That’s right, Smart Moms…
Today I am going to be talking about debt.
Because as much as I hate to admit it, debt slowly crept into my life–just like when my kids got the chicken pox–a little at a time until it was an all-consuming nightmare to manage.
Countless people have been carrying debt longer than any relationships in their lives (even longer than spouses or kids). Well, it’s time for us to break up with our longest standing commitment and start the road to recovery.
While I love being a stay at home mom and playing with my kiddos, I did go to school with the anticipation of being a career woman. I got into a great deal of debt upon starting college, then you add on getting married, buying a house, buying a new car, and kids, and suddenly that little hill of college debt had turned into Kilimanjaro.
But I wasn’t going to let that be my life.
I decided in the first year of my marriage that I wasn’t going to be weighed down by debt. Of course, that did not mean I was suddenly out of the woods after my first year since saying “I do.”
Which brings me to my first step.
Chances are that I’m not going to pay off my loans in a day, a week, or even a month (no matter how much I hope for it). As a rule of thumb, the more debt you have, the longer it will take to pay off your debt at a steady rate with your income.
And that’s ok!
A 2015 study showed that the average US household is carrying $130,922 in total debt, with $15,762 of that number attributed to credit cards. (1)
Okay I was shocked that everyone else was in as bad of shape as I am. This can be a little overwhelming. At times it feels impossible to overcome–even though I know it’s not!
For starters, every time I am headed to Starbucks, I ask myself:
How long will it take me to earn this money back?
Asking myself questions like this helps me start to tackle that mountain of debt.
Every day interest increases, so while a $4 cup of joe may not break the bank, if I saved that every day for a month, that’s $120 of interest I can cut!
Track your expenses
So ideally, in order to know how much money to pay on loans each month, I have a budget. Personally, what I have found to be most efficient is to create a spreadsheet on Excel, creating a column for each expense, and then a box for the cost I’m spending on that.
However, a good idea to consider before filling in the numbers, is to take the time to track spending and income each month for about 3 months. (2)
Too often when a person or a couple creates a budget, they factor in intended or anticipated expenses, rather than actual expenditure. This can be detrimental to your budget and can cause major setbacks in your debt elimination!
Trust me, I know!
I had to go back and create another budget after mine wasn’t adding up. So save some time and money by tracking for 90 days first.
Welcome back! (Because you took 3 months to accurately track your expenses, right?) Now that you have some solid numbers to work with, you can create a budget.
Budgeting is knowing how much money comes in and controlling how much goes out.
I calculated my monthly income (after tax of course! I forgot about taxes until that first check came in and remembered, there’s no way out of paying them).
Then I created a list of all my mandatory expenses (ie. rent, groceries, bills, gym membership, etc.). To help me find the cost I was spending on each of these month to month, I used bank statements and receipts to determine patterns and get accurate figures.
I then tallied up the expenses and subtracted it from my total income. The first couple of times my numbers were in the red (I was spending more than I was bringing in).
I had to figure out how to shift my budget so more money was coming in or less of it was going out. ie. finding which expenses were necessary, and which were wants (every expense felt necessary at first), and adjusting my spending accordingly with the amount I was depositing. (2)
If you aren’t seeing an excess to save after all your bills (like I ran into), a trick I found helpful for a while was to take the change from gift money or breaking a large bill, and saving it. I was saving a small enough amount that wasn’t necessarily missed in the moment, but made a difference in the long run! (3)
As you start to make more money, remember to change your budget to adjust accordingly, but when I did that, I was sure not to increase my expenses too much so I was still saving more money than my new expenses. Which is extremely difficult and important!
Don’t wait to be better tomorrow
Mind-set is 99.99% of getting through debt – and a good outlook that’s framed by the realization that debt isn’t a physical constraint but a mental one can go a long way.
When you’re carrying a burden in your mind, it’s easier to see life as half-glass-empty. Whereas, if your outlook were more positive, you may be more likely to see opportunities as they present themselves and be open to change. It may be cheesy, but I swear it works!
It’s easier to manage risk and reward when you’ve got a clear head, so put a plan in place for those bad credit personal loans you’re paying off and then forget about it. Paying your debt down can be automatic while you get on with your life. (3)
I asked someone to challenge me. To check in and to hold me accountable for my spending and pay-offs. Since I am married, that person was (and is!) my husband. I would recommend a family member, a friend–someone that you trust. Not only to discuss your finances with, but someone who will actually check in with you.
Finally, don’t forget that you are human! You have a busy life, and debt doesn’t have to be crippling. You can do this! I am 36 and paid off my student loans by the time I was 31. It’s doable! Believe in you, and sacrifice the frivolous things to get ahead of those pesky loans!
Til next time!