My Debt-Free Journey | Part 3

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This is Part 3 in the series, My Debt-Free Journey. Catch up by reading Part 1 and Part 2.

Waking Up

For a while we continued with our defeatist attitude regarding our finances, accepting that we were on a path from which we could not escape — until a few events served as wake-up calls.

The first was a reduction in my husband’s employment. His full-time, 40-hour/week job went to 32 hours and then to 24. You would think that with each reduction we would make an adjustment to our spending, but we didn’t. Instead, we relied more heavily on our cards, maxing them out one-by-one until the only one usable was our American Express.

We realized we were in trouble, but even that call didn’t completely wake us up. We hit the snooze button.

Lowest Point

The reduction of hours led to another wake-up call. Now, this is embarrassing. I realized just recently how seldom I share this part of my story. Even after maxing out all of our cards and only having the American Express, we blindly continued to spend more than we had coming in. (Mind you, our spending was not on luxurious trips or high-ticket items; it was on everyday life.)

It got so bad that when the Amex bill came, and we weren’t able to pay the full balance, we actually made more purchases on the card so that we could return them and immediately reduce the amount due. If we were $900 short, off to the store I went to buy and later return $900 worth of stuff. How CRAZY is that? Okay, we were slightly more awake when we found ourselves doing that.

American Express Sponsored My Debt-Free Journey

The final wake-up call knocked us to our feet. American Express canceled our card. This may not seem like a big deal, but losing the ability to charge on our Amex at the time had the equivalent effect of one of us losing our job completely. It was our lifeline — it caught our stupidity slack every month.

I remember receiving the cancellation notice. We were just about to go out shopping (!) and I checked the mail. I am pretty sure that I cried — seriously, I did. Not only did we not have the ability to use the card, but we had to pay off the total balance by the next month. How were we going to do that unless we could also use it for purchases?

With a reduced income and no way to live beyond our means, we no longer had the option of continuing in our financial ignorance. Losing the Amex woke us up fully.

By this time it had been a couple of years since I first read The Total Money Makeover. I brought up the principles I had learned from it to my husband again and this time he listened — literally. He got his hands on the audio version of the book and quickly completed it.

Equipped with the same information (finally!), we came to the conclusion that we needed a plan.

Going From We Can’t to We Can

Now that my husband and I decided TOGETHER that we needed to do something about our situation, things felt a little different.

For the first time, we took an honest look at our situation. We looked at our current income and added up what we spent each month. The difference was eye-opening. We learned that we were overspending by over $2000 every month. Ouch! Thank God American Express knocked us off that path to disaster!

There was a defining moment in which we jumped into action. One day, we decided to go to the library to do the bills, and we were discussing the depressing $2000 deficit. My husband turned to me, looked me straight in the eyes and said, “We can do this.”

In that very moment and with those four words a switch went on. At that moment, we began to turn things around — because we started believing and thinking that we could.

There was no reasonable evidence that we could go from $2000 in the hole to having even a penny to pay off debt, but for the FIRST TIME EVER, we had hope about our situation. That hope changed everything.

Getting Started

When you’re spending more money than you have coming in, you only have two options: spend less, or bring in more money. We set about doing both.

We first looked at all of our bills and lowered them as much as possible. We reduced our cable, internet, home phone, and cell phone bills. We got rid of any little monthly bills that we could.

Once we lowered all of our fixed expenses, we started looking at where else we could cut back. I quickly discovered that what we were spending at the grocery store had a HUGE impact on our monthly budget. I learned how to shop differently. I learned how to coupon, and after a couple of months, I was spending significantly less on our groceries.

Getting Intense

We stopped eating out. We didn’t go to the movies. We didn’t spend any money unnecessarily — not even if it was $2. We started budgeting — for real this time. We used the zero-based budget method. This means, you start with your income for the coming month and decide how to spend every dollar until you get to zero. You can’t spend more than you having coming in, and you can’t leave even a dollar unaccounted for.

By using this approach, the line between our needs and our wants become amazingly clear.
This was the first time in our adult lives that we had to live within our means. Overspending was not an option, even if we wanted to. It is amazing how you can do without things when you’re forced to.

On the income side, we sought ways to bring in more money. As a graphic and web designer, my husband took on some freelance projects. I spent the summer of 2010 as a census taker. That was a humbling experience — running into people I knew while out conducting the census, but I didn’t care. Our priority was cleaning up the mess we made of our finances, and we were willing to do whatever it took.

By far, most of our progress came as a result of cutting back our spending. We knew the sacrifice would be a temporary one, so we were as intense as we could be.

Making Progress

After making changes to our spending and income, we were able to see a little room in our budget and began to have money to pay our debt. I calculated how long it would take us to pay off the debt based on the amount of money that was available.

The result was six years. I was ecstatic! Our student loan payments alone were scheduled to go on for another twenty-something years, so six years sounded awesome!

The approach we used to pay off the debt, as taught in The Total Money Makeover, is the Debt Snowball, where you list your debts smallest to largest, regardless of interest, and you pay them off in that order. Any extra money that you can squeeze out of the budget or bring in goes towards the smallest debt until it’s gone, and then you move to the next one.

As we moved along in the process and knocked off several small debts, it was clear that we were gaining traction. That momentum inspired us to keep going and to focus even more. We spent as little as possible, brought in as much as possible, and put as much as possible towards the debt. Things started moving fairly quickly and within eight months of starting, we paid off $30,000!!!!

Are you on your debt-free journey? I’d love to hear from you.

Thanks for sticking with me this far and reading My Debt-Free Journey. My story concludes in Part 4.

My Debt-Free Journey: Part 1, Part 2, Part 4