|
May 2008 |
|||||||
|
Editor's Note: We're trying a new idea at Debt Matters — testimonials from people who made the uphill climb out of debt. These are true stories, but all names have been changed for the sake of privacy. 
Sticking to Their Budget
Took Them to New HeightsHow One Couple Shed $65,000 In Debt Rob and Ellen, a Fort Lauderdale, Fla. couple, have seen it all when it comes to their finances. To meet them today living debt free in their spacious town home near the beach, most would rightly say they've made it. But if you had known them for the past 10 years, you'd have witnessed a remarkable climb out of debt. Their adventure began just after graduating college in 1995. Rob and Ellen had $65,000 in debt — $20,000 in student loans, $15,000 in car loans, and $30,000 in credit cards. Start with a plan They knew that they wanted to buy a house one day, so they decided together to work to eliminate the interest they were paying creditors each month so that money could go towards a down payment instead. They made a budget and itemized monthly expenses versus income to see how much they had left each month to go toward their debt. "We were realistic about how much money we needed but we were definitely frugal," Ellen says. "After basic living expenses like rent, utilities and insurance, we gave ourselves each a monthly allowance to spend on things like clothes, eating out, CDs, etc. I also remember that we had a weekly grocery budget of $50 that I refused to go over. If the food totaled even a few dollars extra, I put some items back." Other sacrifices included: no valet parking, no ATM fees, $3 coffees, they never dry cleaned anything. Ellen continued driving a 1989 "junker" until 2000, and they never paid more than $650 for a 1-bedroom apartment. Execute the plan with joy Each month they paid any extra money towards the highest interest loan on their list. And during the next five years, they chipped away at the debt one lender at a time. "Every time we paid off a creditor, we were elated," Ellen says. "We made a list of everything we enjoy doing that does not cost much. I love to cook, so I try to duplicate at home the fancy dinners that we order at restaurants. I like to run for exercise, and all I need for that is a good pair of running shoes. We like to spend time with our friends, so we invite them over for dinner. I love to read, so I check out books from the library instead of buying them at the bookstore. We go on picnics with homemade food. We go to the beach. We go for long walks together and talk. We play chess, and scrabble, and backgammon. We rent movies from the library. I always check out the free events in the entertainment section of the newspaper. We volunteer our time." Know your money Rob and Ellen learned a lot about their spending and how to budget. "We had to be realistic," Rob says. "We had to understand where our money was going each month. We used Quicken to track every dime we spent. After a couple of months, we had a good idea of what we spent on entertainment, food, gas — all of those unfixed expenses that are hard to pinpoint. Then we made a budget that trimmed a healthy chunk of non-essential spending, but still included a limited but reasonable amount for those things. We knew that it would take us a few years to pay everything off, so it would be unrealistic to think that we wouldn't go out at all or buy any new clothes." As time went on they established successful habits. "We learned to pay our bills as soon as we got paid," Ellen says. "The day a paycheck was deposited I paid every outstanding bill, gave us each our allowance for 2 weeks, and sent every extra penny to the creditor at the top of our payoff list. We kept about $10 in our checking account to cover any miscalculations, but did not leave any other money to tempt us." And their thrifty lifestyle appears to have done more than merely get them out of debt. "I think the most important thing we did was change the way we look at money," Ellen says. "I found that living beyond my means left me feeling trapped and miserable. If I lost my job or my car broke down I was panicked. Once we paid off our debt and built a small emergency fund, I felt much more relaxed and calm — even if we had a financial setback. Over the years, we found that most of what makes us happy in life does not cost much. The freedom we now have is more valuable to us than anything." Rob and Ellen indeed have their freedom. They also bought their town home in July 2003 and have increased Rob's income and limited their expenses so much that Ellen has the option of not working if and when they have a child. |
|
|
|
|
|||
