFi), I have entertainment and more. We live in a time of excess. We live in a time of instant gratification. We live in a time (and in a country) where things are really accessible and at the click of a button. I recognize this – but I also know that for me, it’s not necessary. I could probably be much further along in my debt dump plan if I had taken the time to stop all these actions that were doing me harm, rather than making me feel any better about WHO I am or how I defined my own success.
Trying to get to a place of REASONABLE consumption, and spending is a journey. I didn’t accrue all this debt in one night, and I won’t get out of it overnight, and it certainly isn’t something I am proud of, but I hope we can go on this journey together.
Do you feel like I do? Do you see any of your habits in my stories? Do you want to start your own plan to dump your debt and build better financial habits?
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