It’s been done—articles on getting out of debt. I’ve read lots of them. But sometimes, some of the principles didn’t work for me. For example, using cash-only didn’t work for us. We didn’t have military benefits, so that didn’t work. We had to buy a car after I got hit, so we had extra expenses. We don’t own a house, so our rent was much higher than most people’s mortgages. Many of the articles I read included variables that didn’t apply to me. So we did it our way. Perhaps our way will include variables that don’t apply to you, either, but maybe this will be helpful to you. We got married in January of 2012. We are now credit card debt free in May of 2014. In two and a half years, we got rid of a five-figure credit card debt. This was on two Christian school salaries and a part-time job, while still eating, traveling, and living a normal life.
It was important to us to not have debt, first so we could be better stewards of what God has given us, second so we could give more to others, and third because we wanted to start a family.
So how did we do this? These principles aren’t new, as I said, but they work. I owe getting out of debt to my mom’s financial wisdom, my husband’s hard work and self-control, and God’s gracious provision.
- BUDGET. Like seriously, don’t wait until the next paycheck. Sit down now and calculate your monthly take home pay after all deductions (taxes, insurance, 401k, etc.). Now subtract your monthly bills that stay the same each month (rent/mortgage, insurance, car payment, cable, etc.). Divide what’s left into categories of your choice. I would suggest you write down every possible category you can think of. Definitely include yearly expenses like car registration, newspaper subscription, Xbox Live account, etc. Those end up just costing a few dollars a month. Don’t forget things that are important to you. For us that was a category for giving (it doesn’t have to be 10%. It can be more or less, but if you’re a believer, you should be giving in proportion to how you’ve been blessed. We try to give first out of our paycheck rather than what’s left over, because we’re very thankful for God’s provision in our life. We believe he’s blessed that faithfulness.) and a category for travel. You can find a sample monthly budget spreadsheet like the one we use HERE (it's a Google Doc. I recommend this because you can use formulas and share the file with your spouse so it can always be accessed [even on-the-go] and edited).
- Set up auto payment for all your bills that stay the same amount each month (that includes the set amount for the cards you’re paying off), and write into your calendar or phone the day each month that you will pay your other bills that fluctuate each month. Also enter into you calendar or phone reminders to update your checkbook/ledger every week.
- Pay more than the minimum on your credit cards. Way more. Like as much as you can manage. We spent $700/month to pay down credit card debt. Every bit you pay now is less interest you pay later, so you’re saving money by spending it on paying off debt, if that makes sense. Pay off the card with the highest interest and lowest balance first, snowballing that payment into the next. That means if you have three cards with an outstanding balance, like so:
- $10,000 with 7% interest
- $2,000 with 14% interest
- $6,000 with 9% interest
You would pay the minimum on cards a and c (unless you can do more), but pay much more to card b, to pay it off sooner. Once that’s paid, apply that payment to card c. When that is paid off, apply the payments you had been paying to cards b and c to card a. So all three payments would go towards the last card.
- You only need to live a cash-only lifestyle if you can’t treat your credit card like debit. Granted, many people who get into credit card debt have trouble with this concept, so they may need to use only cash to break a bad habit. But we didn’t have a hard time treating the credit card like it was debit. We only spent what we had. I would subtract my receipts from my budget categories, and when the money in the categories was gone, it was gone. Consider every credit transaction as a debit transaction. The end. We also get great rewards from our VISA and AmEX (free flights!!), so it was worth it for us to use credit. However, note that we did not use the cards we were paying off. We used two different cards that did not have outstanding balances. You don’t want to fight an uphill battle.
- Did you get a chunk of cash from somewhere, like your tax refund? Consider applying that to your debt. We didn’t do that in 2012. We used our tax refund for our honeymoon. The next year, we chose to use it for a new camera for me (a moneymaker investment); but this past year, we threw the bulk of it at our debt, and got rid of at least 2 months’ payments. That helped, since our goal was to be out of debt by the time the baby arrived… and she’s not here yet! Maybe you have a money-making hobby. You can designate those profits to go straight to debt elimination, perhaps. Mike’s second job’s income had to go towards paying off our car (which we pay extra on to speed up the process. We figured we’ll have the $17k car paid off in a total of four years), but maybe you have a second job or tutoring job, or something that you could use to pay off the debt sooner.
- Think ahead. Think of what you’ll do with your credit card payment once your cards are paid off. If you pay $700 a month like we did, imagine what you’ll do with that money when you are free and clear!! If you save three months of payments, that’s over $2,000, and enough for a nice vacation! That’s assuming you don’t get pregnant and lose an income, like us… J You’ve learned to live on less, so look forward to when you can live on more again! Keeping the end goal in mind always helped me not feel like I was throwing money into a black hole.
So maybe you’ve heard or read these principles a thousand times already. So what are you waiting for? It is so freeing to get out of debt, and as a Christian, it allows you to have the financial freedom to help others, which is a real blessing. Don’t wait to get out of debt; it will only get worse. Make a plan today, and in a few years’ time, you’ll reap the benefits. When we started, we had a three-year plan, and it felt like it would take forever. It took a little less time than we thought, and it was less painful than we imagined (especially when we worked on not being covetous or envious and avoided the “must be nice” phrase). We are still working on Mike’s student loans, but those are easier to stomach (by a little) because they were an investment in Mike’s education and spiritual growth. Those things are valuable, so I can’t complain. But those are also a fixed interest rate and have an end date. It makes me sick that they take all the interest before applying our money to the principal (especially because we’ll be paying off his loans early and wouldn’t need to pay all that interest), but that’s just the way they do things. Anyway… just do it!xoxo, A