How-To: Payoff $15,000 of Debt in 18 Months (2024)

Between my husband and me,I'm the more responsible one when it comes to money. I mean, I do splurge oncein awhile on a Starbucks drink or a pedicure or I buy the kids extra toys oroutfits, but overall, I know our budget and I'm better at sticking with it. So,I'm in charge of our household finances. I make sure the bills are paid, I knowhow much extra money we have each month, and I'm the one who makes sure wemaintain our savings.

However, during Christmasand Black Friday last year, my husband and I both went a little overboard onour spending. We both ended up charging things to our credit cards with moneywe didn't have. Also, last year we bought a new home, so we splurged a lot ofour savings on new furniture, appliances, home decor, etc. What we couldn'tafford, we charged to our cards. So, because of that, we had accumulated over$10,000 of debt all in a course of 1 year!

Thankfully, we were able to get some extra money and wereable to pay it down by the end of the year to about half that amount.

Okay, so now that we're left with$5,000, itdoesn'tsound too bad, BUT if you add that to the $10,000 of debt we ALREADY had...yeah... looking at over $15,000 of credit card debt is nowa bit more daunting!

My husband and Iwere tiredof spending almost $1,000 a month towards credit cards that seem never-ending. So, both of us sat down and came up with a plan together.

Now thatit's 2014, we haveto do some damage control to do!

CUTCOSTS

The first step prior toestablishing a budget is to cut back onyour monthly expenses.

However, to theleft are ways you can cut costs for your family.

To help youearn some extra money, you canalways sell your possessions that you don't use anymore. I do that with every season as my kids outgrow things and I also sold many of our old possessions before moving into our new house, so that's a great way to not necessarily cut costs, but to help put a little extra money in your pockets.

SET AMONTHLY BUDGET

Shortly after the New Year,my husband and I sat down together and came up with a plan that we both agreedtoo. If you have a significant other, I highly recommend that you sit down withhim or her before making any big decisions regarding money or changes inbudgets. That way both of you are on the same page and are working together toreach the same goal.

Here are the steps we tookto determine our monthly budget:

1. We calculated our monthly income (after taxes).
2. We made a list of all our FIXED expenses every month (such as, mortgage and car payments, credit cards, groceries, savings, etc). These are the expenses that are always the same every month and have to be paid every month.
3. We then made a list of all our SEMI-VARIABLE expenses (such as cable, utilities, childcare, gas, etc). These are the costs that are typically within a $50 average variance every month. (Childcare for most people would be under FIXED expenses, but since my husband and I like to go on date nights, sometimes we have to shell out a little extra each month, so I categorized Childcare under semi-variable).
4. Finally we made a list of all our HIGHLY-VARIABLE expenses (such as purchases, fun activities, restaurants, etc). These are for costs that are never the same every month and not a necessity.

Then I kept track ofeverything on an excel spreadsheet. Below is the template that I created forour family. You can easily modify it to fit your family’s needs:

Click on image to enlarge photo

Once we finalized our monthly budgetto the point where weactuallywere able to carryover a profit every month, we made a promise to not deviate from the budget, unless it was to actuallyspendLESS than what we budgeted for.

I know things do come up and sometimes you have to pay a little extra towards some expenses each month, but that is why you need to have a good enough buffer between your profit and extra monies from your envelopes and other categories where you actually were below budget.

Set your budget to a point where you are comfortable and not necessarily living paycheck-to-paycheck.

And don't forget to always contribute to your savings! Make sure to find a way to fit that in your monthly budget! I can't emphasize this enough. Even if you are only able to save $25 a week, do it because in one year, you'll be able to save over $1,200! A little bit can go a long way in case an emergency arises.

CASHONLY

PLASTIC IS BAD. That iswhat a lot of my older co-workers would tell me and I never listened. I havefinally come to the realization that CASH ONLY is my best bet.

In order to stay on trackto pay down our debt, my husband and I decided that we are going to stop usingnot only our credit cards, but also our debit cards.

So, for 2014, my husband Iwill only use our checking account to pay for our fixedexpenses, like our utilities, childcare, mortgage, and car payments (eitheronline or by check).

The rest of our expenseswill be paid for in cash. Once we run out of cash, WE ARE OUT OF MONEY.

THEENVELOPE SYSTEM

My envelope categories are as follows:

Groceries: We budget our groceries at $80/week sosince my husband and I get paid on opposite weeks, every time one of us getspaid, we go to the bank and withdraw $80. We then put that money in our envelope to beused for that week's groceries. Anything we don't use, we can add to our grocery budget thenext week,deposit it into our savings,or we can transfer it to our miscellaneous envelope as a littlereward to ourselves for being below our budget. For more advice on saving costs at the grocery store checkout my blog post: How-To: Cut Costs for Non-Couponers

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Sam's Club: We budget $120/month at Sam's Club.However, rather than take out a big amount at the end of the month to make ourSam's Club run, we withdraw $30/week at the bank and put it in our envelope.Once we reach $120, wethen use it to stock up on ourmeats, cleaning products, snacks, diapers, wipes, etc. Anythingleftover can be saved for the next month or transferred to another envelope.

Miscellaneous: This envelope is used to go out to eator do something fun together. It can even be used towardsunexpected expenses. I don't have a set budget for this envelopeevery month. I only go to the bank to withdraw funds for this envelope if wehave extra money to spare and have planned for it in advance. If we have any leftover money from our Groceries orSam's Club envelopes, we may add it here as well. If not, it will remain emptyand we will have to just find some fun free things to do. Nothing wrong withthat!

Allowance: My husband and I have our own hisand her envelopes. We geteither $15 or $20 each per week that we can use on lunch atwork or we can save it up and he can buy a new video game or I can get apedicure or buy a new outfit. Either way, that's our spending money that we canuse on whatever we want. (I know some may think that it's kind ofembarrassing to be adults with an "allowance", but in order for us topay off our debt in a timely manner, we have agreed to make this sacrificefor a little while).

18 MONTHS

Now that we had our monthly finances under control, weworked onour Debt Pay-Off Plan.

I have seen articles onYahoo! about many people who have been able to lower greater amounts of debt inshorter amounts of time. However,18months is thetime frame that my husband andI havedecided is the most probable for us. We know our circ*mstances are not the sameas everyone else's, so wemade the best plan for our situation and I suggest you do the same as well.

While creating our plan we reached a few realizations:

We couldn't downsize to anapartment or lower our lease because we purchased our home so we werestuckmaking mortgage payments on it for awhile. We didn't want to just walk away.

We alsocouldn't sell our carssince we leased both of them and we don't have any investments or assetsthat we can sell or withdraw money from.

And even though I wish it were possible, neither of us could become stay-at-home parents and live off of a single income.

So, we are literally tryingto pay down our debt with just our paychecks.

To help us do this, we have done the following:

Lock away your credit cards:
Put them in a filing cabinet and hide the key. Or be like my co-worker and stick it in a bowl of water and put it in your freezer so if you ever did want to use it, the hassle of getting it out of ice might not be worth it. No matter how you do it, just find a place for your cards other than your purse or wallet!

Create a FIXED dollar amount to pay towards your credit cards each month:
To calculate this dollar amount, take a look at each credit card account. Write down how much you owe, the interest rate, the minimum payment due, and the due date. From there, you can determine how much you need to at least pay the minimum every month. Then look at your finances and determine how muchABOVE the minimum totals you can sacrifice each month towards your highest rate credit card. So, say your minimum paymentsequal $300, see if you can sacrifice $500/month towards your credit cards, so you can put the extra $200 towards your card with the highest interest rate to help pay it down quicker.

Pay off your high interest rate card first:
The idea behind paying the cards with the highest interest rates first is so that you pay less back to the bank. Therefore, put whatever extra money you can afford every month towards that one specific credit card and just pay minimums on the rest.

The Snowball Effect:
Once you pay off your card with the highest interest rate, shuffle the dollar amount you used to pay towards that card into your 2nd highest card. The idea is thateventually you will pay them all down quickly by creating a "snowball effect." For example, per the scenario I created above take the $200 extra you were payingPLUSthe original minimum payments, you can now pay it all towards your 2nd highest card. Once that is paid, you canthen add the total you were paying on that priorcard, towards the 3rd highest rated card and so on and so forth. *But remember, as you transfer the dollar amounts between cards as you pay them off, continue to pay the minimum towards your other cards!* Eventually, if you continue with this process, you will payeverything off quicker and quickercreating a "snowball effect."