Help with a plan, please

iVillage Member
Registered: 10-20-2003
Help with a plan, please
6
Tue, 02-08-2005 - 12:02pm

Hi everyone,
I'm new to this board, but I've found a lot of comfort and helpful ideas here so far. I really need help coming up with a plan to get us out of debt. How do it do it? Where do I start? I read a post where someone said they were scheduled to be out of debt this year and I thought "Wow! How great would that be!" I realized this week that it just doesn't end, does it? There's always something taking our money. Just when you think you might be able to use that tax return to pay a big chunk on your credit card bill, your baby breaks your glasses, you get your first cavity (ever!) and have to pay for fillings....it's always something!!

We are a pretty young couple with a one-year old (birthday tomorrow!) and we are in A LOT of debt! It's mostly stupid college-lifestyle spending, a lot of credit card debt, and 2 cars. And don't even get me started on student loans. My husband is still in school and works full-time, as do I. I am starting a new job, with a little more money, next week. My husband is a HORRIBLE money manager and I literally have to watch every dime he spends, or he will blow it all. Most of the debt is his and his bad money habits have really put a strain on our relationship.

We're barely paying our bills, although luckily, they are all current. We've actually gotten to the point where we're only paying minimums, which is frustrating. As I said, I am going to be making a little more money here soon. It seems like everytime we anticipate more money, it's spent before it's earned.

How can we get on track and actually make a plan to tackle and pay down our debt, instead of just maintaining it?? I've read "Life or Debt" by Stacy Johnson, which I think is a great book with good ideas.

Thanks!

iVillage Member
Registered: 02-19-2004
Tue, 02-08-2005 - 12:42pm

The first plan is to find out where your money is going. You can do this by tracking your spending. I hate writing things on paper and tracking pennies, but I use my debt card for everything so I can use my checkbook (in Excel) to see where my money goes.

Then you need to develop a spending plan. The plan should include your monthly income less all your bills, and then everything else you need to spend money on, including groceries, gas, spending cash allowance, clothes, birthday's, dinner's out, entertainment, miscellaneous household purchases, etc. This will tell you if you have enough each month to cover your monthly expenses. Usually you find you don't, which is why you are charging on your credit card all the time.

The next step is to cut your budget and find ways to reduce your monthly expenses. Some big one's are taking your lunch (and snacks) to work, eating out less, cancelling cable, getting rid of your home phone (if you always use your cell) or at least getting rid of voicemail and call waiting, finding cheaper car insurance, cooking instead of buying more expensive boxed food, etc.

Once you cut your budget, you need to live by it. You set an amount for groceries for the month, and if you spend it all in the first three weeks of the month, you exist off what you have in the house until the next payday - or alternatively, you don't eat out at all or rent any movies and use the money set aside for that for groceries instead. At the end of each month, you compare what you did spend to your plan and see if you overspent or if you underspent.

Two important keys for success are getting your husband on board and establishing a savings account. If your husband refuses to follow the spending plan, you will never get out of debt, you may end up behind on bills and in collections, you won't be able to save for retirement or help get your child through college. You also need a savings account for emergencies - like an unexpected dental bill. Start with somthing small like $500 and then add to it each month, even if you only add $15, that will help.

Once you do all that, you are ready to create a plan to reduce your debt. Focus on one debt at at time (target card), pay the minimum on all the others. You put as much $$ toward debt reduction as you possibly can each month, with anything above the minimums going to the target card. There are some that say pay the highest balance card off first, some say highest interest rate. I prefer the hybrid approach, if you have any cards that are small balance, say under $1,000, focus on those first, starting with the lowest balance. If you are left with a couple cards that have around the same balance (say one with $3,000 and one with $3,500) pick the one with the highest interest rate first (this will save you a lot of money). After you've paid down some of your debt you will be able to get new zero interest credit card offers and assuming you've stopped charging on your cards, you can roll your debt to a new card and stop paying interest. That will mean all the payments you make go toward getting out of debt and at that point, you will be in great shape.

It's a lot of work, but you didn't get into debt overnight, you won't dig yourself out overnight. No plan will work if you don't change your spending habits and start living within your means, so focus on that first and the rest will follow.




Edited 2/8/2005 12:46 pm ET ET by firstamendment

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iVillage Member
Registered: 03-26-2003
Tue, 02-08-2005 - 1:00pm

Firstamendment provides *excellent* advice (as always!) - she's a terrific resource and outlines very important steps for knowing where your money is going.


It's also important to know exactly where you are with all your debts.

All my best,
Danni

iVillage Member
Registered: 02-19-2004
Tue, 02-08-2005 - 1:06pm

Here is a link to my spreadsheet I use for my checkbook, budgeting and debt repayment plan. There are other spreadsheets in the thread as well:

http://messageboards.ivillage.com/n/mb/message.asp?webtag=iv-mljournal&msg=1861.9

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iVillage Member
Registered: 02-06-2005
Tue, 02-08-2005 - 1:13pm

I was just like you when I finally decided that I was ready to be out of debt.

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iVillage Member
Registered: 02-19-2004
Tue, 02-08-2005 - 1:32pm

>>>I am starting a new job, with a little more money, next week.<<<

Another thought - when you start getting the larger paychecks, just pretend they are the same amount as you used to get. As soon as it's deposited, write a check for the excess the credit card you want to pay off first. Don't give yourself the option to spend it on anything else, and you won't.

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iVillage Member
Registered: 05-10-2004
Tue, 02-08-2005 - 1:53pm

I think I'm the one that posted that we will be out of debt by the end of this year.