Last fall my husband and I began the Dave Ramsey Total Money Makeover. We mapped out our debts and our discretionary income and found some wiggle room. We planned to have all our commercial debt paid off by the end of 2011. I’ll be honest, that didn't happen. But we did pay off 70% of it. I am still really proud of that. So I wanted to illustrate what we did, what went wrong, and what went right.
We got $1,000 in the bank in less than a month. When it came to our extra money, we would spread it out among our financial needs—an extra $20 to savings, an extra $50 on a credit card, an extra $15 on a different credit card, etc. Our savings seemed to hover around the $500 range. I always wanted it to be more but I wasn’t sure how to make it happen. We focused our attention on getting our account to $1,000 in four weeks. We did it!
We refinanced our house. In November 2010, we dropped nearly 3% of our interest rate on our house payment by refinancing (too bad we didn’t wait a year—the rates are so good now! Haha). We were excited to have close to $200 extra to put toward our efforts.
Next, we paid our lowest debt. Our Discover card had the lowest balance of any of our debts. Since we weren’t spreading out our extra money in five different directions, we wacked it out pretty fast. Even though this wasn’t our highest interest debt, it had the lowest balance so we could get a taste of success fast. It helped a lot. We continued paying off our debts, focusing on the lowest balance. We “snowballed” the minimum payments of debts we had already paid off and kept putting our extra in one place.
Surprise expenses. A month after we refinanced our house, Justin got a sizeable pay cut. The money we saved from our refinance went right back into our budget instead of being “extra.” While it was frustrating not to have the “extra” we were hoping for, it worked out okay so we weren’t struggling after a significant pay cut. Some other surprises: Justin had unexpected surgery; both our cars needed new tires within a month; my car needed several expensive repairs all at once; Justin had an MRI for a medical issue; and we had to buy a new window for my daughter’s room.
Justin's surgery in February
In July, I won a trip to New York City. While a lot of the expenses were part of the winnings, food and spending money were not included. So, we saved up for that. It’s the first trip in a while where we haven’t put a penny on a credit card, so even though it derailed our pay down efforts, we felt financially successful.
In Central Park
Also, we felt it was time to start our adoption process again, even though we didn’t plan on doing it until 2012. So we spent a good chunk of change on the homestudy, program application, etc.
Two steps forward, one step back. Our surprise expenses set us back about $10,000. Three times, we used our $1,000 savings reserve and had to build it up again. I was glad to have it there, though. It’s funny; I hate spending that reserve. I would rather swipe my credit card than touch my precious savings, so I had to remind myself that’s why it’s there and I could always build it back up. We did use our credit card for one set of tires and a little bit of the car repairs, adding on about $2,000. I am madder about that than anything else because we are obviously going in the wrong direction if we are accumulating debt. Argh!!! But at least out of $10,000 of surprise expenses, only $2,000 went on credit. That’s something to be proud of, right? I think so.
Our gazelle-like intensity waned after about six months. We had to fight to get it back at times. I know we could’ve been a little more passionate and made more progress, but I am pleased with what we have accomplished, and I am also pleased that we could still enjoy good things in life like the unexpected trip to New York—we didn’t scrimp on that. We could have, but we decided to take advantage of possibly the only time we would go there.
In the end, we paid down $17,000 worth of debt: our Discover card, a line of credit (adoption), two 401k loans (adoption), and both of our cars.
My car - officially mine
Our next step in 2012 is expanding our savings. I know, I know, Dave Ramsey says don’t worry about having more the $1,000 in savings until all commercial debts are paid off. BUT…we need more money to pay for an adoption and a maternity leave. We will accumulate debt this year because of the adoption. There is no way around it for us. But hopefully it won’t be the entire adoption like it was last time. Oh, and Justin applied for a student loan repayment program that will hopefully pay off his grad loans sometime this year which will be heavenly. Another child will definitely hit our discretionary income, but since we no longer have car payments and credit card payments, the new expense should actually be fairly manageable.