Getting Out of Debt in JUNE!

[eirual]

Do you want to get out of debt? Start living on a budget? Be able to start saving? Then this is the thread for you.  Some of us use Dave Ramsey's method but please join us even if you're following someone else/your own plan. All welcome!

Here's DR's plan:

Pre-Step 1: Get current on your debts and do a budget
0.1 No new borrowing.
0.2 Talk with spouse and get him/her on the same page as you concerning finances.
0.3 Do a written budget
0.4 Temporarily stop all retirement contributions
0.5 Get current on all the basics (Shelter, Food, Utilities, Basic clothing)
0.6 Amputate "toys" (bikes, boats, ATV's etc) to help snowball
0.7 Cut lifestyle (Cut cable, cell, extras, eating out) and/or get a second job to raise $1000 EF.
0.8 Get current on ALL bills

BS1 $1,000 to start an Emergency Fund
1.1 Chop up/freeze CC's (You have an EF now)
1.2 Get Health insurance NOW if in the US
1.3 Get Life insurance NOW if you have considerable debt/your family couldn't make it financially if you died.
1.4 Amputate cars that you can't pay off within 24 months

BS2 Pay off all debt using the Debt Snowball
2.0 Do the debt snowball, paying all your debts from lowest BALANCE to highest.

BS3 Three to six months of expenses in savings
3.1 Start car replacement fund
3.2 Save up 20% for home purchase OR pay down existing mortgage to the point you can drop PMI.
3.3 Start furniture or other non-essential stuff replacement fund

BS4 Invest 15 percent of household income for retirement

BS5 College funding for children

BS6 Pay off home early

BS7 Build wealth and give! Invest in mutual funds and real estate

Here's the link to Dave Ramsey's website: http://www.daveramsey.com or if you want a good DR discussion forum, www.llnoe.com is good but hardcore. Gail vax Oxlade's Til Debt do Us Part is great tv show, very motivating. Her website is: http://gailvazoxlade.com/blog Others like Suze Orman or Mary Hunt, really doesn't matter whose method you use, just start the process to getting out of debt.

Hope you don't mind, mtm, I copied and pasted from May's thread to get June's started.

[eirual]

I can't tell you how thankful I am for having sinking funds in place. This month we've had car repairs to do (thank you car replacement fund), our tenants have decided not to pay this month's rent (thank  you savings...hopefully you'll be replenished when said tenants get their act together), and DH's tuition is due.

If it were this time last year we'd be SCREWED, but we're able to take life as it comes thanks to a little planning and self-control. WOoooHOOoo!!

[mylilmonkeys]

Thank you for the new thread!  I totally hear you on the savings/funds.  Amazing what a difference a year makes.

[MyTwoAs]

Eirual - Yay for sinking funds!!  Your tenant story of course makes me a lil woozy about our recent decision but hopefully grams will move on in there to take a little pressure off hehe.  How many different sinking funds do you have?

 

[MyTwoAs]

Originally Posted by MyTwoAs 

Eirual - Yay for sinking funds!!  Your tenant story of course makes me a lil woozy about our recent decision but hopefully grams will move on in there to take a little pressure off hehe.  How many different sinking funds do you have?

 

Hmm, only part of my post came through so the whole grams moving in makes no sense.  We bought a new house so we have two mortgages now - total of both is 32-33% of our monthly net income but it will be nice to put the mortgage money for the old house into retirement savings instead.  Of course none of this is DR-approved, condoned, recommended etc.

[eirual]

MyTwoAs, That sounds like a comfortable arrangement. I think our one house alone was more like 40% of ours.

We knew by their application that they'd be risky tenants, but we were moving out-of-province in the matter of a couple of weeks so they were in the right place at the right time (for them....and we had phone issues in the midst of the process so we missed a few other call-backs too). I'm much more hopeful that next time around will be better. Their lease is up at the end of June, so this time we'll be sure to get references from previous landlords (not just their current landlord who will say what need be to get rid of them!), follow up with employers (checking the status of their job there: temp., permanent, full-time, etc.), and get a credit check (though putting that in the ad, I'm already getting stories about why applicants have horrible credit, but things are better now....I guess you have to look at all the puzzle pieces). This time though we're going to take our time and hold out for the right tenants and hope we don't get burned again!

As for sinking funds we have very few. We have our BEF in a Tax-Free Savings Account and as we move into BS 3 we're contributing savings to that account so it will eventually grow to be the FFEF. If we have big purchases we know we have to save for, it goes into that same TFSA, but we make a mental note that x amount of it is for that large project (like tuition). We have another internet savings account that I'm just getting started and I drop the equivalent of a car payment into that account each month (I only started this in the past two months and now it's back down to $10 after needing a car repair). Our mortgage comes out of our second chequing account and we leave enough in there as a cushion to cover the mortgage if our tenants slack off on the rent. Birthdays and Christmas I take as they come, but maybe I should start saving for those too (I make colourful smaller envelopes for those and keep them tucked in the back of our organizer, but lately they haven't been a priority for us).

[eirual]

Slow thread!

Where is everyone this month? Hopefully everyone's behaving themselves.

[dziejen]

Joining in here for the first time.  Trying to get caught up on our bills (DR's prestep 1, I guess) and then start getting out of debt.  Slow process but I am starting to have some hope that this might actually happen now.   Looking forward to hearing how everyone else is doing this.

[eirual]

Realizing where you stand and being ready to make a change is a powerful first step. If you haven't picked up Dave's book "Total Money Makeover" you should see if your local library has it. It's very motivating.

Glad to have you join us, best of luck!!

[stelly]

I really want to start doing this.  But I have a couple of "roadblocks" - with an 11 week old baby plus 3 year old, by the time H and I are done dealing with them each night the LAST thing we want to do is sit down and look at bills or discuss finances.  And I'm so used to using a credit card that gets me airline miles for our annual trips to England for everything that the idea of not using it and finding the cash seems impossible...  How much do you take out to start with?!  I need to get a handle on this though, because we have so many financial goals that are not going to be met the way we are going now.

Kudos to those of you who are doing this, I find the posts very encouraging to read.

[MyTwoAs]

Eirual - Thanks for the info on sinking funds.  I'm trying to figure out which funds to create - I know right now the main fund is going to be as a home repair fund for our old property. I'm thinking car repair, kids activities (most are paid 1x/annually), gifts, car registration and auto repair/maintenance are going to be my main focus now that our FFEF is done.

Thanks also for the info on how you handle the tenant situation.  My grandmother is selling her acreage and she's only a part-time resident in the state so she's really interested in renting out my house on a full-time basis (so she has a place to leave her things).  I don't want to make any decisions for a few months so we're just kind of sitting on it then we can decide the rental vs. sale route.  

Dziejen - Welcome!  I started off listening to DR's radio show a few years ago but it was an election year (2008) and I don't share the same political views that DR has so it frustrated me and I stopped listening.  I started again last year and just filtered out the political talk and listened to the stories for motivation.  I created a list of our debts, figured out my goals and just kept it updated every single month.  After about 3 months of changes in my spending habits, things started to change.  Those first three months were a challenge, though!

Stelly - Welcome to you as well.  Congrats on the new baby!  Do you track your spending at all?  I'd been using Quicken so I kind of new how much I spent on food/groceries/etc and it was surprising.  I took out a little less cash than my average and slowly worked on reducing it.  I also only went to the cash plan a step at a time - food first, entertainment next, etc.  I still use my debit card for gas because I prefer to pay at the pump (especially with kids in tow).

[ExOfficia]

Joining in for the first time here :)

I've been following a system of sorts for paying down my debt ever since my ex and I split up, about a year and a half ago.  I'm still very much in transition financially.  I was a SAHM for 10+ years.  Right now I am getting both spousal and child support, but am going back to school in the fall, and am currently working only sporadically for a friend's business.  Because my ex is a higher income earner, my support payments are about right for the kids and I to live on (I have them 75% of the time).  I'd be in very good financial state if it weren't for my debt- which is right now a mortgage of about 132k and other debt of about 40k.  The debt is a result of what was my dysfunctional marriage- my ex is chronically unhappy, depressive, and has always sought out external things (expensive hobbies, *coughcoughAFFAIRS*) to make him happy.  And, because I was codependant I *wanted* him to be happy, so I silently sat back and watch the debt accumulate on our line of credit.  He was never involved in the day to day money stuff, so long as there was money in the chequing account to pay for whatever $800 camera lens he decided to buy on a whim, he didn't ask and didn't care.  We also just had fundamentally different value systems.  I felt that by being frugal we could afford to have me stay at home with the kids, while he quietly resented me for it.  He has expensive tastes too, whereas second hand for most things is good enough for me.  I also believed in saving for something as opposed to putting it on credit and paying it off later.  Anyhow,  I'm the perfect case study of how a dysfunctional marriage can lead to financial ruin, ha.  

What's been totally eye-opening for me though is seeing how even though I'm running a household on little more than half of what I once was, I (when I'm careful) can actually have money left over at the end of the month.  I guess that's what happens when $1200 towards an Italian suit doesn't suddenly disappear from the bank account!

Anyhow, I've done many of the things as outlined by the OP already.  Thanks to a small inheritance I got recently, I have paid off all of my smallest credit cards.  I've put $1000 into an emergency fund in a tax-free savings account.  I have a budget, which I've been following.  I've been selling off ex's old toys that he couldn't be bothered to take, and reselling some other things on eBay for a bit of extra profit.  Future expenses I need to watch out for are car-related:  I drive a 12 year old Volvo with 230k on it.  I just sunk a grand into it, but I'm hoping to get a couple more years out of it.  It definitely has been a good car, and everything I've had to do to it is wear & tear stuff.  

Right now I'm focusing on paying down my 20k line of credit, and a 20k balance on (ugh) a mastercard.  We're just about to sign our separation agreement after a year and a half of negotiation, and once that's done I'm going to be able to refinance my mortgage so that I roll everything into that, including the MC and the LOC.  Then I'll just have one thing to pay down, at the lowest rate of interest possible.  

Other than that, I am trying to simplify my life so that I can live as frugally and hassle-free as possible.  I'm taking advantage of not working full-time and using that time to cook from scratch, garden, and learn some basic home repairs and maintenance.  A major issue for me since we separated was that I made it top priority to stay in my current house for the sake of stability for the kids.  I qualified for enough of a mortgage to buy out my ex, and the equity is my house has risen substantially since we bought 10 years ago, and is likely to continue going up as this is now a crazy expensive neighborhood, which it wasn't when we bought.  I did crunch the numbers to look at whether it made sense to downsize (it's more house and definitely more lot than we need) but I literally can't afford to stay in the same neighborhood, which again for the sake of stability, I want to do.  The kids have had a pretty good transition so far, and keeping things stable for them is my top priority.

My big question mark at the moment is what to do with the extra bit of inheritance that's left over (about 8k).  Do I pay down debt?  Do I contribute to my RRSP since I haven't all the while I've been a SAHM?  It's a luxurious question to ask, I know, but I'm really stuck on what to do with it...

Thanks for reading if you've made it this far- I did not mean to write a book!

[eirual]

ExOfficia, it sounds like you're a strong woman with a plan! I'd use the inheritance to pay off debt.

Welcome dziejen and stelly!

Stelly, my first step was to track what you already spend. You've gotta know where you stand to know what direction you have to go. Track what you spend and from there, the next month create a budget. Take a look at what's coming in and what expenses you'll have. For us, we leave automatic withdraw-type-things in the account and take out our variables ($100/wk for groceries, $50/wk for gas, $100/wk for child care, money for gifts (varies month to month), money for oil changes, clothing, entertainment, and whatever else is coming up that month.

The biggest thing to remember: It takes a long while to nail down. The first month is going to be wonky and that's OKAY!! It's better to have a path to stray from than to have no path/direction at all. You will most certainly do better with a plan/budget than you otherwise would have without one, even if it doesn't go as planned.

[eirual]

Also something we worked on in the beginning was to get a month ahead. It's hard to pull your cash for the month when you're still getting caught up from last month. Little by little our budget expanded from weekly to bi-weekly, to monthly, so we're always ahead....it's a process, but keeps the world from crashing down when there are bumps.

[cristina47454]

Hi all! Jumping in!

As a little bit of background, we've had a rough couple of years with a lot of fits and starts. DH has been underemployed much of the past two years. Budgeting and having a plan has really saved our hides! When we found out about snowballing we had a whopping $78k worth of consumer debt. We are now down to about $45k. Still a huge number, I realize, but it actually feels doable now.  Esp since dh finally has a steady paycheck! Plus, it's all at relatively low interest rates. With our current conservative plan in place, we should be out of debt in a little more than two years. Our sinking funds are all fully funded thanks to a windfall. It feels wonderful having that cushion! Last month we had a big car repair and a big vet bill, and it didn't even cause a ripple.  That's a world of difference compared to this time last year!

So...

Goal #1: This month we are focusing on getting Discover paid off while the 0% promo is still in effect.  It jumps up to 16% in Oct. That means we need to pay off $700/month every month between now and then. So far so good.

Goal #2: Anything "extra" is going towards the HUGE citicard which is at 12%. We managed to pay off an extra $800 to that card this month,  Woohoo! Plus dh should be getting a big commission check this week or next week which is a carryover from his last job. All of these commission checks are designated to go to this card.

I realize this deviates from DR's plan, but it's working for us on so many levels!

Just wanted to share!

[shepav]

Hello!

We finished BS2 and have started working on Baby Step 3.  We are hoping to save $15000 by the end of the winter next year.  After baby step 2, I felt like I ran out of steam and so we actually spent the last two month splurging (with cash, of course).  Now I feel like we're ready to jump in to get moving on saving.  We are combining baby step 4 in this process too, as my dh wants to get up to the max of his 401k as quickly as he can.  We're hoping that with each pay raise, we will just put that straight into the 401, so we won't miss it, right?  Here's to hoping!

[trekkingirl]

don't have much progress to share but wanted to say I'm still here pluggin away at the BEF and our first CC in the snowball. I have been going over to dave's website and entering his BEF sweepstakes. Maybe I will win the $1000. You never know, right?

[Purple*Lotus]

I am joining.

Pre-Step 1: Get current on your debts and do a budget
0.1 No new borrowing.
0.2 Talk with spouse and get him/her on the same page as you concerning finances. N/A for me. 
0.3 Do a written budget
0.4 Temporarily stop all retirement contributions 
0.5 Get current on all the basics (Shelter, Food, Utilities, Basic clothing)
0.6 Amputate "toys" (bikes, boats, ATV's etc) to help snowball
0.7 Cut lifestyle (Cut cable, cell, extras, eating out) and/or get a second job to raise $1000 EF. 
0.8 Get current on ALL bills 

BS1 $1,000 to start an Emergency Fund
1.1 Chop up/freeze CC's (You have an EF now)
1.2 Get Health insurance NOW if in the US
1.3 Get Life insurance NOW if you have considerable debt/your family couldn't make it financially if you died.
1.4 Amputate cars that you can't pay off within 24 months

BS2 Pay off all debt using the Debt Snowball
2.0 Do the debt snowball, paying all your debts from lowest BALANCE to highest.

BS3 Three to six months of expenses in savings
3.1 Start car replacement fund
3.2 Save up 20% for home purchase OR pay down existing mortgage to the point you can drop PMI.
3.3 Start furniture or other non-essential stuff replacement fund

BS4 Invest 15 percent of household income for retirement

BS5 College funding for children

BS6 Pay off home early

BS7 Build wealth and give! Invest in mutual funds and real estate

I still need to make up a budget.  I have eliminated eating out, which I did at least twice a day, and I am using that to fund my Emergency Fund.  I have $55.78/$1000 so far.

[trekkingirl]

so I just found out that I grind my teeth and cracked my back two teeth bottom left. the estimate after insurance for the night guard and one of the two crowns is $498. I'm so grateful that I have $419 in my BEF so I only need to come up with a bit more. Yeah I am going to need another crown soon and I'll have to start over my BEF but I get to keep my teeth!

[Purple*Lotus]

I cashed in some coins today and ended up adding $85 to my BEF.  I am not up to $140.78/$1000.