Hello out there everyone. I’m super excited to start this blog and a new chapter in my life. But, along with that comes a brutally honest assessment of my finances. Deep breath…
$35,379.73. Three months ago, that was my number. That’s how much I owed. $7,950 in credit card debt. $5,642.36 in student loans. And, I had just acquired a $21,787.37 auto loan. Exhale…
It was a ton of money, and my creditors had me believing it was no big deal. At least that’s the impression I got each time they increased my credit limit or offered me special interest rates. But, it was a huge deal. It was $635.84 a month worth of a huge deal. And that was me only making minimum payments, which I can’t in good conscience recommend anyone do. I needed a change.
And that’s when I came up with a plan to get rid of my debt.
$31,951.76. That’s my number now.
In a little over three months, I was able to reduce my debt by almost $3,500 and here’s some of what I’ve been doing.
How I’m Reducing My $30,000 in Debt
1. I found out where my money was going.
The first thing I did was go over my bank and credit card statements with a fine-toothed comb. It didn’t take long for me to see where my money was going. Restaurants. On average, I had been spending $20 a day on fast food and nearly $100 a week at Pappasitos and Lupe Tortilla. More than 60% of my credit card charges went to restaurants or Jamba Juice. Yikes!
My other expenses included my tithe, rent, cellphone bill, insurance premiums and minimum credit card payments. I didn’t have any lavish retail purchases or any other bad spending habits. Food was hands down my biggest expense and I needed to change that. So…
2. I created a budget spreadsheet.
One of the first things on my spreadsheet was groceries. That’s where my problem was, so that’s what I focused on. I was spending $800 a month eating out. I’ve always known that it was more cost effective to cook at home, but I preferred to spend my time doing just about anything else. But then, I saw how much not cooking was costing me. At the rate I was going, I didn’t make enough to sustain my eating habits without going further into debt. I mean seriously, $800 a month. That’s a mortgage! So…
I gave myself a $150 budget for groceries and because I like to socialize, I allowed myself $50 for eating out. I know, drastic. Right? It was. And for the first two months, I completely blew that budget, but I wasn’t anywhere near the $800 I had been spending and that encouraged me to keep going.
I’m happy to say that last month, I managed it. Overall, I saved nearly $1,200 just by cooking at home. It went straight to my debts.
3. I read any and everything I could on ways to reduce my debt.
The most beneficial piece of information I found was Dave Ramsey’s Snowball Method. It’s quite simple. You list all your debts from smallest to largest and throw everything you have at the smallest debt while making the minimum payment on everything else. I used this for my credit card debt.
Now, I’m a tad anal, so I tweaked it a little. My minimum payments varied between $25 and $35. And as I said before, I can’t recommend paying just the creditors established minimum payment. It’s usually as low as 1% of your debt. That means, if you owe a creditor $3,000 at 17% and you only make their minimum payment of $25, it’ll take more than 10 years to pay that balance, and it’ll cost $2,241.14 in interest charges. That’s nearly twice what you borrowed. It’s designed to keep you owing them for as long as possible. I refuse to give them that kind of power, even for a short period of time. Plus, I work better in $50 increments. I’m not sure why. I just do.
So, I made that my minimum payment on four of my cards and threw everything else at my smallest card. I’m happy to say that at the end of this month, I will have paid off my smallest card.
4. I took advantage of credit card rewards and store coupons.
I had a credit card that had a zero balance and offered 1.5% cash rewards for every dollar spent. I know, I’m trying to reduce my debts. Right? But, I realized there were certain expenses I had to pay each month. My insurance premiums, cellphone bill, gas and so on. Those expenses totaled about $500 a month. That’s $7.50 in free cash that I was missing out on and every bit counts.
Now, I’m duty-bound to mention that, any amount I put on this card, I always, always make sure I have that amount in the bank first. And, I pay the entire balance off before my statement closes. That way, there’s no chance of any interest accruing.
I also downloaded the Walmart and HEB apps on my phone. With the Walmart app, I am credited anytime Walmart finds that I’ve paid a higher price at their store verses one of their competitors. They load those funds onto an electronic gift card and I’m able to use them for future purchases. It’s .50 cents here and there, but again it adds up. The HEB app allows me to use a wide array digital coupons. Now, I don’t go crazy. I never buy things just because there is a coupon, unless I was already going to buy that item.
All and all, I saved around $10 to $15 a month. It went straight to my debts.
5. I picked up extra shifts to earn extra income.
Bottom line, I can cut my expenses and save money where I can, but that’ll only take me so far. If I want to tackle my debt aggressively, I have to earn more income.
Working in a restaurant can be unpredictable, but I’m sometimes able to work shifts that guarantee me a certain amount of money.
I pick those shifts up with eagerness and doing so, I’ve been able to generate a couple extra hundred dollars a week that goes straight towards my debts.
6. I made payments as soon as I had the funds available.
I stopped waiting until my due date to make my payments. I get paid daily, so I tend to look at my finances everyday. I see what comes in and what has to go out. The moment I have enough money in the bank to pay one of those $50 minimums, I pay it. That way, I can’t spend it on tacos or enchiladas. Plus, it allows me to put that one card behind me for the month. I can focus on the others I have left to pay.
7. I paid my auto and student loan payments weekly and added extra each week.
All of my loans are simple interest loans, which means interest is compounded daily, and I can pay them off early with no penalty. So, I divided my monthly payments by four and paid that amount each Friday. By making weekly payments, I reduce the principle balance weekly instead of monthly, which means I’ll pay a lot less interest over the life of the loan. It also means I’ll pay them off a few months or a few years earlier. I then took it a step further and decided to throw a little extra towards my principle.
By paying weekly and adding an extra $5 on my student loans, I’ll save nearly $300 in interest and shave off seven months of payments. By paying weekly and adding an extra $25 on my auto loan, I’ll save nearly $2,000 in interest and shave off two and a half years! It works believe me. I used this Weekly Mortgage Calculator to figure out the specs.
So far, I’m pleased with the progress I’ve made, but I want to be more aggressive with my goal of debt freedom. I want to be 100% debt free going into 2019.
Anyone else on a similar journey? What are your financial goals and what are you doing to achieve them?