Why A Blog:
We started this blog for a couple of reasons, 1: we know there are other people out there with similar situations, we want to show that it can be done, be that example to follow; 2: This is a very ambitious undertaking, we have failed before at budgets and obviously we know how to get into debt, this will be a way of keeping us accountable - Keep our minds on it and our end goals. 3: We want to leave something for our children, they'll know what our lives were like when they
were too young to remember and before they were born.
Our Background Story:
Amber: It's funny, as a child my parents battled debt. There were house payments, small loans, no credit cards, but we always lived month to month. It was all I ever knew but as a young person I wanted to avoid that when I grew up. But life throws unexpected things at you and my life was no different.
I married a wonderful man who, because of a car accident and 3 houses with taxes, had a few credit cards with high balances. I got my first credit card in my first year of marriage and began to set a good credit score. I was proud of my 730 score. I was young (still am), happy and feeling free! I started school and paid for tuition on my credit card, I would put a few dinner's on it, they would be easy to pay off. Another school quarter brought more books and more tuition. I was doing great, paying on time and more than the minimum, and my bank doubled my limit! I flew to Utah, bought a few little things for the house. In the space of a year I had reached my limit and one or two late payments (I swear by Automatic Payments now) jumped my interest rate up. I couldn't believe it. I was in debt. And it wasn't just my card. I'm a little ashamed to say it, but we had 5 different credit cards that were mostly maxed out. There were other problems with one of Tony's houses and we wanted to start a family. Life was happening fast and we knew that 5 digits of debt was not part of our "family picture" we wanted. We figured paying 50 or 60 more on each card every other month or so would get us there fairly well. But month after month we were in the same position. I tried keeping track of things in QuickBooks, always feel behind, I tried budgeting, never worked quite right. A year later (3 years into our marriage), I was being lazy on the couch and switched to Oprah. She was having a special on her "Debt Diet", apparently there are many more people in the nation with this problem (no kidding right?). I watched, thought "that's a good idea" and went about my day. A month or two later I got serious. I wanted to start on our second child, but the chaos of our life - which was partly financial - kept both of us from moving forward.
Tony: I remember when I was on my high horse about credit cards. I had a credit card since I was 18 and was so responsible. I even got good enough credit to buy a house for my parents and two for rentals. Then one dumb decision was followed by an even dumber decision. Taxes, insurance, medical bills, and silly man toys. And then my dad lost his job, which I didn't have any savings to help out with, all I had was credit cards. Things continued downhill, financially, after I got married. It reached rock bottom after our first son was born. Medical bills were in collection and we were even forgetting to pay little bills. I didn't even want to open the mail. We would say repeatedly, "we'll pay it down, it'll get better" but it wasn't getting better. We didn't have a real plan. Only words, barely dreams, and no results.
Now What:
I went back to this debt diet (you can find it here http://www.oprah.com/packages/oprahs-debt-diet.html) and started. I wrote a spread sheet with everything I needed to do, all our monthly expenses and how long it would take if I just paid minimum payments. Over 4 years and paying over $8000 in interest. There had to be a better way. The fact was, we needed to pay more every month and spend less on other things. So I got my calculator out, used a spreadsheet and began experimenting with numbers. I found a magic number: $1000. If I paid $1000 a month, we would be able to get by and the debt would be paid off in 1 year and 10 months! End was in sight, I could see the silver lining. Now to implement this. The next 2 years are going to be thin-living and a lot of planning.
To see how I got to this point you can go over the Debt Diet at the website above, I took a lot of our "plan" from that, some from advice from friends and some just common sense.
It was helpful that Amber was excited about this. I remember when she tried to share the plan she learned about, but I was so down, I didn't think we could do it. When Amber got the discipline to actually start writing things out, I too started seeing the vision.
The Plan:
Step 1: Write down everything. I used a Google Doc Spreadsheet and typed out all our expenses in a month. I wrote down all our credit cards, the balances, interest rates and typical finance charges. I wrote what we could expect for income in a month as well.
Step 2: Cut the Fat. Any unnecessary expenses were shut down, for example I was allocating and spending about 50 a month for "dining out". It seems a little ridiculous to be up into your elbows in debt and still eating out once or twice a week.
Step 3: Math! Add or Subtract until you have what I call a "flex" number (called the "Latte Factor" by Oprah). Example: Income - Regular Monthly Expense - Variable Monthly Expenses (groceries, gas) = Flex Money. This Number is what you have to put towards your debt.
Step 3.5: At the end of each month, what ever is left of this Flex Money is put towards one credit card - the same one until it is paid off. To determine which one it is use the DOLP - in the Debt Diet.
Step 4: Make It Easier. I set aside one bank account for all our bills to be drawn from and set up automatic payments for everything that I could and Bill Pay for everything else. At the Beginning of each month I transfer the amount needed for those expenses and let the Banks do the rest.
Step 5: Keep Track. I have another spreadsheet that shows what bills have gone through so far, what I've spent in gas, groceries and unexpected expenses and how much is left.
Step 6: Be Strict! This is the hardest step. Already in this first month we've been tempted with lunch buffets (we gave in once) and Computer supplies, household trinkets and especially fast food (this is where being on a diet comes in handy - 2 birds with 1 stone). Keep in front of you the wonderful picture of your 1st month without a credit card bill, or the other little victories like paying off one after the other of credit cards.
I always thought that we didn't have any wiggle room. However, what was important to me was just to be consistent and actually know where every dollar is going. I was tired of saying "what happened to our money?" every month. If we have to spend all of our money, I'd just like to know what it was on.
Lastly:
Most importantly, make sure (if you're in a relationship with someone) that you are all on the same page. If you don't have support or the same goals its going to be very difficult to be successful.
Keep moving forward and don't give up hope! I know there are people in far worse positions, but if you're quick with math you'll notice that I mentioned 1 year and 10 months at $1000 a month, that's about $22,000... in debt. What could we have done with that amount? Much better things, I'm sure, than what was originally spent on. No matter what stage you're in: no debt, some debt, a lot, or a ton, you can save yourself a lot of trouble by organizing yourself and your finances.
