The start of a new year is when a lot of people resolve to get their financial houses in order. And we can certainly be counted among them.
Not that we’re just tackling this now. Over the past few months we’ve been working on sorting out our exact financial situation and trying out different budgeting strategies to figure out what we can stick with for the next year.
Our goal: eliminate all consumer debt by the end of 2009.
I debated a lot in my head about sharing hard numbers here on the internets. Finances are an inherently personal thing, and everyone has their own idea of what is a little, or a lot, or anything in between. Eventually I figured out what I’m comfortable sharing, and had a chat with Neil to make sure he’s on the same page.
In the end, I decided that sharing real numbers makes this all more real – both to you, gentle readers, and to me, since I’m partly using this year of blogging the budget to keep me accountable while I share what works for us, and any tricks and tips we learn along the way. I’m not going to go posting our bank records or anything, but a few numbers are key here.
Let’s start with the big one: Twenty Thousand Dollars. That’s what we started 2009 owing in consumer debt.
We haven’t actually added to that in the last 6 months or so. A lot of it is from old credit cards that had carried balances for too long, some is from wedding expenses, and a big chunk is from moving expenses a year ago. There is no “one big thing” we can point at as the root of the debt, and that’s part of the problem. It was always something we figured we could easily take care of in the next month or two. And then didn’t. Until we consolidated all of those lingering accounts and came out with the somewhat heart-stopping number above.
We’ve been saving up and paying cash for most everything we’ve bought since the wedding, kept up just fine with our other bills, but haven’t been so good at making any sort of substantial progress in paying down that existing debt.
Until now – and we’re going to do it by the end of the calendar year.
So now we’re paying down that debt first every month (a no-brainer, but surprisingly hard to realize sometimes) and our other fixed expenses, then only spending what’s truly left for discretionary things.
And how did we figure out what’s left? That’s for the next post.
Way to go! Good job! Keep it up!
I think it’s great that you’ve decided to share some real numbers. I think it really helps to motivate others when they see in actual figures what is possible. I look forward to reading more about your process!
I have been in a similar situation and found that a consolidation loan from my bank really helped make paying-off credit card and car loan debt easier. If one year seems like too much to ask, you might consider splitting it into two years, and also put some money into savings.
I think more people should be honest about credit card debt. It is very common, and by talking about it we can come to some great solutions as a group, a society. And hopefully avoid future global credit crises.
Thanks for all your encouragement everyone!
airdrie: consolidating all those loans onto our low-interest line of credit was what made us gasp in the first place, but now at least we just have one payment to make (and we’ve stopped using our credit cards).
Interesting post, and very laudable. Both this one and the next.
One note for commenter airdrie above: savings accounts for emergencies make a lot of sense, because it’s liquid. But the money should go to where the greatest return is. As long as the debt service costs more than you make from a savings or investment account, pay off the debt first. For example, a line of credit with a 12% interest rate vs 4% interest-bearing savings account means pay the debt first! It’s 300% better investment.
By the way, I got here from Econoholic
Hi Thebastige – thanks for stopping by!
I generally agree that having a savings account doesn’t make much sense when you’re paying off debt at a far higher rate of interest than the savings return. That’s why ours is such a small amount each month right now. It’s mostly there as a pad for if we encounter a short-term small emergency during the year (like a big vet bill or something) without totally derailing the budget.
We’ll work on establishing a proper emergency account once our debt’s paid off.