The Beginner’s Guide to Living Debt Free
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D-day is fast approaching. Debt Day. The way I calculate it, I could very easily be debt free within 12 months, sooner if I drained my 6 month emergency fund, cashed in some brokerage accounts, cut out vacations, and took the kids out of private school. I’ll pass on those and just settle for a little slower debt payoff. Some things are really important to me and when it comes to my kids, I want them to . All our credit card debt will be gone in about 3 weeks and the balance of our consumer debt will be paid off by Christmas. Our “good” debt in student loans should be zeroed out by summer ‘09 and if we decide to continue on with our current rate of payoff, our mortgage debt could be retired no later than 2015. We started getting really serious about becoming debt free a few months ago and have paid off over $30,000! These last two months have seen us really cutting back and getting that “gazelle” intensity.
I’ve started thinking about what life will be like once we are debt free (excepting the mortgage). What ever will we spend our money on? Another thing I’ve started thinking about is…specifically…how do I insure I never go back into debt again? I was almost completely debt free after going through Consumer Credit Counseling back in 1998 but I lost my tenacity and fell back into my old habits.
I once considered debt to be liberating, because credit cards and other types of loans allowed me to spend more than I had. It seemed like free money. This is exactly the type of thinking that I need to reverse in order to avoid another debt spiral in the future. I have to keep in mind that:
- I got into debt by spending more than I actually had, mostly with the help of credit cards. Others have avoided debt by spending only money they DO have AT THE TIME.
- Bad debt is not free money—buying things with credit cards makes everything cost more in the long run. It’s like paying for something twice.
- I have to insure I know where all money is spent. I do this by daily tracking every dime that comes out of my checking account and assigning a category.
- I have to stay on budget and avoid those budget busters. Thankfully, my wonderful wife isn’t above clipping coupons and is a very frugal shopper. She keeps our food and household budget under control. Thanks Sweetie! XOXOXO
- I have to insure that I put my savings into accounts that will work for me and my family to shore up our financial future and to have enough for retirement.
I also have to make the decision to be happy with what I have. Debt doesn’t help me happy considering the hard work I’m putting in to become debt free.
With the skyrocketing cost of basic living necessities, debt seems to be the chief option to get most people through the rough times. But debt is a terrible task master. Debt doesn’t stab you and it’s over, debt kills you in a slow financial death of a thousand cuts.
What ideas, tips, or techniques do YOU have to help someone stay debt free?
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Now I’m just over half way through clearing my unsecured credit card debt, which aside from mortgage and student loan is all my debt. I have one spreadsheet to calculate my “non-discretionary” monthly spending - mortgage, rates, electricity - based on previous bills, plus 5% for inflation and the unexpected. Each month when I get paid everything comes out the current account except for that non-discretionary amount.
Then I have separate sheets for each thing I choose to spend on - clothes, books, music, entertainment/random (meals out or stuff that won’t fit anywhere else). These are virtual bank accounts - the money is all in a savings account, but on my spreadsheet each category is an account in its own right. The original idea was that each month I’d pay some into each, then whenever I wanted to spend the money would already be there. In practice I sometimes end up robbing peter to pay paul - which is what I used to do with “bad credit” - but the difference now is that I’m borrowing from myself!
Aside from one VISA I keep for things that won’t take any other payment, and which is set to automatically pay off every month, I don’t use credit at all. Only that one VISA is in my purse for genuine emergencies (stuck in a foreign country type emergencies). The balance is on a different card, in a filing cabinet.
This approach allows me to budget and plan ahead, and I can clearly see where I need to compromise between different spending. When you just have a big number in your account you think you can spend it five times over; start splitting it up and you soon realise there isn’t as much to spend as you’d thought.
Hope this helps - its certainly helped me, have paid off more than £4,000 debt in the last 9 months and am on track to be (bad) debt free by December.
All I can say is, “Wow!”
You are very well organised (English spelling!) Thanks for taking the time to comment and share your ideas…and congratulations on your success with paying off bad debt! It appears that you will have a very celebratory Christmas!
It took us about 20 months to pay off what we owed. The 12 months you have left will fly by. When we look back, it seems like just yesterday that we started paying down our debt and at first it seemed like it would take forever.
I can’t wait to get this burden off my back! Congratulations on your success!
All great tips. I don’t have overdraft protection, but keep a very, very close eye on my checking account online.
Saving up for those things we want IS the best idea.
I would suggest you apply that “Gazelle” intensity (or some of it at least) and increase your retirement savings as well as pay down your mortgage debt - debt is debt after all.
Mike
My wife and I sold our house last year, moved 750 miles to a new city. The sale of the house let us pay off everything. We owe a tiny amount on one credit card that we’re able to pay off each month. Other than that, we have no debt.
What I’m looking for is some solid tips on staying debt free. I don’t want to go back into that trap. The only debt I’m willing to consider is a mortgage, and that’s not going to happen in my new community as real estate prices are too expensive for us to afford to buy a house.
Check out the post from April 22!
I recently wrote . I hope it helps!
<a href “http://youngandfrugal.com/2008/04/20/ten-pointers-to-successful-haggling/” title= “10 Pointers for successful Haggling” Ten Pointers for Successful Haggling
These are great tips. I linked to them in a follow up post!
Better violin–saved for a year. Trip to Europe–saved for 2 years. And for the little stuff, I only allowed myself a certain amount of spending per month.
Yours is an example we all need to follow. Save up for what we want and pay less for it by NOT paying 24% interest!
We saved for 5 years to go to Disney World. It was a great feeling knowing it was paid for when we were there.
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