Lessons from Our Debt Free Success Story!

March 1, 2010 · 3 comments

A few days ago I received a great question regarding my family’s debt free success story.

So, after your experience, what lessons have you learned that you could share with others? -Amy

I have attempted (the best that I can) to summarize the lessons we learned below!

Include Your Significant Other In Your Plan (if applicable):

Your desire to become debt free is nothing more than a pipe dream if your spouse is not on board with “your” plan. You may be willing to “give up everything” to reach your financial goal, only to find that your spouse is not! Changing your “lifestyle” without both parties being on board will strain even the strongest marriage.

Develop your debt free plan together and come to a mutual agreement. The first few months of budgeting is a learning process; it may take a few months to work all of the kinks out.

When it comes to developing (and compromising) a financial plan with your spouse (myself included), its better to loose a few battles if it means you can win the war!

Break the “Credit Cycle”:

Although it seems painfully obvious, it wasn’t until my family and I hit our financial bottom that we realized we needed to cut ourselves off from credit. You’re never going to make any headway repaying your debt if you continue to resort to credit cards and automobile loans!

Establish a Small Emergency Fund:

The best tool we found to break our reliance on credit was to establish a small emergency fund before we started repaying our debt. Financial expert Dave Ramsey has been recommending the “baby emergency fund” technique for nearly 20 years.

Dave has personally counseled thousands of couples on personal finance and has recognized that a small emergency fund provides a powerful mental (and financial) barrier between the consumer and more debt.

Nothing takes the wind out of your “debt busting” sails faster than an unexpected car repair or medical bill. When you have a small emergency fund in place to cover these expenses, your chances of winning the financial battle improve significantly!

Keep Your Checkbook Balanced:

It sounds so easy! For me, being able to balance our checkbook (and keep it balanced) was one of the most empowering things we could do financially. For some reason, I could never successfully keep my checkbook updated using the regular checkbook registry provided by my bank. It wasn’t until I created my simple electronic checkbook spreadsheet that I was able to successfully maintain my checking account’s balance.

Developing a system to track our checking and savings accounts gave us control over our money.  It also prevented us from getting expensive overdraft fees.  At $36 per overdraft, these fees can eat up your debt snowball payment in a hurry! 

Set Goals:

When it comes down to it, a properly created budget is a goal. The goal is that you spend within your budgeted allowance on each category on your cash flow plan.

Most people have at least a rough idea of how much money they bring home each month. They also know (or can easily calculate) their monthly expenses. The challenge is sticking to your plan to spend within your “discretionary income” limit.

Above and beyond our monthly budgets, I found it helpful to set additional goals as our debt snowball moved along. For instance, when we got to the point where we were paying off our car loan ($17,000), I set personal goals to have “X” amount of dollars paid off by the end of the year, etc.

I also enjoyed setting goals using my debt snowball calculator to help determine how quickly we could become debt free.

Keeping our debt snowball progress visible was also key in keeping us motivated throughout the process of repaying our debt. You can read more about this technique here!

Do What Works for You:

There’s a reason why its called Personal Finance.  The circumstances surrounding your financial life are always going to be different from your neighbors (no matter how subtle).  There isn’t one financial system that will work for everyone!

The challenge is to find a system that works for you.  I talk a lot about Dave Ramsey and his technique for repaying debt.  While I followed the basic ideas of his technique, I’ve made substantial deviations as well.

  • I didn’t stop contributing to my company’s 401k program while we repaid our debt.
  • I paid off loans with higher interest rates over loans with lower balances.
  • I borrowed from our 401k to get out of a bad auto loan (and I would do it again today).
  • My “baby” emergency fund was set up differently.

If you find something isn’t working in your plan to become debt free, try something else.  If you try nothing, that’s what your going to get!

Good luck in your own debt free quest! As always, please share your tips, comments, and suggestions, in the comment form below!

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{ 3 comments… read them below or add one }

Ted @broketofree March 1, 2010 at 11:51 am

The hardest part for us was getting enough income to break out of the credit cycle. This january, I got a bonus and a raise that allowed us to break free of the credit cycle! An awesome, outstanding feeling.

Plus, I use Mint.com for budgeting and absolutely love it.

Ben March 1, 2010 at 11:59 am

That’s awesome Ted! The provervbial “stick of debt busting dynamite”!

I’m glad that you found a budgeting program that you like!

FYI, I’m putting the finishing touches on my own FREE budgeting package for Excel and I will be releasing it on my blog next weeK!

In fact, next week will be “Budget Week” on Trees Full of Money where I will be unveiling my new spreadsheet, but also will be writing about my best tips for budgeting, cutting expenses, increasing your income, etc!

I hope to see you back then, and please let all of your friends know about TFOM!

Jackie March 1, 2010 at 1:51 pm

I agree that getting your spouse on board is critical. Although I struggled to get my finances in order (and to get out of debt) for years, sadly it wasn’t until I got divorced that I started making dramatic progress.

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