My husband and I have been married for almost four years and we first started thinking about our finances a year before our wedding. We are not only joined in union by vows, but also financially, and we wanted to start our life in the right financial direction. By using advice from the internet and books, we formulated these steps to get us on track to become 100% debt free.
I will lay a bit of our financial groundwork first. When we got married in 2008 we had a total of two school loans totaling $25K, a motorcycle loan at $5K, and three credit cards adding to $3500. We also had two vehicles that were paid off, however, in dire need of an upgrade in the near future. So, with almost $34K in debt, we were in need of a budget overhaul!
Step 1: Get All Members of your Family on Board
It may sound fairly easy, but my husband and I know couples that didn’t completely think they could handle a tight budget. Getting every member on board and sticking to this plan is essential. There may come a time where the budget needs to be altered due to an emergency (i.e. vehicle brakes need to be fixed, unforeseen medical issues, etc.) this is where we would recommend having a safety net. For my husband and I, we try to keep $1000 in our savings account at all times. This is not used for paying down bills, but only for unanticipated financial circumstances.
Step 2: Spend Less Money
This may seem like a ridiculously hard concept for some, but trust me starting is always the hardest part. What we did was slowly cut back on expenses. We started first with limiting our eating out and alcohol. We didn’t think a $14 30-pack for the week or eating out twice a week (at approx. $80) was breaking the bank, however, when we made the 30-pack last a few weeks and ate out only once or twice a month, we saved almost $300 just in one month. We then took whatever extra we had and put that towards the lowest bill.
Step 3: Evaluate All Debt
Then what we did was make a chart of our debt. It was suggested to order the bills from least amount to greatest amount, and I did this with Excel. For us, our lowest three bills were the credit cards: $750, $1200, and $1550. We put the $300 extra dollars we saved by spending less towards the $750 bill. IMPORTANT – Don’t stop paying all other bills, or else you will accrue late charges and those are NO good. So instead of paying the $50 minimum payment for the $750 bill, we paid $300. The second month we saved another $300 and during the third month we had paid that $750 bill in full and put $150 extra towards the $1200 bill!
Step 4: Continue
In order to be successful, this momentum must continue. Financial expert, Dave Ramsey refers to it as the Debt Snowball. When you finish paying a bill, like we did with the $750 bill, you start with the next lowest bill. During month four we continued saving the $300 and added that with the $100 minimum for the $1200 bill, and the $50 original minimum payment for the $750 first bill. This ended up being a $450 payment each month and took us less than three months to pay off. Continue rolling each bill minimum payment and your savings until you find yourself on the last (largest amount) bill you have.
Even if you are starting with $50K in loans or $500, anyone can be debt free with only a few easy steps. To date, my husband and I have one bill left (which is my largest student loan), and we now are putting $1500 towards that bill every month. The key is to not get back into debt. If you need to make a large purchase – save the cash for it! And if you have a setback – work through it with your family. Soon you too can be Debt Free!
Learn more about financial expert Dave Ramsey !