Wednesday, March 3, 2010

Get Out of Debt - Part 6

If this is your first time reading the "Get Out Debt" Series and would like to catch all the drama from the beginning click here and start reading from the bottom up.

Welcome back to my weekly post where I air and even at times exploit my dirty-debt laundry.  So let's get right to it shall we...

By our third month we had reduced our debt by a whopping...drum roll please....12%!!!

Now before you snicker at what some might see as a paltry amount let me first ask you this - what percentage did you reduce your debt by in the past three months?  Hmmm?

All kidding aside, 12% is huge.  Hopefully by now you have added up all your debt like discussed in a previous post.  Take 12% of that.  It's a chunk isn't it?  For us 12% translated into thousands of dollars.

Can I get a big Whoo-hoo here?

So what were we doing to find all this extra money to pay off debt where we hadn't been able to before?  I've discussed a few things in the past that went bye-bye like pedi's and mani's (insert sad face here), dining out now got defined as maybe dinner at Taco Bell on Sunday night if we were lucky but for the most part restaurants were now categorized as a luxury we simply couldn't afford and thereby got mostly eliminated.

When I found out that the dryer was the most expensive appliance to run in a home I removed it as an optional tool to do laundry.  We live in a townhouse, so the idea of hanging clothes on a line outside is not possible (you know HOA's and such).  So instead, I hang my clothes to dry on the shower rail in my son's bathroom (right off the laundry room).  It works quite well especially during this time of year when the house is dry.  The clothes are done surprisingly quickly and it adds some much needed humidity to the air. 

Speaking of laundry I switched to washing all my clothes in cold water.  Who knew, they still get clean.

I also make all my cleaning supplies.  Previously I had been purchasing chemical free cleaning products from the health food store.  With a big bag of baking soda and a gallon of white vinegar  I can clean all kinds of things.  Google how to make your own cleaners - books and answers are everywhere.

I've also reduced my grocery bill drastically. I'm so proud of myself.  In the month of February I finally hit my goal of a food budget of $400 a month.  That's down from the $1000-$1200 monthly grocery shopping I had before we decided to get our heads screwed on straight and get out of debt.

As promised I wanted to address Baby Steps One and Two with you about the program Dave Ramsey outlines that we have been using to get out of debt.  So here we go...

The Baby Steps are meant to be followed in their specific order without questions and I promise you when I say they really, really do work.

Baby Step One
Save $1000 Fast As A Starter Emergency Fund
Okay, before you freak out on me and start complaining about how there is no way you can do this, after all you've got to buy some new spring clothes and the guest bedroom just must be remodeld before your in-laws come to visit, or try to justify to me how you really deserve that new car, let's just stop and take a breath. 

Some ground rules need to be set here that will help put some clarity to this picture.  Baby Step works on the premise that you have set up a budget as I outlined in earlier posts in this series.  Yes, you have to have a budget.  And if you whine and give every excuse for why you can't then just go away and stop reading this posts because you obviously prefer to be in debt and unable to retire and I don't even want to hear from you ten or twenty years from now on why you can't afford to send your kids to college and how they are going to have to get student loans thereby starting their adult life out in debt.  Don't go there with me I promise I won't listen.   
As the circus moguel P.T. Barnum once said, "Money is an excellent slave and a horrible master!"
Enough said.

Another prerequisite of Baby Step One is you have to get current with all your creditors.  In otherwords, if you are behind on payments to anyone for anything get caught up now!  How do you do that?  Make a budget and cut out everything you can to find that extra cash.  Have a yard sale if you must (which actually is a really good idea), or get a part-time job in the evening.  Just get caught up and fast.

I'm not going to tell you this is easy because truth is it isn't.  But, I will promise you this, with each creditor you catch up on, with each bill you pay off you will start to feel powerful and in control of your life.  More importantly you will feel freedom like you have never known before.  You've just got to trust me on this one.

This emergency fund in Baby Step One is just that, an emergency fund.  It is not for buying new clothes or going on a vacation.  By the way, Christmas and birthdays are NOT an emergency, you've known about their impending date for twelve months, so what's the problem?  Budget, budget, budget! Do not cheat on this fund because you are only cheating yourself and your family from a life of financial freedom.  We are talking about being prepared for Murphy's Law here, you know the one that says, ''Anything that can go wrong will."

Some of you may be wondering why start with this step instead of hitting the debt right away?  Because if you start with paying off debt and an emergency happens, Dave has found most people stop paying debt off all together, then put money back on credit cards to get through the emergency causing them to have to start all over again.  But if you have some cash put in an emergency fund you just take care of it and get on with the business of the day - becoming debt free!

Once you get the emergency money,  HIDE IT!  From who?  From YOU!  Seriously.  Ours is hidden and no I'm not going to tell you where.  Be creative in where you hide it so it is not easily accessible but make sure both spouses know where it is.  Also, keep it in the form of cash.  Emergencies are by definition something not planned that need to be dealt with immediately.  In an emergency you don't need to be going to an ATM at 2:00 in the morning or trying to cash a check on a Sunday.

We were fortunate enough to already have that money stashed away so we were able to skip right on to Baby Step number Two.

Baby Step Two-
The Debt Snowball
The way Dave Ramsey describes paying off debt is referred to as "The Debt Snowball" and it really does work like a snowball rolling down a hill, constantly gaining speed.

In a previous post I described how to list your debt smallest to largest and recommended you post it somewhere in plain sight like on your refrigerator.  The reason to list smallest to largest instead of highest interest percentage as many other debt-relief gurus will tell you is to get "small wins" under your belt. If you can pay off your first little debt quickly it fuels and pumps you up to keep going.  In this process you are going to need that encouragement.

After you list all your debts smallest to largest, pay the minimums on all current debts except the smallest.  Every extra dollar you squeeze out of your budget, realized from a yard sale or earned in a part-time job needs to go toward paying off this one debt.

After that debt is paid you do the same process with the second smallest debt.  Keep paying minimums on everything else and attack just that specific debt.  The snowball part is realized because every time you pay off one debt, the minimum you were previously paying on it gets added to what is paid toward the next debt.  Each time the amount of money you are able to pay toward that debt increases just like a snowball rolling down a hill.  You will be amazed when you start getting to car payments and students loan how much extra you can pay toward them, it could very well be in the thousands.

To make this work you must do three things:  1) have a budget and stick to it, 2) sacrifice the immediate satisfaction for long term financial freedom and 3) focus on your financial goals.

I raise my right hand here and solemnly swear to you that this will not work if you play at it.  It has to be your number one priority.

That's Baby Steps One and Two in a nutshell.  I strongly encourage you to visit Dave's website.  He has all kinds of resources and much more information than I've given you here.

Best of luck and let me know how it is working for you.  I love to here about your successes.

Click here to go on to "Get Out of Debt - Part 7."

Happy Wednesday All, Jamie


  1. I am going to have to go back and read these from the beginning! We too are working on getting out of debt...I can tell you that I did not get 12% out of debt in the last 3 months!!

  2. Helga,

    I'm telling you, this system Dave Ramsey uses really, really works. We just listen to him on the radio and televsion and followed the steps in his book. it is not rocket science it just requires discipline, something i'm still learning. Good luck!!

  3. Ya just gotta love Dave and his ingenious steps. It's gonna feel so good not to owe anything.

    You have yourself a fantastically blessed day!!!

  4. This is a wonderful post, & series. I plan to go back and read the others. SO glad I found you through TMC!

  5. Hi there! I just found you through Theta Mom:)

    This is a great post, and you are doing an awesome job on paying your debt off!

    My husband and I have been working on this process the past year, but not really following a specific "plan." That being said, this month I have one more check to write and we will be completely credit card debt FREE! This is huge for us!

    We still have a mortgage, one car loan, and school loans, but we are definitely getting there!


Oh I'm so happy you checked out my blog. I absolutely love hearing from each and every one of you - it truely makes my day! Jamie