How We Are Getting Out of Debt and You Can Too

We have been working on getting out of debt. These are the steps that we have been following on our debt free journey. If we can do this, you can too.

Step 1: Figure Out How Much You Owe and Who You Owe 

Sit down with pen and paper. Write down every single debt and every single monthly bill. This may take ages. It took me about an hour a day for a week to collect up everything and make sense of it. I wrote down who we owed, how much the debt was, how much the monthly payment was, the interest rate, the expected payoff date, and what day of the month the payment was due. For household bills (electric, water, etc) I wrote what the bill was for, the monthly due date, the average monthly bill, and the highest the bill had been in the last year. This step is super important. Don’t guess how much you owe. Do the hard work and gather the information. Make sure you get everything no matter how small. Include how much you spend on groceries each week. After getting together our debts, I used our bank and credit card statements to see what we were spending money on over the course of the last year.

Step 2: Organize Your Information and Make a Plan

After I finished gathering information, I made three lists. The first list was a list of debts in order from lowest to highest amount owed. Then I separated out our debts into categories based on types of debt and interest rates. This helped us to decide on a payoff plan. If you skip this, you will regret it. You need a plan in order to make the most of your money and time. We decided on a system based on the debt snowball and taking interest into account. We chose to pay off our credit cards and a personal loan first. This will be followed by our student loans because the interest rate is lower on them. This broke our debt into two pieces. We are still paying them off in order from lowest to highest balance within those sections. We had a couple unusual debts that we chose to move up the list when we made our final plan. We had credit cards that had 0% interest that we wanted to pay-off sooner so that we knew they were paid off before the interest hit. The personal loan was the debt that annoyed me most so we paid it off sooner. It also had a higher monthly payment which rapidly expanded our debt snowball. I used all of this information to set up our debt binder which I will be sharing in a future post.

The second was a list of our monthly bills including debt payments in order of due date starting at the beginning of the month. I used this and the month layout of my planner to finally get my crap together. This step only took a few hours. Our bills are now organized until the end of the year so we’ll never have a late payment and our debt binder helps to keep us on track with the overall plan.

The third list was a list of things that we could give up or cut back on to save money on those monthly bills. Any payment that we were paying prior to this process that we were able to get rid of became part of our debt snowball. This list grows everytime we pay something off or discover another way to save a few dollars. We set a weekly grocery budget. If we are under budget, that money goes towards the debt we are currently working toward paying off. We ate out a lot before beginning this journey. I was shocked when I added up what we spent at restaurants over the previous year. We now save a ton of money cooking at home and planning ahead for busy nights.

Step 3 – Work the Process

You have done the hard work of gathering the information and setting up the process. This step is a different kind of hard work. We are currently at this stage in our plan. This is where things get real. You have to change your habits. You have to make the sacrifices. It is exhausting to work the process that looked so simple on paper. Keep looking for inspiration to help keep you going. It is hard to keep the momentum going. Watch or read things about finance and getting out of debt. I love listening to the debt-free screams on Dave Ramsey. Celebrate along the way to keep yourself motivated on your debt-free journey. Plan ways that you are going to celebrate after hitting your goals. Make your favorite dinner. Take your kids out for donuts. Bake a cake. Treat yourself to a new lipstick. Go out for a drink with friends. Whatever it is that will help you to dig a little deeper and keep working a little longer without breaking the bank.

Those are the steps we are currently taking during our debt-free journey. We would love to have you along for the ride. If you have any questions or suggestions, drop us a comment below.