In my last post, we met my friend Courtney and heard about her debt story and her plans to get out of it.
I am not a financial advisor of any sort. I’m just a gal with a blog and an opinion. So Courtney (and anyone else out there) keep that in mind, k?
First, I want to commend Courtney for seeing the need to get out of debt and taking steps to get there. It won’t be an easy journey, but it will be worth it!
I suggested that Courtney and her hubby read Dave Ramsey’s The Total Money Makeover. It’s a highly positive book and I think the getting-out-of-debt advice is solid. It’s also helpful to listen to his radio program which is available on his web site.
I’d like to encourage her to follow Dave’s baby steps. To start out, I hope Courtney gets that baby emergency fund of at least $1,000 in the bank as soon as possible — even before the sale of her house. Honestly, even a little more might be beneficial since it will take awhile to get to the full emergency fund step. For Courtney’s situation, I would suggest $5,000 to start out (or even more if it makes you more comfortable) so that you’ll have a little breathing room in case of job loss, insurance claim or other financial setback.
That way, you won’t need to resort to your credit cards if something pops up. Remember, even while you’re building up your savings, you’ll still be paying the minimum on your debts so they will start to move in the right direction.
Then, start your debt snowball. List your debts from smallest to largest. Here are Courtney’s:
- Kohl’s: $395.20
- Discover: $537.16
- Capital One: $725.45
- Menard’s: $2,100
- Visa: $2,530.82
- Signature loan: $2,729.23
- Discover #2: $3,500
- Dodge: $3,295.40
- Toyota: $11,503.06
- Sallie Mae: $27,379.43
- Total: $54,695.75
You might notice I listed the Dodge a notch below a credit card, even though the credit card has a slightly higher balance. I think when the balances are so close, it’s better to pay down a credit card vs. a fixed loan like a car. Especially since Courtney wants this credit card debt outta here fast!
I have a feeling she’ll be able to wipe out those first cards pretty fast. As she ticks away each card, she can then apply the minimum payment and all of her extra money to the next card on the list. It really does snowball and builds momentum like nothing else!
I suggested that she call each card company and ask for a better interest rate. She was told that her credit score was just too good, and that they couldn’t. Oh, typical of them to be jerks.
I’m proud that Courtney lowered her cell phone plan and saved an extra $22/month by doing so. Call your cable/internet provider and see if they can lower your plan in some way, but canceling it outright might be a little rough.
Next, since they don’t have a precise budget just yet, I suggested that she simply track her spending so she can get a baseline for what’s reasonable. Mint.com is an excellent tool to track your spending if you’re using debit cards. I’m assuming Courtney is banishing her credit cards from her wallet and not using them anymore — so debit cards and cold hard cash it is for you, missy!
Finally, Courtney mentioned how she enjoys buying stuff. I’d like to challenge you to sell anything you’d be willing to part with. For one thing, it’ll help with your pending move, and for another — it’s extra cash for your debt snowball! Ebay it, list it on craigslist, or hold one of the season’s first yard sales.
Courtney — do you think selling $500 worth of stuff is within reach? If so, that’s half of your baby emergency fund right there!
Stay out of stores unless you have a true purpose. Consider shopping thrift stores. I know Bloomington thrift stores aren’t all that great, but sometimes good deals pop up!
You can take a post-it note and wrap it around your debit card. Keep an inspirational tidbit on the post-it so you’ll be reminded of your goals each time you shop.
You can do this, Courtney! And ya know what — I think you can do it faster than five years. You’ll be surprised how fast things start moving once you get going! YAY!