The single most important step for our debt-free success
Christmas is behind us. Another holiday season in the books. The season for giving. It’s also the season for racking up credit cards and maxing out spending limits. So although the calendar has changed, you may still be feeling the financial effects of the holiday for months to come. Americans spend $465 billion during the holiday season according to the National Retail Federation. Last year, shoppers in the U.S. racked up an average of $1,054 of debt during the Christmas season — an increase of 5% over 2017, according to a survey from MagnifyMoney, a personal finance website. It found 44% of shoppers racked up more than $1,000 in holiday debt, and 5% accumulated more than $5,000 in debt.
But what happens when January rolls around and you’re stuck holding the bill from the holidays? Only half of those shoppers surveyed by MagnifyMoney expected to repay the debt within 3 months — others (29%) said they need more than five months to pay it off, often leading to interest on the credit card debt and growing balances. In fact, 10% of people who took on holiday debt said they would only be able make minimum payments on credit cards. If the shopper spent $1,054, and paid a minimum payment of $25 each month, he or she would be paying down that balance until 2023.
It doesn’t take a mathematician to know that credit cards can cost you way more than you want to pay. Working to payoff those credit cards can feel like you need a magician more than a money-management guru. However, it is possible. So, if your new year’s resolution is to pay off debt, whether it’s credit card spending from Christmas, careless spending, charged vacations, student loans or emergency charges, let me share a bit of my personal experience working through Dave Ramsey’s Total Money Makeover and Baby Step program.
I shared in a previous post a little of how this program has impacted my marriage (read that here). Mat and I haven’t always been perfect at implementing the plan, but even in our slip-ups we’ve been able to pay off more than $20K in debt. Our 2019 resolution is to finish what we started- becoming debt free. I thought I would invite you to come along with us while we work through this goal for a few reasons - 1) You can provide a little bit of accountability along the way as I’ll be providing an update to our debt total each month and 2) Maybe… just maybe, you’ll be inspired and encouraged to work your way to a debt-free status. So let’s go back to the beginning (insert flashback music here…)
It was August 2016, and Mat and I were standing at a crossroads in life. We were getting ready to transition out of a small retail business we owned and wondering what I would be doing next. Money had been enough to get us by, but it felt like we weren’t making any headway. Mat heard Dave Ramsey on the radio and came home excited to introduce him to me. I already knew about Dave and even had his book on the shelf from years ago, before I met Mat. Maybe it was a new hope that things could be different for us financially or maybe it was just the fresh start we needed given the transition we were in…whatever it was, Mat caught the debt-free fever and downloaded the audio book “Total Money Makeover.” We listened to that audio book four times all the way through as we boxed up product and closed up shop in our retail space. Mat probably listened to it a dozen times more on his own.
He was excited and I wanted to support this excitement so I gladly joined him in getting our balances for each debt and creating a list of which debts to tackle first, but I wasn’t really on board as much as Mat. (I previously blogged about this - you can read that here) We were already pretty frugal people. We didn’t have expensive cars. In fact, we didn’t have any car loans at the time. We didn’t go on elaborate vacations or make over-the-top purchases. So I didn’t really see the need to get a money makeover. However, Mat was eyeing the bigger picture - owning a home and one day retiring. Although we worked together to pay bills and sat down each week to visit our finances, Mat and I were budgeting out of desperation not discipline. We were budgeting because every dollar mattered - we were stretched that thin and we couldn’t afford to NOT budget.
Even though we were doing the right things - budgeting and watching our spending - we hit a brick wall when emergencies came up. You see, every dollar we had was paying bills and the extra money we did come across we were using to payoff debt. We had no savings…why would we when there is not a lot to eek out of the budget to begin with? And who thinks of saving as a priority when you have credit card debt? We sure didn’t. If we could save $1,000 wouldn’t we throw that against paying off a credit card? An emergency fund meant a shift in thinking. So when we read (or rather listened) to Dave’s book and the first step was to save $1,000 in an emergency fund, it seemed a little like the cart going before the horse, but we did it and it was a game changer!
Before we would get so frustrated that we would just get a credit card paid off only to have to whip it out again to cover a car repair. We were always taking one step forward, in order to take two steps back. Believe me, you do that a few times and you can get easily discouraged and frustrated. What’s the point of paying off stuff if you’re just gonna rack up that card again in a few months. Sure, we would save for Christmas and pay cash for that, but when it came to emergencies, car repairs, appliances broken down, and so on…we were sunk. Enter our credit card debt that never really went away.
The real game changer was that emergency fund of $1,000. It’s not a lot, but it has helped us stay away from using credit cards for those emergencies. That means we experience some control and those emergencies, while annoying, don’t seem to stress us out as much. The other BIG change for us was that it took credit cards off the table for us. Having that $1,000 was a line drawn in the sand to say “we won’t be using credit cards ever again to cover emergencies.” That was a discipline that needed to get locked into place. If we weren’t going to have the cash, we didn’t make the purchase and now we could confidently say that even for unexpected expenses that popped up.
It only took us a few days to come up with the $1,000. We sold a bunch of stuff to get it, but in the end it was worth it. When the savings account balance read $1,000, we felt like we had accomplished a major goal. It filled us with new resolve to tackle Baby Step #2 - paying off all our debt with the debt snowball.
We started with $47,277 and now we are down to $27,000. And to think it all started with $1,000 in savings.