I once saw a picture of an ancient mariner’s map that included the ornate notation, “Here, there be dragons.” Funny how the analogy applies to financial troubles. Are you barely able to keep your head above water? Is your ship sinking? Are dragons the reason why?
Once upon a time and like so many Americans, I had debt. You know…mortgage payment, car payment, credit card payments, and assorted bills, subscriptions and wants that kept me living pretty much paycheck to paycheck. Life was not simple, it was worrisome. Although I was never in so deep that I had to use one credit card to pay on another, things were generally pretty tight to the cushion. In addition I’d sometimes pay bills a little late, not so much because the money wasn’t there but because I found the whole bill paying process burdensome and tedious – and more than a little depressing. So I’d procrastinate or sometimes time would just get away from me. (As in, “Time to write checks again? Didn’t I just do that?”)
Somewhere along the way, it slowly began to dawn on me that the debt was more trouble than it was worth. It may be normal – everybody has debt, right? – but it certainly wasn’t making me happy. It was costing me a fortune in interest (and late fees from the procrastination habit) and the payments generally meant I couldn’t do/buy anything extra without pulling out the plastic and piling on a little more. I found myself repeatedly saying, “I could buy this, if I didn’t have to make the stupid credit card payment.” Hmmmm…perhaps it was time to get rid of the stupid credit card payment?
And so began the long process of climbing out of the hole I’d dug myself into.
There’s nothing glamorous, quick or easy about paying down your debt. There are no shortcuts. Those companies that promise to negotiate a lower balance payoff don’t tell you that in the process, your credit score will tank. If you don’t pay every penny you owe, even if it’s by agreement with the bank or credit card company, it will haunt you for many years to come. Nope, the only real way to do this is to pay back every cent you borrowed, with interest.
Turns out that paying down debt is a simple process of setting priorities and learning one tiny word: No. As in, “No, I don’t need this right now.” The hard part is the perseverance that’s necessary, but make no mistake, it can be done.
If you have debt, you know it has to go. Yet in the early stages, that mountain can seem pretty formidable. Here are some essentials for getting started:
1. Face the music. It’s pretty common for people who carry a lot of debt to have absolutely no idea how much they owe. They don’t want to know beyond the simple acknowledgment that it’s a lot. I remember opening the credit card statement every month, finding the little box that told me what my minimum payment needed to be and just writing the check. (I never even looked to see if the charges were accurate!) For many years, I could not have told you what my interest rate was – or exactly how much I owed – if my life depended on it.
As painful as it might be, the absolute first step to getting out of debt is to get real with the facts of your situation. Get all those bills out – all of them! – and write down the balances. Then take a deep breath and add it all up. When you see the number, try not to panic. Know that millions of people have been where you are and found their way out.
2. Start tracking. The flip side of knowing what you owe is to know where all your money goes. In addition to your debt, you have monthly obligations as well as semi-annual and annual ones. A lot of financial advice seems to focus on tracking for only one to three months. That’s nonsense. If I only tracked my expenses for, say, April, May, and June, I’d completely forget about my car insurance (March and September) and my house insurance (July). The reason insurance companies let you split your payments is because they know a lot of people completely forget about those bills until they come due and then it’s panic time. If you get into the habit of always tracking, this is no longer a problem – I now pay my six month car and annual homeowner’s insurance without batting an eye.
Yep, you have to track, period. Forever. I know it sounds like a lot of work but once you get your system set up, it’s pretty painless. And over time, it gets even easier because tracking gives you an acute awareness of how much you have in your checking account at any given time. When you know you’ll have to go home and write every expenditure down, you begin to understand how easily money has been slipping through your fingers, and why you’re always “broke”. Suddenly you start to hesitate before buying yet another “gazingus pin*” to add to your already dust-covered collection.
I don’t have a budget, but I do track. It keeps me on the straight-and-narrow without feeling restrictive and as a bonus, it makes tax time a lot easier too.
3. Plug the leaks. As a result of tracking you’ll find that the reason you’ve barely been able to keep your head above water is that your ship has indeed been sinking. Everyone has many small financial leaks they have to plug before they can start making any headway against their debt. It’s really hard to focus on slaying the debt dragon if you’re having all you can do to keep bailing out the ship. After you’ve tracked for awhile, you’ll probably be shocked at how much you spend eating out, or buying lunch at work or stopping to buy coffee on the way in. An average $7 for lunch every day at work doesn’t seem like much until you figure out that it adds up to about $1700 per year. What if you could bring your own lunch and save $4 a day or a whopping $980 per year?
Where else have you been mindlessly spending money? In my case, my initial efforts at tracking showed that I was spending close to $70 a month on soda. Yikes! Not only was it costing me a fortune (I’m partial to diet Pepsi) but it makes you hungry, is somehow addictive, and annoyingly diuretic. I bought a wide-mouthed bottle and switched to ice water. I still occasionally buy soda (especially on those rare occasions when I bring home a pizza) and I order it if I’m in a restaurant because, hey – I still like the taste. But no way am I going to spend $70 a month (over $800 annually) on the stuff. I have better things to do with my money!
4. Read. There are some excellent books out there on the subject of money management and debt reduction. The top three on my list:
- Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence by Vicki Robin, Joe Dominguez & Monique Tilford. This is the classic simplifiers’ money management text. It’s not your usual budget-and-deprivation approach to finances. Your money = life energy. How best do you want to spend your precious time on this earth?
- The Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey. Radio show host, Dave Ramsey’s “debt snowball” and “gazelle intensity” has helped thousands of people pay back every penny, often in two years or less. I didn’t find out about him until after I had paid off all but my house but I’m pretty sure I could have done it faster if I’d known about this book. You can learn more about Dave Ramsey and his various books and programs (Financial Peace University) on his website, but everything you really need to know is in this book.
- The Complete Tightwad Gazette by Amy Dacyczyn. I bought the three individual Tightwad Gazettes before this one came out, have owned them a good ten years and still periodically go through them to recharge my frugal batteries. These books are based on the content of her original TG newsletters, and while not specifically about debt reduction, they are a gold mine of information of how to live well on a lot less. As the subtitle says, she’s “promoting thrift as a viable alternative lifestyle.” This is the essential text for myriad ways to plug the leaks.
As I said, so many people have been where you are, including me. I managed to slay the debt dragon and I have every confidence that you can do it too. Not only will your life be simpler (smooth sailing!) as a result, you will find that with your wants tamed you will have plenty of money for all your needs – plus a few mindfully purchased luxuries. Life will be much, much better once the dragon is gone.
*According to Your Money or Your Life, a gazingus pin is “any item that you just can’t pass by without buying.”
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