My life, when I was in debt, was very very tough. I would live paycheck to paycheck and anytime any emergency came up I didn’t know where I was going to get the money. All my credit cards were maxed out because of my spending habits. My paycheck would come in, and since I didn’t have a budget, I would spend everything after I paid the minimums on all my bills. The worst part is something would come up and I had no available credit on my cards. ALL MAXED OUT! The sad thing was I didn’t realize at the time how bad my problem was. I knew so many people in the same place I was I couldn’t begin to imagine that there was a way out. Little did I know all this was going to change soon...
Two big events set me on the path to becoming debt free:
The first that will probably be familiar to MANY people was my car was making strange noises and the engine light was coming on and I knew it was time take my car in but the hundred dollars I had on my Discover card wasn’t going to cover it. So I waited about a month to make sure I had enough money in hand to have the car worked on. Well the day had come to take it in and I only had scraped together about 250 dollars. I was hoping that would cover it. Well it was going to be over 450 dollars!!! My heart stopped when I heard that. I thought, “where am I going to get THAT kind of money!” I called the credit card companies to see if I could get a credit increase. No luck. I finally had to delay paying some of my bills. Lucky for me I didn’t get too penalized for it. These kind of scenarios happened all the time but this time I stopped and thought about it more. I thought about how pathetic I was that I couldn’t come up with only 200 dollars more. I started to cut back on my spending and wanted to change but I didn’t have the tools to do it....
Now this is the cool part. I pretty much know that with over 20,000 in debt I wouldn’t be buying a home anytime soon but I wanted to know what the processes was so I met with a loan officer who used to be my neighbor. Once he saw my budget he said that there was no way I could afford the payments. I asked “could I afford to buy a mobile home?” he replied “you couldn’t even afford to rent a spot to put a mobile home on.” Then he looked over my budget again and then made a suggestion. He took the time and sat with me and walked me through how to budget and showed me some ideas on how to work down my debt. Then he gave me homework. Everyday I was to listen to the Dave Ramsey Show on the way home from work (more on that later). The important info here is I was given hope that day. Hope that I could actually eliminate my debt.
The Dave Ramsey Show
What is the Dave Ramsey Show? It is a call in radio show, hosted by Dave Ramsey, where people call in to ask advice about money. Most of the calls are from people trying to get out of debt. I would listen to the show on my evening walks. I put many of the things he said to practice. I bought his book which gave much more detail then what he shares on the show and now I had the tools to get out of debt. My primary hobby became getting out of debt. It became a game to me.
Here is how I started (following the Dave Ramsey Plan
Budgeting: I had to learn how to budget. Budgeting is not necessarily making that long term plan for the year (though that is part of it) It is BEFORE you spend any money you MUST have a plan where every dollar is going to go. I make categories for Grocery store items, gas, rent, utilities, entertainment, and back then a debt category. The best part is you will find as I had found that you will have MORE money at the end of the month then you thought.
Set up an emergency fund: This used to be common back in the day but people these days have replaced the emergency fund with the credit card. The purpose of the emergency fund is to have a certain amount of money available just incase life happens. Remember my story about my car where I only needed another 200 dollars? With an emergency fund you would have the money available to cover any kind of basic “emergency” that comes up. Dave Ramsey suggest you start out with 1000 dollars while you are getting out of debt. I paid minimum on my debts for about 3 months while I saved up the 1000 dollars. It was such a relief to have that kind of money available. This money was not for fun stuff it was to cover the unexpected.
Get rid of the credit cards and close the accounts: Yes I said it. I got rid of ALL my credit cards. My problem with debt before was I would be paying down my debt but then there would be some new gadget I had to have. I would go online to see how much credit I had on my Best Buy credit cards and I would buy what I wanted. Without the cards I couldn’t add to my debt and with the accounts closed I couldn’t “shop online” with an account number from my bill. I was done with credit. You may be thinking “what did you do if an emergency came up?”.... I had my emergency fund. “Emergencies” did come up and I would use money from my thousand dollars. I would then just pay minimum again on my bills until that thousand was replenished.
Pay off debts smallest to largest: This was the genius part of the plan in my opinion. Pay minimum on ALL your debt except for the smallest. On the smallest pay ALL the extra money you have left. Once you knock out that one go to the next highest. What is cool as Dave Ramsey says is you feel the “victory” of getting rid of a bill. And it felt great. Every-time I made a final payment on one of my cards I would feel joy. It was a good feeling. And after two years of paying down my debt, when I made my last payment I felt great! It has been several months and the only bills I have are rent, insurance, and utilities. That’s it!
Make a bigger emergency fund: You need to save up enough money so you can be covered if you didn’t have a job for about 6 months. That covers making sure that all your bills are paid and your needs are met for that period of time. One way to think about it is you are creating your own emergency credit card. If you felt safe with your handy 3 thousand dollar limit Visa now imagine you having a self funded 6 thousand dollar emergency Visa. There would be no need t use credit cards for emergencies anymore.
There are a few more steps but it would be best you check out the Dave Ramsey website for yourself.
Thanks for reading my story and I hope it helps.
