When we first started our “getting out of debt” journey, we didn’t tell a soul anything about it, mostly because we knew that most people would tell us we couldn’t make it happen and we’d be better off filing bankruptcy. We were deep, deep in debt, facing a 65% debt-to-income ratio at the time and were a minimum of $1,000 short of income each month without Rick’s overtime pay, which was not guaranteed.
The reason we didn’t tell anyone about our situation was two-fold: first, people tend to be negative and think the worst, and we didn’t want the discouragement. Second, we weren’t even sure we could make it out of debt without filing bankruptcy. It was a tough situation – tougher than I ever imagined it would be. But now that we’re so far into our journey (I’ll share specifics when the consumer debt is paid in full) I thought I’d share what we learned about how to get out of debt when you’re in up to your eyeballs.
How Did We Get Here?
One of the first things we did in our journey to debt freedom was to write down our debt numbers. This is tough – especially when the numbers are big – but don’t allow discouragement to set in. Just because you know the numbers doesn’t change anything; you were in that much debt before you knew the numbers.
After we got over the initial shock of the numbers, we sat down and took a look at our past year’s expenditures using our credit card and bank statements. It didn’t take too long before we found oodles of wasted money, and suddenly it became very clear why our debt load was so enormous.
Knowing how you got into your mess will help you implement behavior modification immediately.
Set a Budget You Can Live With
After we figured out the numbers and where our spending leaks were, we sat down and made a budget listing all of our monthly expenses. Over the course of our journey, we’ve modified that budget several times. We’ve been unbearably strict at times and much too liberal with expenses at others, all in the name of trying to find a budget that works.
Eventually, we settled on some numbers for fluid expenses that challenged us, but not to the point of nervous breakdown. We set a $400 target budget for groceries for our family of six. Rick and I each get a small amount of blow money each month. We have a small stipend set aside for entertainment each month. We don’t always use it but it’s there if we’re going stir crazy and just need to do something fun.
As you make your budget, obviously the bills have to be paid first and you have to live with whatever is left to live with. If you’re in as deep as we were, this might mean you need to cut some expenses.
The Challenge Everything Budget
My pal J$ from Budgets are Sexy made this budget famous. The challenge everything budget is simple: you go through every single line item on your budget and see how you can make it smaller. Got cable? Trade it in for Netflix or forego paid TV altogether. Call around and get insurance quotes to see if you can lower your insurance bill. We ended up going with Geico and saving over $700 per year.We still have Geico after three years and they’ve been with us through thick and thin, providing great coverage and reasonable rates.
Look around for cheaper cell phone plans. We went with Republic Wireless and saved another several hundred dollars a year. We still have Republic Wireless after two years and couldn’t be happier.
Start doing haircuts and other salon treatments at home.Cut down on eating out and start making restaurant meals at home.
Go through every single line item in your budget and ask “How can I reduce or eliminate this expense? In line with this, start tracking your expenses using an Excel or other spreadsheet. For privacy reasons, I prefer a home managed system as opposed to an online system, but that could just be the prepper in me. 🙂
Make a Doable Plan
Guys, the plan is the best and biggest part of the process. For us we used the debt snowball, but use whatever works for you. Write down your debts from smallest to largest and figure out which one you want to pay off first. Focus on that debt and that debt alone, and use a “set it and forget it” attitude about the other debts, making the minimum payment only while you focus on pounding away at the one debt you’ve decided to destroy first.
And don’t feel badly if you have to modify your plan; just make sure you are doing so for the purposes of getting out of debt and not so you can spend more on other stuff each month.
Which reminds me: you have to commit to NOT using credit cards if you are going to make this work. That means if you don’t have the cash, you don’t spend.
Here’s another article on more stuff you can do if you’re feeling overwhelmed by debt: Overwhelmed by Debt? Start Here.
Work to Lower Your Interest Rates
This step has been crucial to our success. I don’t always advocate debt consolidation (see why here) but it can work if your head is in the right place. For us we are doing a combination of things. First, we consolidated some debt into a fixed payment, low interest rate loan with Sofi. Second, we take the other part of our debt and do balance transfers to zero interest cards so that we’re not paying any interest as we pay off the debt.
Find Stuff You Can Sell
You may need to sell some stuff in order to get the debt load down or more easily be able to live within your budget. Expensive cars may need to be traded in for cheaper ones. Boats, ATVs and other toys may need to be sold. A closet full of designer clothes and accessories may need to be pared down and sold on EBay or in a Facebook group. Gaming systems and other electronic gadgets may need to go as well. You may even need to sell/downsize your house if your situation is dire or if you want results quickly. Think carefully before doing that, though – a move can disrupt a family balance pretty seriously.
This can be tough, I know. Just remember that this is a short term situation and that after you are debt free you can buy all new stuff again if you want to.
Figure Out Ways to Increase Your Income
As time wore on and Rick’s overtime stopped, this left us in a huge bind. So I started working on options to make money from home. As homeschooling parents, we were committed to me being home with the kids, so I didn’t want to get a job outside of the home. I started with one freelance writing job for a popular blog and moved up from there. Now I’m making over $15,000 a year blogging and that number is growing each year, all while working part-time and being home with the kids. .
There are many ways you can make additional income besides blogging.
- You can freelance a certain skill such as graphic design, tech help or organization skills
- You can work part-time delivering pizzas or at other part-time jobs near your home
- You can start a small business doing yard work, babysitting, pet sitting, tutoring or other work you love
- You can pick up overtime hours at work if they are available
- You can talk with your boss about working toward a raise or promotion
- You can rent out a room to a college student, or rent out storage space in your basement or garage
Increasing your income will help you get out of the hole from a monthly budgeting standpoint and give you additional income to pay toward debt.
Monitor Your Progress
Every month on our spreadsheet we include our monthly debt totals. We do this for two reasons: first, it gives us an at-a-glance picture of where we’re at. Second, it helps us to stay encouraged as we see the debt numbers going down. When you’re deep in debt, the journey may take a while, and knowing that you are making progress will help.
How to Deal with Setbacks and Discouragement
If you’re deep in debt like we were, it can be super discouraging in general. Setbacks can make things even worse. We have had many setbacks during the course of our journey, from financial setbacks like a flooded laundry room to emotional setbacks such as family issues or Internet trolls ragging on us for getting into so much debt.
At one point, the discouragement got so bad that I spent nearly a month wallowing in it, hardly leaving my room. Don’t let that happen to you. If you find yourself getting discouraged, consider these tips.
Focus on your successes. Every dime of debt you pay off means you have less debt today than you did yesterday. Celebrate that!
Make small improvements. Put an extra $10 toward your debt or sell something and put the money toward your debt
Read to encourage. Read debt success stories or personal finance blogs that encourage you. Or read a great money book such as
Money Love: A Guide to Changing the Way That You Think About Money , or the well-known classic,
Education will not only encourage you, it will give you more insight on how you can better manage your money.
Do something nice for yourself. Something that doesn’t cost any money.
- Go for a walk
- Take a nap
- Give yourself a manicure
- Watch a favorite movie at home
Which reminds me. Taking good care of yourself during this process is VITAL. You have to love on yourself and banish doubt and discouragement whenever it comes around. The more you beat yourself up – or allow others to beat you up – the harder it will be to stick with your plan.
Friends, you can do this. I know getting out of debt can be difficult, but just imagine and envision how great it will feel when you can tell your employer to kiss off because you have no debt. Won’t that be wonderful? 🙂