Tuesday, May 15, 2012

The F Word- How The Today Show Fixed My Debt

Yesterday, I shared with you how I got into debt and when I realized I had a problem with it. Today, I will let you in on how I managed to get out of a black hole of debt. Please remember, I am no expert, and I have never taken any sort of financial/debt course. Who knows if what I did was good or not, it just ended up working for me.

First of all, there are two big purchases that I will NEVER regret. In college, I didn't study abroad. I had the opportunity to spend a summer working at camps in Europe for soldier's kids, I didn't do it. The big reason, I had a boyfriend and I didn't want to leave him. BIGGEST MISTAKE OF MY LIFE! I would give anything to go back in time and slap 19 and 20 year old me in the face and tell me to pack my bags. Dumb. We split up during spring term my fourth year of college. I was sad, depressed, angry... you name it, that's what I felt. My BFF was in the Peace Corps in Guatemala and I decided I was going to go visit her after spring term was over. A week later I used my credit card and bought my plane tickets. It was AMAZING. The country was so beautiful, and since I was with someone who was living there, I feel like I really got to experience a lot of what was there. 
The second purchase was another spur of the moment decision. My friend was going to be traveling in Germany during the World Cup in 2006, and I decided to fly over and meet her. I can't even describe how cool it was to know that I was at literally the biggest party in the world.
World Cup 2006
Besides for those two purchases, I have to say I bought a lot of crap. Most of which I don't even have any more. I already shared that I had about $10K in credit card debt and my credit score was in the low 500's. Any score below 580 is a "very poor score. It's doubtful that you may qualify for the loan, and if you qualify, the interest rates will be extremely high." Source I was feeling pretty crappy about the situation, when I came up with a plan.
Yes, The Today Show not only showed me that I had a debt problem, but it also played a role in my debt relieving plan. Another morning (probably a week later) I was watching the Today show and they had someone on and gave a general budget for your finances, using percentages. I knew I needed a budget, so I wrote that shit down.
Housing/Utilities 35%
Food 20%
Transportation 15%
Debt 10%
Savings 10%
Entertainment 10%
I then figured out what I should be spending in each category, and I spent a month writing everything down, in each category to see what I was spending. The good news? I lived in a crappy apartment and was spending way below on housing. BUT some of my utilities were unnecessary. I bit the bullet and got rid of my DVR and cable, and cut back to an $8 a month plan to get the local channels. 

The other thing I looked at was how I was spending. I had heard of people using cash only and an envelope system. (Now I know they were talking about Dave Ramsey.) I decided to take my percentages and spend only cash. At the beginning of each month I would take out enough cash for my gas, groceries and a small amount for entertainment for the entire month. I separated it into envelopes for each week, and I would seal them. On Sundays, I would get to open each of the next week's envelopes. 

The other thing that I did, which most financial experts would probably cringe/choke/be angry with, is that I completely deleted the savings category, and I more than doubled what I was paying towards debt. (I also cut back the entertainment category as well.) I also looked at the credit cards that had balances (two Visas and a couple of store cards) and I decided to pay them off one at a time, and start with the lowest amount first. (I know Suze Orman says to pay off the one with the highest interest rate first, but I wanted to feel like I was accomplishing something.)

I lived this way for about 3 1/2 years. Let me tell you what, for the first 6 months or so, it sucked. I missed going out with my friends. I  missed buying new things. Yes, I had an envelope of "fun money" but I hated checking it to see if I could allow myself a treat. But after awhile, and after I paid off a couple smaller store cards, I started to really like it. It was a challenge to me, and it really made me think about what was important to me and my wallet. My friends got use to me checking my envelopes, and they would even ask me "will your envelopes let you go to the movies/go out to dinner/get coffee etc?"

When things with the Mister got super serious, it was even more important to me to have zero credit card debt before we got married. I am happy to say I made my last payment about 2 or 3 months before our wedding :) That my friends was awesome.

My story isn't over yet. Coming soon... my current thoughts on money.

Do you have a budget? Has the Today show ever changed your life?


gadabout said...

I am so into budgeting now! I moved to Canada recently and they have a show called 'Til Debt Do Us Part' that follows a couple struggling to stay afloat with finances. It uses the envelope system and helps them get out of SO MUCH debt in just a few years. I love it! I even posted my own version of an envelope system recently on my blog. I love doing this because it really is like a mini-challenge each week/month to stay under budget. So awesome that you turned everything around!

Courtney M said...

I've been starting to budget lately, but I've had this one credit card looming over my head. I avoid it with every fiber of my being. I felt like it was some cosmis message that you wrote about this again today and decided to face the music and make a BIG payment on it. Sure- I can't shop as much as I want this month, or go out to eat as much as I would like but I feel good that I'm starting to etch away at that debt again.
Thanks for being so open & honest- I get embarrased by my debt a lot of times and you made me want to face it head on!

Casey said...

I was embarrassed by my debt to, especially when I saw my credit score and what it meant. When I really started to do something about it, it got easier to talk about.

Beverly said...

my goodness friend.. you really buckled down!! Love that you did it before the wedding!! I am dyingggg to buckle down like you did getting rid of now student loans! WOMP!! I've gotta start after the wedding which is only about a month away. I'll be coming over to your blog to get some inspiration :)