Getting out of Debt

How it started......

My husband and I moved in together after we wed, and combined our income and expenses. When I was living by myself, prior to the wedding, I had no problems paying my bills. However, after the wedding party, I was finding that we were coming up short each month. I became upset because I was having to take from our small savings account to pay bills. This was something that I had never had to do prior to being married. I was frustrated and mad, and for the life of me could not figure out what was going on.

On August 5, 2002 I decided to put together a notebook of goals.

Here is what I wrote.

1. Have college loan paid off in two months. Current Balance: $500
2. Have car loan paid off in six months. Current Balance: $1,547
3. Have credit card loan paid off in eleven months. Current Balance: $2,101

Here are the calculations I used to determine the time for each goal.

Goal (1): $500 / (minimum payment + extra cash) Note: I added more money to pay off faster.
Goal (2): ($1,547 - (minimum payment x 2 months))/(minimum payment + goal (1) payment)
Goal (3):($2,101 - (minimum payment x 8 months))/(minimum payment + goal (2) payment)

I chose to pay off the school loan first. My focus was on paying off the loan with the smallest balance first, not worrying about which one had the highest interest rate. At the same time, I paid the minimum on all of the other loans. Once goal (1) was completed I rolled the payment from goal (1) to work towards goal (2). The process was repeated for goal (3).

I also created a list containing information on each loan, including the current balance and the minimum payments on a dry-erase board. This was stuck on our refrigerator so that it would always be visible to me and keep me motivated. As I paid off the loans, I would mark them as completed. If guests asked me about it, I was proud to tell them what I was doing.

Goal (1) was paid off 8/27/02. Goal (2) was completed 11/7/02. Goal (3) was completed 02/24/03. What I discovered was that I paid off my loans a lot faster than what I predicted.

This was just a start because I still had one more large school loan hanging over my head.

June 25, 2003

1. Pay off school loan in 22 months. Current Balance: $8,591.13
2. Save $10,000, for six months living expense, in 14 months.
   

Repeating the process I started on August 5, 2002, I went after paying off my second school loan. This loan was paid off on 07/14/2004. The second goal was completed 08/27/2004.

If I knew then what I know now, I would have started building our emergency savings while I was paying off my debt. If one unexpected expense arose during that time, we would have had to use our credit cards.

Through this experience, I realized my husband and I had not communicated who was going to buy the household groceries. We were both buying them without the others knowledge, and that was why we did not have enough money at the end of each month for the bills.