I also want to say that I am in no way trying to represent myself as an expert of any type in this area. I have had to work hard with this because, while I am a natural planner and detail-oriented person, I have not always exercised discipline or wisdom with my money. While I am not a big spender or much of a shopper, I have made impulse purchases that I really didn’t have the money for. Dee and I both came into marriage with lots of debt. With credit cards and school loans combined, it was over $45,000. And I am embarrassed to admit that while we were paying down some of that debt, we were also adding to our debt by continuing to use credit cards. It was never frivolous purchases, new cars, or big vacations. Most of the time, it was things we really thought we needed that we hadn’t planned for. I was consistently pushing us to use credit cards more to get bonus points or frequent flyer miles, always intending on paying off those purchases immediately, but never really doing it. We invested about $8,000 into a business that failed within the first six months that left us with nothing but some good lessons learned and that debt to pay off.
We have changed a lot of our financial habits. It has taken a lot of communication and a lot of mistakes. We have evaluated our financial state so many times, planning and adjusting to new bills, different income, or different needs with our growing family. So, we are still right in the middle of this journey, still learning. So far, here are the things that have helped us the most.
1. Stop using credit cards. I really thought I was disciplined enough all those years to use my credit card wisely, paying off purchases to not rack up interest while getting rewarded to use it with cash back or frequent flyer miles. It took me way too long to see that it would have cost me far less to just save over time to buy those plane tickets. I used to think I really needed a credit card on me at all times in case of emergencies. All of it just led me down a path of racking up more and more debt.
2. Use a cash spending system. I have tried a few different online budgeting systems that I really liked and worked for us for some aspects. (I will be listing various resources and ways of budgeting tomorrow.) But above all, the system that has worked for us and kept us actually living within our budget is operating on a cash envelope system. Every month after our first payday, I go to the bank and get out enough cash to cover all our monthly amounts for groceries, eating out, personal care items, and gas. Each category gets its own envelope and that’s what we use for all spending the entire month. The key with this is going to the bank at the very beginning of the month and to put away our debit cards. We don’t always do this as faithfully every month, but the times we do get away from it and start using our debit card here and there is usually when overspending starts.
3. Pare down. Interestingly enough, as our family has grown and our needs have increased, we have had more unexpected hits to our checkbook and cuts in our income. We have had to trim off any and all fat from our budget. Some of the cuts have been obvious and simple and other cuts have been painful. We don’t have cable TV or a landline. We share a car now after our second car died and we knew a car payment was out of the question if we were truly trying to get out of debt. We have small budgets for groceries and eating out. We don’t buy each other gifts on holidays (except our kids). We have gone back and forth with technology decisions, whether we have internet or smartphones. We have used alternative health insurance for me and the kids with less coverage. We use Google Voice for free text messaging.
These decisions look different for everyone and I am not saying paying for any of these items is a bad thing. It’s just some examples of decisions we have had to make.
4. Follow Dave Ramsey’s The Seven Baby Steps. We haven’t taken Dave Ramsey’s Financial Peace University course, but a friend gave us their course material and Dee listened to the CD’s while I browsed the workbook. Even that little exposure was super helpful to get us on the right track. The Seven Baby Steps are so helpful when your debt can feel so overwhelming you don’t know where to start. Following a budget with a cash system and using these steps has made all the difference.
What’s the hardest part of paying down debt for you? What have you done to help along the way?
Come back tomorrow for resources and programs to manage your budget.
This is a part of a week long series on budgeting. Check out the other posts.
Budgeting Part 1 – Why Have a Budget?
Budgeting Part 2 – How to Set Up a Monthly Financial Budget