My wife and I lived for years lying to ourselves about how good we were with money. We’d tried different small home-based businesses, read books on sales and investing, listened to motivational and educational CDs about real estate and personal development. But, in the end, the only facts I can draw from this time are that we had a regular credit card balance of $3,000 and we couldn’t seem to save any money.
Part of this was a problem with income. I was not making very much. We had no car loans, didn’t have a shopping problem and didn’t go out to eat very much, but we were a family of four living very well on $3,000 a month. Along with trying to keep the best foods for our home, we enrolled our oldest child in Jiu Jitsu and private music lessons.
Fixing Income Will not get rid of Debt Alone
After being at this level for several years, we eventually increased our income substantially, but our debt soared. We purchased a home improvement package from Sears for $4,600, owed a doctor’s office $740 and the old credit card went into five figures, topping off near our $13,000 limit.
You might ask, how could this happen? We raised our lifestyle and were not on a plan.
Before, we owned a modest home of 900 sq. ft. We kept that home and rented it out, hence the debt to Sears as well as another $6,000 I put into it so that we’d rent it quickly, which we did.
Then, we bought a home of 1,800 sq. ft. With an extra bedroom came our need to purchase furniture to put in it for guests. Plus, we had to heat and cool twice as much space, whether we were in the rooms or not.
If this wasn’t enough, I decided that I had room to buy stocks again. Money that should have went to our raised lifestyle (at least) or toward the principle of one of our homes was out there floating around in something I couldn’t control.
How we got out of Credit Card Debt
What made the difference was a book by Dave Ramsey called The Total Money Makeover. Our new home did not pick up his radio show, and the only conservative talk radio station I could find had a local guy that seemed as though he wished he was Rush Limbaugh.
When I read Ramsey’s book I couldn’t help but realize his simple methods were exactly what we needed. First, we had to have $1,000 readily available for emergencies, and next, we had to pay off all debts smallest to largest. For us, it looked like this:
- Doctor’s office: $740
- Sears: $4,600
- Visa: $11,070
Activating the Debt Snowball
How this works is that all available money goes to the smallest debt (doctor’s office), and the others get paid their required minimum. Prior to this, I’d been spreadloading the payments with $500 to Visa, $500 to Sear’s, $10 to the doctor’s office since there was no interest, and an extra $50 to the principle of each mortgage
With Ramsey’s plan, my wife and I (he says you have to be in it together, so I waited until she read the book so we could discuss it on the same plain) sold the stock I had bought, which allowed me to pay off the the first two debts in two months, then I eliminated the Visa card before the year was up. From Father’s Day to Christmas, we went from five accounts to just the two mortgages.
Now, we are working on the third step of Ramsey’s plan, which is to save 6 months of income. It’s going to take a while, but we’re going to live a while. We may as well live with money.
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