Our Journey Out of Debt [part 4]

If you missed last weeks post you can find it here. Today I’ll give you the specifics for each step in our journey.

1.)We made the decision to stop borrowing money.
This first step is self explanatory, although this is the step people get tripped up on. For me it was extremely helpful to have a spouse who was supportive and on board. If you’re not in a committed relationship, try to find a close friend who you can work with and use as an accountability partner.

2.) We formulated a plan.
Once you really commit, then you can formulate a plan. We used Dave Ramsey’s Baby Steps as a guideline, although we adapted it for our needs. You can find his plan here.

How we adapted Dave’s plan to fit our needs
-We still put money into my 401K. I understand why Dave recommends stopping contributions (focused intensity), but I just couldn’t bring myself to break this good habit. Plus I may not always have the option of a 401K (if I stay at home with kids) and I wanted to start something that would be growing for the rest of my life.
-We still went on vacation. Sort of. While we didn’t take any exotic cruises or tour Europe, we did visit out of state family a LOT while we were getting out of debt. Both Adam and I understand deeply how precious the moments with our family are and we were not willing to risk missing those moments to get out of debt sooner. If anything I wish we would have taken more trips to visit family, especially those who lived multiple states away.
-We ate out occasionally. You’ll often hear Dave Ramsey say that while getting out of debt “you won’t see the inside of a restaurant unless you’re working there.” While we didn’t eat out all that often, we still ate out for entertainment or to enjoy a night with friends. If you choose to still eat out while you’re getting out of debt you MUST decide in advance how much you are going to spend. If you don’t track your spending or have a budget then you probably don’t realize how much you spend eating out. I encourage you to look through your account for last month and add up the numbers- you may be surprised. Then sit down and decide how much you want to spend this month and stick to it.

An important part of having a plan is to budget. You don’t have to get sophisticated about this. And a budget isn’t constricting (as I thought it would be). A budget is just a specific outline of what you will make and how you want to spend it. That’s right- you get to decide how to spend your money! We used an excel spreadsheet for the main budget but also supplemented with mint.com. Remember, the first time you write down what you think you will spend it won’t be perfect. But also remember if you’re about to spend an extra $50 on groceries then you have to go back to the budget and take that $50 from somewhere else. When getting out of debt you don’t get to spend money you don’t have.

3.) We created a visual reminder.
I probably made 3 or 4 different charts before I finally had one that worked. It was a simple grid where each square represented $50. I had totals beside each line so we could see quickly see our total paid. At the bottom of the page we wrote out the reasons we wanted to be debt free. Most importantly, we posted this on our fridge as a constant reminder.

4.) We set goals.
When we first decided to get out of debt, we used this debt reduction calculator to figure out how long it would take. We got married in June 2010 and running the numbers we figured it would take until June 2013. The total amount was a combination of many small loans, so we set deadlines for paying off each of the small loans and focused on those goals, rather than the 3 years it would take for the entire amount. Each time we set a goal that represented a reasonable estimate, along with a stretch goal. On our very last loan our stretch goal was to pay it off by the end of February 2013, but we actually exceeded our stretch goal and made our final payment February 1!

5.) We rewarded ourselves for small milestones and constantly talked about the “why.”
After each small debt paid off we would treat ourselves to a restaurant meal, ice cream, or have some small celebration. It felt so good to see each debt get paid in full, but we needed a little boost after each one to keep us going. On a daily basis we talked about the plans we had for once we were out of debt, and now being on the other side it feels amazing to see some of those dreams becoming our reality.

I would have loved to have paid for college out of pocket and graduated with no student loans, but I am actually grateful for the student loans in a way. Adam and I have learned how to delay gratification and wait for the things we want while we save up and pay cash for them. We have learned how to make a plan and stick to it. We have learned to rely on each other and support each other and for that I am so grateful. I love life and I look forward to the debt free chapter of our lives. Good luck on your own journey! I know you can do it.

Do you have any questions about how we achieved this major milestone? Any advice? Leave a comment or email myhomemakingexperiment [at] gmail [dot] com.