How Did You Get Out of Debt? Or Are You Still in It?

Home Budget For DummiesI’m prepping a class this week that I’ll be teaching on Sunday on how to get out of debt. Why am I doing this? Well, on the one hand I suppose you could say I’m not really qualified to teach a class on getting out of debt, since I’ve never really been in debt to begin with. That’s not to say that I don’t have a mortgage or have a car payment, but Denisa and I managed to get through two undergraduate degrees and three masters degrees without getting any school loans. (Through a lot of scholarships and working multiple jobs. It also helped that we went to BYU for all but one of those, and BYU is dirt cheap compared to elsewhere). We also don’t have any credit card debt, and we’ve been saving for retirement for a good six years now (not perfect–it would have been better if I’d started when I was 20 or something, but hey–who’s perfect?). Then again, since we’ve managed to pull all that off, I suppose I’m somewhat qualified to talk to other people and give advice about how to get onto more secure financial footing.

In the end, though, I feel confident enough to teach the class because I don’t think the principles are all that complex. This Saturday Night Live clip presents the basics in a pretty funny format:

Of course, I think the problem a lot of people run into these days is that it’s easy to have a credit card in your wallet, and then it feels like you have money to buy things, even though that money doesn’t really exist. Thousands of dollars of credit card debt later, and you’re in a hole that feels insurmountable. Add to that any other debts you might have (student loans, mortgage, etc.) and it’s amazing you’re not blubbering in a corner somewhere.

Let me give you a rundown of what I’m thinking about teaching, and then if you have anything to add, I’d really appreciate knowing it. Maybe some of you have “get out of debt” stories that would shed some light on things. (Or get into debt horror stories) Anyway–just looking for any advice you might have that will make my lesson better.

Ready? Here we go.

In the end, what I’m arguing for is basically there are two “knobs” to money: how much you earn, and how much you spend. In order to get a hold on your finances, you need a clear picture of both. If you think you earn more than you actually do, then you could get messed up. If you think you spend less than you do, then it’s even worse.

So step one is to figure out how much you make each month. I break it down by a monthly income because that’s easier to control. I don’t recommend including extras like Christmas bonuses, tax returns or gifts you regularly get. Why? Because it’s better to be able to use those items to pay off your debt rather than sustain a lifestyle you can’t afford.

Once you know how much you make, then it’s time to know how much you spend. I’ve blogged before about  how I use Mint to keep track of my spending. It’s a great tool, but it can be complicated to use, and it takes effort. Then again, from my experience it takes MORE effort to do it without Mint. Here’s the thing: budgeting takes effort. Period. It’s hard to do. It requires sacrifice. But if you want to get out of debt, it must be done. Like dieting. Grrr…..

After you know how much you make and how much you spend, you’ve got a feel for both knobs. To get out of debt, you can either turn down the spending or turn up the earning–or both. The first priority is to make sure you’re spending less each month than what you earn. If you’re deep in credit card debt, this will be difficult. You’ll have to give up a certain lifestyle you’ve grown accustomed to. It might mean no more television, fewer toys, cheaper clothes, no eating out–it all depends on where your money is going. You look at what your needs are and what your wants are. Hopefully the sum of your needs is less than what you earn. If that’s not the case, then you need to find ways to reduce that number. Move into a cheaper apartment, or stay with family. Sell the car and start walking to work, or buy a cheaper one. Or pick up a second or a third job. If you’re married, your spouse might have to work, too. These are decisions that a family has to talk through. What’s important if you’re married is for both you and your spouse to be on the same financial page. You can’t have one person saving like crazy and working her tail off only to have the other spending like Michael Jackson on a Vegas binge.

Anyway. Once you’ve got spending reigned in, it’s time to address the debt you’ve accumulated. Take the remainder of what you have left over each month and start paying extra on your debt with the worst interest rate. Once that’s paid off, roll that payment into paying your next worst rate. Rinse and repeat. Put any extra money you make toward paying off those debts. It might take a few years, and it won’t be easy, but once you’re free and clear (of all but your mortgage, at least), you’ll feel much better.

At the same time, it’s a good idea to be saving up some money for emergencies–so that you don’t have to put those on credit cards when they happen. (And they will happen.) I don’t know when saving this will fit in best in your debt recovery plan, but sooner is better than later.

Living in a budget hasn’t been easy for Denisa and me. There are times we really struggle to keep things checked. (Case in point–we try to make it over to Slovakia once every three years to visit her family and let TRC and DC experience what it’s like over there. We think this is very important–but it costs an arm and a leg, especially now that there are four of us . . . ) That said, knowing where I am financially is a load off my mind, and it lets me sleep comfortably at night.

That about sums up what I have planned at this point. I think I’ll go over some sample “case studies” to illustrate the point a bit better and more concretely. I also will talk a bit about why it’s bad to be in debt in the first place, and the possibilities for debt reconsolidation–what that is and why you would do it. If any of you have anything to add on any of this, fire away.

And yes, you can even do so anonymously–this is one time when I won’t mind. 🙂

7 thoughts on “How Did You Get Out of Debt? Or Are You Still in It?”

  1. Albert, a student

    I think you’ve hit on the main points. I have two comments.

    First, I struggle with two opposing principles. (1) Get as much education as possible. (2) Get out of debt. Whenever I hear (2), I get anxious and wonder if I am doing the right thing. I don’t have enough money to buy (1). Should I wait till I have enough money? Usually I can convince myself that my debt is for a good cause. But sometimes I can’t which leads me to my next thought.

    Second, I have been studying Lehi’s vision lately. The large and spacious building represents the pride of the world. Pride sometimes leads us to buy things with money we don’t have. This leads to conflict within our families, or as Elder Perry put it, we become “far too preoccupied with their financial burdens” (Book of Mormon Student Manual, page 23). So my comment is that like other things we should deal with the problem and not worry about it again even if it is not totally resolved. Even if we are not in debt.

  2. Thanks for the response, Albert. I think when it comes to getting as much education as possible, there are limits. It’s all about the ROI (return on investment). If you’re talking about getting an undergrad degree or not, it’s usually a no-brainer. Get the degree. If you’re talking about an advanced degree that will itself off eventually, sure. If you’re talking about your third PhD . . . maybe not. 🙂

    In all seriousness, I think there’s a time when it’s no longer a wise decision to get further into debt so that you can get more education. Once you’re in your thirties, starting a degree is getting to be on shaky ground. Late thirties/early forties? I think you missed your window.

    Does that make sense? A forty year old going 40,000 into debt for a degree that will only net him 60,000 total in extra wages over the next 20 years . . . you’d be better off spending that time with your family or really applying yourself at your current job. But if you can get the degree without going into excessive debt, and it promises to be a good investment, then full speed ahead, IMHO.

  3. Hey Bryce, I love to hear that you are teaching on how to get out of debt. I hope that you focus on that primarily. Often we hear “stay out of debt, stay away from debt…yadda, yadda” which is GREAT when your young and you haven’t learned it yet (and its always a good reminder for everyone else). However MANY people (my family included!) are ALREADY in debt. Whether it be school loans, credit cards, cars, mortgages…ect. I feel like sometimes I hear the usual lesson about staying out of debt and I just want to check out…stop listening. I have heard it before, I abide by it now, but I am paying for my “past spending” I enjoy hearing advice about getting yourself out of debt. Good advice is not to get discouraged, debt stinks but it is possible to dig yourself out. Good luck with your lesson!

  4. Looks solid to me. One thing I dislike in lessons like these is when people talk about credit cards like they are dangerous and/or evil. (Not talking about you here, just the trend in general.)

    Credit card *debt* is a problem. Having a card, using it, and paying it off every month builds your credit score and is smart for your financial future. My card gets me $200ish of free Amazon money a year, and I’ve never paid a dime of interest. I like my credit card. I also don’t have any card debt.

    I cringe when I hear about people cutting up their cards to get out of debt. If you absolutely can’t control your spending any other way, then so be it. But it would be better to use them responsibly, because a good credit score is a useful thing to have.

  5. Hey Bryce… went through your blog post and found it very interesting. I liked to two “knobs” that you mentioned in your post – how much you earn, and how much you spend. It is very important to keep a tab on how much we are spending in order to ensure we have some kinda saving at the end of each month. Preparing a monthly budget (Best free way to plan your budget and save dollars) each month is a great way to ensure that we are not overspending our hard earned money.

  6. Thanks, all!

    Leah–yes, I’ll be putting the focus on getting OUT, not staying out. I noticed the same thing–that the lessons are always on avoiding debt, not what to do if it’s too late. We’ll see how it goes.

    Janci–Agreed on the credit cards. The thing is, when people are in massive debt, that’s often a sign they don’t know how to use credit cards properly. It’s like telling a person addicted to pain meds that they’re okay to use for some reasons. For the first while, at least, you keep those pain meds as far from them as possible–or let them use them only under strict supervision. I also use a credit card for everything I can, and I pay it off 100% of the time.

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