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Our Debt Reduction Plan–Part 1

Cutting costs

A few years ago I received word that in 9 months I would lose my job. That was the fall of 2008 and the beginning of the financial crisis. My husband and I sat down and made a plan to reduce and pay off as much debt as possible along with putting money into savings so that if necessary we could survive on his income alone. I was given a gift – the gift of a warning.
Here is my roadmap to debt reduction. Before you begin this journey please realize that during the first month of your journey, you will be on a fact finding mission to get all of your financial information together. Why a month? Because I do not recommend that you try to do all of the fact gathering parts of this plan in a day or two. It will be very overwhelming. Start working the plan first.

1. Do not put any additional debt on your credit cards. If you are used to using your credit cards for gasoline or groceries, be careful not to overspend. I would recommend using a debit card. It is very easy to buy more than you need, even in the grocery store, with a credit card.

2. Begin your budget fact finding mission. Make a list of all of your debts. Don’t get all upset over the amounts of your debt. At this moment it is about collecting data. The important thing is to honestly find and write down all of your debt balances. Using a spreadsheet program or a spiral notebook, make a list of all of your debts with the name and the balance of the amount owed. This would include credit cards, car loans, mortgage payments, student loans, pay day loans, loans from your mom and dad and so on. If you owe anyone or any company money, it is a debt, so write it down. Next to the name and the amount owed, include the minimum payment, date due and interest rate on the amount owed.

3. After you have determined all of your debts, list your fixed expenses. Examples would include utilities, water, phone bills, cablevision, internet, and rent.

4. Now list your flexible expenses to the best of your ability. Examples would be gasoline, groceries, entertainment, clothing and eating out. In order to get an idea of how much money you are spending on all of your expenses, you will need to keep a record of all spending. For 4 weeks keep track of every single penny you spend. This is very, very important. I had no idea how much money I was spending at the grocery store nor at Wal-mart. I was shocked to see the amount of money I frittered away on stuff.
There are many apps you can purchase for your cell phone that will help track your spending. Also a simple pocket notebook will do the job. The idea is to write everything down so that you will have a realistic look at your spending habits and what you are spending your money on.

At this point you will be feeling a little pain and will be overwhelmed. I did. I also felt why bother when we were so deep in debt. It seemed to big of a task. Yet, I knew that I needed to get debt paid down and as much paid off as possible before the loss of my job. It was my motivation.

You may have several thousands of dollars of credit card debt and you will look at the total amount owed and will feel that it is pointless to even try to pay it down or even pay it off. Then you look at your list of fixed and flexible expenses and you want to just give up. This is normal. You will feel anxious, but when you have gone further and come up with a plan, you will soon find that anxiety will mellow and you will feel empowered to keep on working to reduce your debt.

5. List your net income. It’s an important step.


Stay tuned for Part 2 in this series coming soon.