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Paying off Debt-Our Story
Eight years ago and fresh out of school, my husband and I took advantage of our new income, which was a huge increase in what we were used to! We couldn’t wait to get our hands on bigger and better things! All that mattered to us was how much the monthly payment was going to be. Within two years we purchased two large gas hog vehicles, a boat and a piece of property. Most of these were used prices but still way more than we ever should have spent!!! We were living the dream….so we thought! At the end of the second year we found out we were expecting our first child. I have always known that I wanted to be home with our kiddos but we weren’t going to be able to swing it financially with all those “toys.” So, we sold my husband’s truck since he drove a company vehicle and it sat in the driveway for the majority of the time anyways. This freed up a ton of money and so our financial journey began.
My husband and I started off at opposite ends of the spectrum. He came from a family that sees something that they want and they buy it! I came from a family that lived pretty modestly. My parents spent more money on experiences for us than they did material objects. It has taken six years but we have met in the middle and live a pretty balanced financial life. We are now on the same page with our financial goals. Our main goal being to pay off our final debt- our mortgage!!!
After our oldest son was born, household manager became my new work-at-home job. I was and still am constantly researching ways to save & make extra money. Just like everything else, figure out your financial goals and break them down into acheiveable chunks. Like I said, it has taken us six years to get where we are at and I have set some new money-saving/money-making goals for the 2013 year to improve our finances. Here are helpful tips that we are using as guidelines in helping us pay off debt:
Build up your savings
Although this step isn't actually chipping away at your debt, it is very important to have a safety net in place. Many experts suggest tucking away $1000 for those unexpected costs, such as; car repairs, household repair, etc. In addition to the emergency fund, you should save at least 3-6 months of living expenses. This came in very handy at the beginning of the year when my husband was laid off for four months.
Look at all of your debts and determine which one you are going to tackle first
It is recommended to first pay off credit cards since they generally have the highest interest rate. After that, start with the loan with the highest interest rate. Save your mortgage for last since it can help you at tax time. For us the first thing we paid off was our boat. When we sold the boat, we were then able to pay off my car!
This is where my focus is going to be for 2013! I have always struggled with making and keeping a budget. In my mind we don't spend that much money and we don't necassarily need one. However, by breaking our spending into categories and setting limits, I'm sure we can squeeze more money from our income to put towards paying off our debt. What I have heard and read repeatedly, is that budgets are important because you tell your money exactly where to go!
Make Extra Income
Any extra income you make should be thrown at your debt in order to pay it off faster. Are there items around your house that you don't want or need anymore? Use Craigslist or Ebay to sell them for extra money. Do you have a unique hobby? Use your talents and ambitions to start a small business that you can work in the evenings or on the weekends.
Think About Short-term and Long-term Goals
Once we became serious about paying off our debt, we talked about our goals. We discussed:
- why it is important for us to be debt-free
- how we are going to accomplish this task
- when do we want to have the debt paid off
We try to discuss our finances and goals at least once a month. Goals keep you focused so you are not just spinning your wheels!
I started my journey to become financially free before the recession hit and before there was such a vast amount of information on the internet about paying off your debt. I didn’t follow any particular order of steps. I was the money manager so I experimented with different ways to make our money work best for us.
I share this with you in the hopes that if you haven’t already, you start taking the steps to get out of debt. While it takes a lot of hard work and dedication, it is worth the feeling of freedom from not being tied to so many payments!