Today I’m delighted to bring you an excellent post from Laurie over at The Frugal Farmer. If you are in the throes of debt and completely overwhelmed at the prospect of ever digging out, Laurie will show you, it’s not only feasible, it is achievable. As an aside, Laurie is featuring my story of debt freedom on The Frugal Farmer today, so be sure to check it out if you’re interested. But right now, I hope Laurie’s post inspires you to get started and keep moving forward on your debt, no matter what.
Overwhelmed by Debt? Here’s How to Start
Are you feeling like you have much too much debt to even bother trying to pay it off? I get it. We were there too. At one point, we had so much debt that our budget revealed a $1,000 -$1200 deficit each and every month. If it weren’t for overtime and side hustles, we wouldn’t have been able to pay the bills.
To give you an even clearer picture of how dire our situation was, our consumer debt was equal to my husband’s pay at the time. Our debt-to-income ratio (DTI is calculated by dividing your monthly debt payments by your monthly gross income) was 65%.
Banks generally won’t give you a mortgage if your DTI is over 45%, and we all know that mortgage companies are much more generous than they probably should be. That gives you an idea of how seemingly hopeless our situation was.
To be honest, there were many times during the beginning years of our debt payoff journey where we thought it would just be smarter/easier/better to file bankruptcy.We were overwhelmed by the slow journey and the pittance of monthly progress we were making as we worked to pay off our debt.
But as we progressed toward certain debt freedom, we’ve found that the work is worth it. And today I want to share some tips for those feeling as if their debt load is too big to conquer. These seven tips helped us, and I’m certain they’ll help you as well.
Face the Numbers
I remember the day I sat down and tallied our debt numbers. Up until then, we’d pretty much be just rolling along living in denial. But one day it occurred to me that we were living a little tight and I sat down and figured out the numbers. It was NOT pretty.
I shared the numbers with my husband and together we sat in shock, wondering how we created this mess and how we’d ever get out of it.
We went through months of being angry at ourselves and at the situation. *Note: don’t bother with this step – it’s a major waste of time and energy. Just accept the fact that this is the situation and move forward.
Facing the numbers can be really difficult, but it is key to owning up to the reality that will help change your financial situation.
Start Budgeting and Tracking Your Spending
After I figured out our debt totals, I went back through the prior year’s expenditures by analyzing our debit and credit card statements in an effort to figure out how we had made such a mess of our money. What I found was astonishing.
We hadn’t been budgeting and spend tracking up until that point, but I had ballpark numbers of what we wanted to spend in each budget area and what I thought we were spending in each area. Turns out that I was off in every area – by 30%-50%!
I thought we were spending $600 a month on groceries, but we were spending $900 a month. I thought we were spending around $150 a month on dining out, but we were spending $275 a month.
Each budget area I analyzed revealed the same story, and suddenly the reason why we were in so much debt became crystal clear.
Starting that very month I created our first budget and a spend-tracking spreadsheet using Excel. At the beginning of each month I list all of the upcoming month’s expenditures and give every incoming dollar a job. This is called zero-sum budgeting. If every dollar has a place to go before the money comes in, your chances of blowing your cash on stuff that doesn’t matter to you becomes limited.
We also use the spend-tracking sheet. Every time we spend money, I record it on the sheet, along with a total of the monthly expenditures and yearly expenditures.
This has been a huge blessing in our journey because it helps ensure that we stay on budget in each spending area. You could also use the cash envelop to be sure you stay on budget, but spend tracking gives you a full picture view of every month and the yearly total of your spending so you can reign in costs where need be. The more money you save each month by reigning in spending, the more you have to put toward debt payoff.
Create Your Plan
Now that you’ve got a monthly budget written out, you can begin your plan for paying off debt. The easiest way to do this is to simply take any surplus at month’s end and put it toward your debts. I like the debt snowball (starting by paying off the smallest debt and moving upward) as you gain payoff wins faster, which can be incredibly motivating. But whatever method you choose will work as long as you work the plan.
Focus on the Right Things
It’s easy to lose heart and get overwhelmed by the amount of debt you’re in if you keep focusing on the amount you have left to pay off. Instead, focus on how far you’ve come, even if it doesn’t seem like it’s very far. Congratulate yourself for the fact that you have $50, $100 or $200 less in debt this month than you had last month.
Keep in mind the long-term picture, knowing that the picture you see now will be very, very different in five years if you stick with the plan.
Be Willing to Make Sacrifices
If you want to get out of debt, you’re going to have to give up some things. Don’t allow yourself to fall into self-pity; instead remember what you’re gaining from the things you are giving up. Peace of mind. Financial security. A healthier marriage. The ability to help others one day. When you start to think big picture, you’ll find that your “sacrifices” aren’t really sacrifices at all, because you’ll learn that you deserve financial security more than you deserve a daily latte’ or that new whatever-it-is.
Don’t Let Hindrances Stop You
When you’re dealing with a boat load of debt, there may be months where you go backwards in your debt payoff journey. If money is super tight and a big unexpected expense comes up you might have to put it on the credit card (starting by building a $1,000 emergency fund before you begin debt payoff will help to avoid this).
If that happens, pick yourself up and move forward. Don’t dwell on it, just get moving again. There’s no sense in crying over spilled milk, just get back on your path to debt freedom.
Keep the End Game in Mind
And when you feel like giving up, keep in mind what it will feel like when you no longer no anyone a dime. When no credit card company or mortgage lender can dictate where your money goes. When you have a monthly surplus that’s big enough to allow for vacations or big expenditures that are paid for in cash.
Let those visions of a financially secure future push you to move forward even when it seems as if you’ll never reach your goal of debt freedom, because the truth is that you will cross that finish line if you keep moving forward.
Along with our monthly and yearly expenditures, the Excel spreadsheet we use contains our monthly individual debt numbers and total debt numbers. This big picture view helps us to see our progress from a yearly standpoint and keeps us motivated to keep going.
As for us, we aren’t fully out of debt yet, but we are getting there. Today, we have breathing room in our budget and we no longer have that month-to-month worry about whether or not we’ll have enough cash to cover our expenses. Soon enough we’ll be debt free. Won’t you join us?
What questions do you have about paying off debt when it seems as if there is too much debt to pay off?
Laurie is a wife, mother to 4, and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer . Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom, and to a simpler, more peaceful life.
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