How did you get out of big debt

[kitten]

This has been talked about before, but I wanted to revive the topic. On another thread, flowerseverywhere mentioned that she paid off $300,000 in about three years. I know others have stories like this, and I would love to be able to read them for inspiration, so wanted to try to get them all in one place. Sometimes people will mention having done this here in Success Stories, and then post a link to a blog where the details are. That's great, but I would also love to see some encapsulated versions of some getting-out-of-debt journeys here.

Hope I get some takers. I really need this inspiration!

[catherine]

My journey isn't over, but I feel good that in 2-1/2 years I've paid down $162,483, which includes credit cards, student loans, home equity loan, cars, business loan, and principle on first mortgage.

I still have a ways to go: $80k in student loan/home equity debt and $163 in home mortgage.

The shorthand of my story is: I'm not a big spender, but I'm a big Yes-sir. I say yes to anyone who needs anything. Except for my Prius, which I indulged in because it was always going to be my "made-it" car, ALL other non-primary mortgage debt was the result of wanting to please others. I don't mean for that to sound altruistic, because it wasn't--it was pure foolishness. Well, the student loan pledge to my DD wasn't foolish, but all the rest was. I cosigned a mortgage so my MIL could take advantage of a foreclosure deal next door. We cashed out her paid-for home so we could pay cash for the new home, thinking we'd sell her primary home really quickly. That was in early 2008. Oops! Real estate collapse, and we're STILL holding that house. I signed a business loan for my husband, who had bad credit, and, OOPS, to make a long story short, I'm stuck with the payments.

So, in July 2009, I added up my debt and really, really thought I had input the Excel formula incorrectly. I had NO IDEA I had $197k in debt in my name, NOT including the 80k business loan.

Again, long story short, enter Dave Ramsey. I've just tackled the debt pretty much just the way he recommends, and I've paid down 17 out of 22 debts. Now I just have the biggies: a couple of student loans, the HEL and the business debt. No car payments (Yay!!) No credit card payments (Double Yay!!)

I expect to be out of debt, including my mortgage in 7 years or less at this point. It's amazing what a goal will do. I have a chart with the total debt on the Y axis and the months on the X-axis and watching the debt drop is so motivating. Some people like a debt thermometer, but I don't--because you're coloring the debt UPward. Doing it on a graph where the total debt is decreasing is so much more motivating.

[kitten]

Catherine, that is exciting! I knew a little bit about this from your other posts. Some of the things you went through happened to me too, so that really gives me courage and the feeling I can get through my deal too. Thanks!

[fidgiegirl]

I did Dave Ramsey too. I have posted my own chart a few times recently, it is more of the thermometer style Catherine mentions. But I need something different for our next project - the mortgages! Catherine, how do you do your charting/tracking? I have never gotten my head around how to keep track of the mortgage loans because I've never calculated the interest correctly.

I had to start by finding a little extra, and at the time, I transferred my cc: balance ($4000) onto a 0% card. That gave me a deadline plus saved me the interest charges. And then I started to hustle. I dogsat, babysat, helped a lady organize in her house, helped someone with some remodeling, etc. And kept at it, and kept my chart. The chart WAS super duper motivating. In fact for that one I DID use a "dropping" kind of line chart. And my tax returns or any extra cash from work, like retroactive pay when the contract settled, went to it. And I got rid of it in 10 months, which was good for me at the time considering I was single and in my second year teaching and paying a car pmt and students loans.

Then I wasn't too focused for a while, but didn't incur any MORE debt.

Once I started to hit it again in earnest, I did my snowball plan and just kept hustling, kept "snowflaking" (putting small amounts on to the loan) and big ones, too. Kept charting . . .

When DH and I got married, we found a lot MORE money because we had two incomes going toward it. We were able to finish it off in about six months after being married.

Awesome feeling.

Now I'm getting ready to hustle again in order to start the mortgage ball rolling. Did you see the FI3 thread? Also bunnys has started a mortgage repayment thread.

One thing we don't do so often on the boards anymore is to lay it all out there. Get financially naked. People used to put out a lot more numbers. I'll admit, I haven't either. I bet people would be MORE than willing to help you develop your plan if some hard numbers came out to play . . . a friendly challenge to you, kitten! :)

[kitten]

fidgiegirl, great story! Yeah, I saw you've been talking about how your chart motivates you. I have to do that.

I'll try to find the courage to put my numbers out here in a new post.

I did take a big step recently - I put down all our income and expenses for a typical month on an Excel spreadsheet. The sheet shows that we should have a surplus amount of about $1,000 a month.

DH and I were scratching our heads over that - we can't figure out where this phantom amount is going, because we thought we'd listed every possible category. I have some ideas that we're spending WAY more eating out than what I've indicated, and I know I've been spending a lot on clothes (I do that when the seasons change), plus books and other stuff. Maybe I should have an entire category called "de-stressing from my crazy, soul-murdering, thankless but well-ish paying job that everyone tells me I'm so lucky to have."

We might have to bite the bullet and start tracking everything. I hate the idea of it, but I think we can do it for a month. And then we'll know where all that ghost money is going to!

Thanks guys! Would love to hear more debt payoff stories!

[fidgiegirl]

And you, in turn, have inspired me about tracking . . . that's EXACTLY why to track, and we're terrible at it . . . imagine, kitten, if you could actually leave the HSSJ . . . $1000 is a lot of money . . . maybe you can!

[flowerseverywhere]

actually Kitten it was closer to $150,000 in debt we got rid of in about three years.
We both worked and my entire paycheck after taxes and retirement contributions went directly to debt payments. I worked overtime (I am a nurse) whenever I could, and DH also worked overtime. He paid all the bills, did his retirement plan and also put some towards the debt.

We did not eat any meals out. Ever. Both of us packed food every day. Breakfast was oatmeal or toast or eggs, and every single night we made some kind of dinner, often with leftovers for tomorrows lunch.
no new clothes.
no unnecessary driving.
never bought a cup of coffee or soda on the road, always packed thermoses and coolers.
entertainment was library books, library movies, cards with friends. We took up birdwatching, crossword puzzles, riding bikes, free music in the park. We had an old canoe and we took it on all the local rivers and lakes.
I learned how to shop the sales at the grocery stores- we have three within three miles, and they all have sales every week. It only took several hours one night to hit all the sales.
DH carpooled to work. I drove the car that got 30+ mpg. I did errands on the way home from work and we also rode our bikes when not working.
We had prepaid cell phones for use in the car or for emergencies.
Basic cable and internet (I would have cut the cable but DH loves to watch sports)
We did everything ourselves. I cleaned the house, DH repaired the cars, we cut the grass, shoveled the snow and if a faucet leaked or something broke we figured out how to fix it. We cooked everything from scratch. You would be amazed at how much money you can save if you make tortillas, yogurt, bread, bean soup from dried beans, oatmeal etc.
In the evenings we would take walks and bolster each other up, encouraging each other and celebrating our successes.

We did not feel deprived because we knew that we were still living much better than probably 95% of this worlds' citizens. I can't remember feeling bad that we could not do things, we were so relieved each month when the debt went down we just could not feel bad. Plus we were getting a lot of exercise and eating really good food, that tasted great as we all know homemade does.
We also bowed out of family gift exchanges.
We had a huge garden and that helped a lot with the food bills.
Luckily after this our habits stayed with us and we saved my entire salary plus some of DH's for years after that.

I will tell you people actually told us we were cheap, especially family members. But I didn't care then and I don't now. We have been able to be so generous with our time, especially when family members are sick and need a hand, and both of us are involved in some choice volunteer organizations. Last year, now that I only do some perdiem work I biked everywhere, logging over 1,000 miles. That saved a lot of gas.

[artist]

Dave Ramsey here was well. We paid off medical debt, credit cards, car loan and student loans. I don't even know how much it was because I didn't track it. I just tackled one at a time until it was gone. We are now down to just our mortgage $146,500 and paid cash for my "new to me" car a couple of years ago.

[catherine]

Catherine, how do you do your charting/tracking? I have never gotten my head around how to keep track of the mortgage loans because I've never calculated the interest correctly.



So, if I read you correctly, you want to separate out the principal from the interest/taxes (which are consumables, as opposed to debt?)? Is that it?

Well, as DR would say, I'm DEFINITELY the nerd when it comes to tracking.

I have tried many, many ways, and I am probably a life-long tracker. I used to carry a little notebook in my pocketbook and write down every expense and then add it up manually at week's end.

I've graduated from that.

When Excel came out, I seized it as my primary tracking tool:

I just made a big spreadsheet with days of the month as columns (and weekly/monthly totals along the way). Then I had all my categories and subcategories in rows. The second to last column, after the monthly total, was my monthly budget. The last column was the delta between budget and actual. It's really very easy.

I gave it up because I wanted to play around with some of the more sophisticated software that emerged. I used the DR budget tracking system, which I thought worked pretty well (you have to pay for it as part of the TMMO package).

I also tried Mint, which is great for when you forget stuff because it's all linked to your accounts, but it has crummy budgeting software and a very rudimentary, not user-friendly "envelope" capability (i.e., cash tracking).

So I graduated six months ago to YNAB (You Need a Budget). I like it, but it's almost overkill. They're coming out with a new version in a few days, so I'm looking forward to seeing that. I love how easy it is to use for tracking on a monthly basis, but I always wind up being off on my account totals somehow. But I like how it carries over line items, so if you don't spend your clothing allotment one month, it adds the leftover to the next month. Conversely, if you overspend in an area, it gets deducted from next month's budget. Also, it's based on its four principles having to do mainly with working off the money you will be earning NEXT month--which keeps you from living paycheck to paycheck.

I also have a debt tracking Excel sheet. The months are across the top columns; the debts, in ascending order of balance owed on the rows, totaled at the bottom. As I attack and pay off a debt, I put a zero. Again--it's great to see all those zeros collecting, forcing all the debt DOWN!!

I also have a paper graph, as I mentioned above, where I just plot the debt and watch it go down.

For the mortgage (getting to your specific question), I just have one spot in all my debt systems where I really am concerned about dividing the principle from the whole payment. I have a list of "consumables" vs. "debt"--I do this, because I'm trying to reduce my consumables as much as possible, so I can see that I'm paying (for example) $5,000 a month; well, even if everything was paid off, I'd sill have $3500 I'd HAVE to pay just to keep a roof over my head.

I get the "consumable" part of the mortgage vs. the "debt" part of my mortgage right off the mortgage statement.

And I cut the data every which way--Baby Step 2 debt; total debt including house; "Wants" vs. "Needs" s la Elizabeth Warren....

Aren't you glad you asked, Kelli? ;) (As my stepfather used to say, "ask me what time it is and I'll tell you how a watch is made")

[Kestra]

fidgiegirl, great story! Yeah, I saw you've been talking about how your chart motivates you. I have to do that.

I'll try to find the courage to put my numbers out here in a new post.

I did take a big step recently - I put down all our income and expenses for a typical month on an Excel spreadsheet. The sheet shows that we should have a surplus amount of about $1,000 a month.

DH and I were scratching our heads over that - we can't figure out where this phantom amount is going, because we thought we'd listed every possible category. I have some ideas that we're spending WAY more eating out than what I've indicated, and I know I've been spending a lot on clothes (I do that when the seasons change), plus books and other stuff. Maybe I should have an entire category called "de-stressing from my crazy, soul-murdering, thankless but well-ish paying job that everyone tells me I'm so lucky to have."

We might have to bite the bullet and start tracking everything. I hate the idea of it, but I think we can do it for a month. And then we'll know where all that ghost money is going to!

Thanks guys! Would love to hear more debt payoff stories!

Do you spend a lot of cash? If not you should be able to look at all your bank and credit card statements to get a better idea of where the money is going. At least to what stores, and what kind of unknown numbers. If if you spend cash, you can track the withdrawal, like I do with my husband's miscellaneous category. I know lots of people do a cash budget, but comparing my spreadsheet to my bank statements is the best way I have to make sure stuff doesn't slip through tracking. Cash just gets spent too easily for me.

[bke]

Fidgiegirl do you need help figuring out the monthly interest on a loan?

[fidgiegirl]

Well, I'm not sure, I guess . . . where I get hung up is if I just watch the balance, they are new loans so we are, of course, making payment of say, $100 and the balance only goes down $20. So I am not sure what to track in order to keep our motivation up. Adding to it is that we only get quarterly statements and I need to set up online banking to see the balances whenever we need.

So it sounds like Catherine, you track principal balance and interest as two separate things? You don't even look at the interest you're paying in the whole scheme of the debt reduction? I guess that's where your method of graphing makes a lot more sense than mine - if you plot the balance and can see it go down, and I used to plot HOW MUCH I WAS SENDING IN, then I can definitely see the advantage in your way with a mortgage. Actually, it wasn't foolproof with my student loans, either, but I was trying to remind myself to send in even that $25 or $50 extra and it worked at the time. But if I chart it that way for a mortgage it's going to feel like we might as well just be putting the $25 or $50 into a fire and we'd get the same result. Or even hundreds! Ack!

[bke]

This is where my ledger system is easy. I can see at any given moment how much I owe on mortgage, how much interest I'm paying, how much I've reduced the interest etc.Imake one payment a month when its due including and extra amounts at that time.

You figure it as follows:

The amount of the loan times the interest rate=x. X divided by 12 =the amout of interest paid for the month.

The amount of the monthly payment (including any extra) minus the monthly interest equals the amount going to the principal.

In othe words

10,000x.05 divided by 12=41.67 in interest for the month.

If your payment is $80 and you add another 20 that equals $100 payment. $100-41.67=58.33 towards the principal

10,000-58.33=9941.67 owed after your payment

Next month its 9941.67X.05 divided by 12=41.42 in interest. You reduced your interst by 25 cents over last month!

It adds up! When I paid that extra $21,000 off my mortgage, I dropped the monthly interest by over $140 a month. Or based on the amount of the monthly payment that goes to the principal I eliminated roughly 11 months worth of payments.

The math is pretty simple once you get used to it and its only one transaction a month so I find doing it by hand on paper to be easy and rewarding.

[kitten]

Thanks for the details, flowers! Artist, that's very inspiring to me :)

Kestra, we do tend to use cash - DH likes it, it's a kind of security thing. Opening his wallet and seeing some cash in there makes him feel like he's not broke I think :) But you're right, it's harder to track.

I do some recreational online spending that I haven't been up-front about to my DH. I know this has to stop, for all kinds of reasons. But it's nothing like $1,000 worth...

Yes fidgiegirl, if I could figure this stuff out, I might be able to quit my job. What I'd really like to do, though, would be what flowerseverywhere did - keep working and bank that entire paycheck. That would be meaningful to me, even if the job doesn't get any better. At least I could look at that number and see it growing!

I appreciate the info on tracking, charting and using a ledger - these are emerging as a vital piece in the debt paydown process!

[fidgiegirl]

bke, thank you! So simple! That will be a big help. Not only do I want to see how the principal is being reduced, but how much less and less we are owing in interest every month. Plus, as much as I love technology, there is something valuable about putting pen to paper. DH would be able to easily access it, too. The way I had been tracking was beyond him. Not that he couldn't have learned it, just that I made it so complicated that he didn't want to or rather, feel welcome to. It was only "my thing." But he is interested in paying down the mortgages too, so I want him to be able to utilize the tracking tools as well - independently and without barriers (erected by me :|()

[pcooley]

fidgiegirl -- It has been instrumental to me to use the computer to track my interest and how much it goes down with extra payments to the principal. I don't think I'd be motivated to pay more if I couldn't do that.

The best software that I have used that calculates loans for you is Moneydance. I know Quicken used to do it too, but I use a Mac, and Quicken has been terrible on the Mac.

Moneydance has free extensions you can add to the program, and one of them is called "Payoff!" which basically calculates a debt snowball for you.

Right now, all we have left is our mortgage, and I'm snowballing an extra $684.40 into the principal. The interest portion of the payment this month was $163.22, and it is dropping by about $5 each month. We're scheduled to have it paid off in July of 2015, which is about half the time it would take compared to paying what we're required to pay.

If I couldn't stay focussed on those things, I'd be spending a lot more money on other stuff and a lot less on the principal of our mortgage.

(I would add that I use YNAB for budgeting. I'm basically running two financial programs for our home, but I am motivated by each in a different way).

[fidgiegirl]

Oh, pcooley, I am regretting having deleted all our mortgage accounts out of Moneydance now. I guess I could put them back. It never seemed to calculate correctly. We'll just have to see, though . . . I like Moneydance a lot.

[Spartana]

I was always debt-free my entire life except when dh and I bought a house together. We bought a fixer that was well below what we could afford with a large down payment and plans to pay it off in under 5 years - easy for 2 DINKS (dual income no kids). However, when we divorced about a year after buying the place, I had to not only begin making the entire mortgage payments alone, but had to buy him out of his share too. It was tough but I got a couple of roommates, worked as much O.T. as possible, got a second job, etc... and put every spare penny I had into paying both the ex-dh and the mortgage off. I was able to do both in a about 2 - 3 years by really living just a bare-bones existence. After the house and dh were payed off, I spend a little more time saving as much money as possible then once I had "enough" I kicked out the roommates, quit the second job - then quit the first job awhile later. Eventually sold that house and bought another for cash for about 1/4 the price of the old place and used the extra money to fund a long sabbatical to pursue other goals. That sabbatical turned into full time retirement (at the ripe old age of 42) - and I haven't had any debt or worked in over 12 years since!

One thing I learned while living very bare-bones whi;le paying off the debt was that I LIKED living like that. I loved that kind of simple life much better then a spendy one. So finding that I loved living that way better than anything else money could buy allowed me to continue to live like that without feeling like I was denying myself anything. I'm not since I am doing exactly what I want to do. It was the biggest eye-opener for me and the main thing that has lead to my being able to retire so young. I certainly have a nice life style though, even if it is somewhat spartan by many people's estimation. Wouldn't change it for the world even if I were rich.

[awakenedsoul]

Spartana,
I found the same thing. Once I paid off my SBA loans and credit cards, I continued to live on very very little. (I had read some of your posts on this forum and was amazed at your budget.) When I was in debt I was so stressed and "not myself." I still have my "luxuries": my garden, organic food that I grow, my dogs, the yarn I buy to knit and crochet, and homemade cafe au laits on my porch. I just stopped spending extra money. I realized I prefer to use my bicycle over my car. I like grocery shopping once a month better than going weekly. I have the time to do yoga, pilates, and dance exercise in my living room. A clean house makes me happy, and I do that myself. I don't miss television, and I'm not into technolotgy. I spend $10,000. less per year than I used to...that's a huge chunk for me! I also retired pretty young. (47) I expected to work until age 90, but once I got on the road of living simply, my priorities changed. I really value the extra time and energy.

[ctg492]

We years ago, before the housing boom, before the creative financing era, we made a choice not to ever go back into debt and to pay cash or only charge knowing it would be paid in full when bill came. It worked for us. Knowing fully if we had entered into our 20s ten years later, we could have very easily fallen into the credit trap that was happening out there.
I never stand on a soap box and judge others for past choices, I just wonder why many don't stop by here and get great ideas to start a change.

[flowerseverywhere]

but once I got on the road of living simply, my priorities changed. I really value the extra time and energy.

pretty much sums it up for me too. And we still have a much higher standard of living than most of the world, even living as simply as you can imagine. nice post.

[Spartana]

Spartana,
(I had read some of your posts on this forum and was amazed at your budget.)

It's funny that when I owned my first home I was actually able to live on very little once it was paid off. Maybe $500/month for basic expenses (utilities, prop tax and insurance, food, etc..) but now that i rent my expenses are much higher. Of course I do have that home equity from the sale in the bank earning (a tiny amount )of interest to off-set my higher monthly expenses. If interest rates were higher then it would be a bit more even. But for me, being Lazy Lindi ;-)!), I really enjoy renting compared to owning so the extra expenses (for now) are worth it and I don't worry about the endless maintenance, repairs and potential costly future expenses that home ownership requires.

[awakenedsoul]

pretty much sums it up for me too. And we still have a much higher standard of living than most of the world, even living as simply as you can imagine. nice post.

So true flowerseverywhere. Thank you. As a neighbor of mine with a very green thumb once said, "You can't put a price on the garden." For me, that alone makes me feel like a millionairess. From your screen name I'm guessing you have a beautiful garden, too. People in other parts of the world woud be ecstatic with my tiny cottage and rectangle of flat, fertile land. I have the time now to appreciate it and enjoy it.

[fidgiegirl]

homemade cafe au laits on my porch.

This image has really been sticking with me the last few days!

Also the idea the flowers brought up that a bare-bones US existence, for many, is still richer than what many millions in the world have.

Thanks all, for continuing to share this wisdom . . .