Budget to dig myself out of debt now up and running

27 Replies

Let me start with a little background on why I am posting this as it strikes me as a bit of a random post to just throw out there. The weekend of the 9th through the 11th I had to drive from Corpus Christi, Tx. to Clayton, N.C. and back. This gave me roughly 42hrs behind the wheel. I chose to use some of that time to listen to an audiobook that I have been meaning to listen to for a long time, Robert Kyosaki's Rich Dad/Poor Dad. To say that it was mind-blowing and eye-opening would be a gross understatement. I made up my mind then and there to change things in my life, dig myself out of the hole that I had gotten myself and my family into due to my bad financial habits and my ignorance of how money actually works and started devising a plan. As soon as I got it back home I wrote out my plan and forced myself into action. My 1st step was to post on bigger pockets (I have been a pro member for months now and have never posted or been active). I also found and signed up to go to a local REI meeting (I am somewhat shy and I figure that this will force me to come out of my shell and network with others who are in the real estate investment). Goal #3 was get a handle of my finances by developing a budget and stick to it to pay off all my debt so that i can position myself to be able to invest. This is the 1st step to my goal. I have created a budget, it is nothing fancy, I used a word document to list out all my bills and expenses as well as the due dates for the payments. From there, I created an excel spreadsheet making sure that I pay myself 1st and foremost every single paycheck (I am setting aside 20% of my paycheck to pay off debt) and to track where my money is going. In addition to this, I have downloaded an app to my phone that will allow me to track my income and expenses real-time (not sure if stating which one it is would violate forum rules so i will refrain from doing that). Now comes the longest part of my goal, i have to stick with it.

So, why post about it? Several reasons. 1.) it was one of my action items so I had to get it done. 2.) accountability. It helps a ton to be held accountable and the way I figure it if people follow my post or my progress, I have to stay accountable to more than just myself and my family. Finally 3.) advice. For starters, does everyone budget for things like going out every once in a while or should I just laser focus on paying off debt. Currently, with 20% going to debt payoff which I will pay myself first, I still have a little bit of money left over, its not much but its something. Do I roll that into the 20% to pay off my debt faster? Do I use that to maybe take the family out once or twice a month? what have you done and how has it worked

Next question, what should I pay off first? Largest debt or highest interest debt? Part of me is saying "get rid of those large debts first but if I have a smaller debt that is charging me more interest, should I get rid of them first?

Doing this has opened up more questions and I am assuming that is a good thing. I am currently reading "How to invest in real estate" as one of my goals but I think after I am done with that one I am going to find a good book on budgeting to make sure I am doing it right. 

@Rigoberto Medina there are two schools of thought on debt pay down one is highest interest rate first the other is lowest balance first. If those align for you then go that route. One thing you can add to your budget quit paying for a bp pro membership, roll that into debt repayment and as for your leftovers money if put that towards the debt too.

@Aaron K. , thank you for the advice. I think I will focus on paying off some of my highest interest debts first, they also thankfully happen to be some of my smaller debts. The more I think about it, while I would love to pay off my larger debts the quickest, I think the interest that I am being charged, a couple of cards that I have I am paying a little over 24% on, is what I am going to attack first. As for the BP pro membership, I paid for a year upfront so it is already paid for the next couple of months at least. I plan on building wealth using real estate once i get myself out of debt and position myself to do so. Do you really think I should get rid of the Pro membership?

You do need some rewards, but they don't have to cost money.  Take your family out for a picnic lunch or to the beach, park etc.  If you do go out, set a limit of how much you will spend.  Ask yourself why you are going out to eat.  Is it to give the person who cooks a break (why not have the other spouse cook or have the kids cook), it is to get the family together so they can talk away from distractions (got to the park, on a hike, for a walk).

As for paying off debt, I think it depends on a few things: what is the difference in the interest rates (4 vs 5% or 4 vs 30%)?  the latter makes a big difference whereas the first not as much.  How do you look at your debt?  Do you think I owe $15K or I have 10 bills to pay?  If it is the former, then start with the biggest; if the latter perhaps start with the smallest one as knowing one is paid off will give you a confidence boost that you can do it.

@Theresa Harris , thank you very much, that is some really awesome advice and a great way to look at things. That is a great point on needing rewards but not have to cost anything, embarrassingly enough, I had not thought of it that way.  I know it is going to be a somewhat long road, especially with the debt level that I have allowed myself to accumulate but I am sure I can do it. Thank you all for your advice.

@Rigoberto Medina

Debt snowball vs. Debt avalanche

I don’t know if I missed it, but the difference between the two are: paying on the most interest vs. paying on the smallest and working your way up.

You might look at a spread sheet that’s free already and see what kind of time line you’re looking at. There’s a bunch of tools that are free and you can take advantage of them. One that I like is Undebted.com. You just plug your numbers in and it’ll give you a idea of what might work best for you.

I’m currently doing the same as yourself and once you see progression, it’s literally life changing brother, I promise. We’re currently putting 2k plus a month towards debt and should be on schedule to be debt free right at a year if life doesn’t throw any curveballs.

Glad to see your sticking to your guns!

@Rigoberto Medina I would get rid of the membership, it is not a necessity and will save just a bit more money, you still get the same access to most of the features the main thing you miss out on is the calculators which you can really easily create yourself in Excel and probably learn more by doing that.

Listen to Dave Ramsey for just about everything except his advice on paying off debt lol. He recommends paying off smallest balance first regardless of interest rate. While I undestand the psychological wins associated with paying off a small balance loan, it seems hard to justify paying off a $3000 student loan at 3% interest if you have $10000 in 24% credit card debt. Therefore, I'd recommend paying off highest interest first, and if there any smaller debts that might be close in interest rate and you would feel better if they were gone then go for it. Keep reading and listening to books and podcasts. Rich Dad Poor Dad is great, but I would check out Simple Path to Wealth and Millionaire Next Door and listen to BP Money and ChooseFI podcast first to get your personal financial position squared away before investing in real estate. 

Originally posted by @Rigoberto Medina :

@Theresa Harris, thank you very much, that is some really awesome advice and a great way to look at things. That is a great point on needing rewards but not have to cost anything, embarrassingly enough, I had not thought of it that way.  I know it is going to be a somewhat long road, especially with the debt level that I have allowed myself to accumulate but I am sure I can do it. Thank you all for your advice.

If it will take a while, all the more reason to find ways to reward yourselves without it costing anything.  Holidays are another thing where you can cut back-stay at home and visit local places, make your own lunch.  Once you keep track of where the money is going, you can see the little things add up quickly.

Hi Rigoberto

Glad you have decided to make a change for the better.  Your first step, listening to something educational instead of sports or music was a good call, make that a habit.

Laser focus on that credit card debt.  Your very first step is to apply for another credit card that will give you 0% interest on balance transfers for the first year.  Transfer that 24% to 0% and work your tail off to pay it down.

Cut any recurring monthly charge you can, they are deadly because you forget about them and they never stop.  Get rid of that monthly Netflix charge for instance, watch financial education videos on Youtube for free instead.

Get a journal and write down every dime you spend each day.  Believe me, it is eye opening the amount of money we spend on unnecessary stuff.  This is a really powerful habit, it makes you stop and think about whether you really want to buy the junk before you spend the money because you know you will have to shamefully write it down later.

As for full disclosure... cough it up, How much do you owe?  When you post your progress in a few months we want to see that number decreased.

@Rigoberto Medina , are you married? If you are, and you and your wife aren't on the same page about debt, spending, and what your goals are, your chances of success are low.

One of the dangers of listening to a lot of personal finance advise shows is that you get conflicting advice, the advisor doesn't have experience with the personal issues you are facing (like pregnant wife/girlfriend, child with medical issues, irregular income, job might go on strike, etc...), or they really need to sell you something to pay their bills. Cobbling advise together from different sources didn't work for me.

Consider this-- if credit card balance transfers really worked to eliminate debt, would credit card companies offer them? Finding a program you are comfortable with, and then executing that plan is what works.

I would look for three things in a debt elimination program:

1. A proven track record of at least a decade

2. A support system

3. Address both the psychological and financial aspects of debt and spending.

I used Dave Ramsey's plan. It works. Focusing on DR's plan to the letter until you get through baby step three will get you into a position to invest.

@Arturo Martinez III , that web address worked. Holy cow! that is a powerful tool, thank you very much for pointing me that way. It calculates everything and tells you to the day when you will have the bill paid off. I have already started using it, it is actually encouraging, according to that site it won't take me as long as I thought to get debt-free and get my finances in order.

@Aaron K. , sound advice sir, thank you very much. 

@Bill Goodland , from the great advice that everyone is giving me I have decided to pay off my highest interest rate debt first. In addition to reading up on real estate investing, I have also been doing some reading on budgeting and financing, and one of the things that were really eye-opening was the effects of compound interest. I found a web site online that has a compound interest calculator and when I punched in some of my credit cards and their interest rate, let's just say it almost made me sick. I can understand the psychological impact of paying off little debts but to allow that much money to keep bleeding out...I just can't do it

@Theresa Harris , you are most certainly right. One of the things that building a budget and digging into my finances forced me to do was categorize where my money is going. Once I saw that I am spending almost 5k a year on lunches and breakfast, made me a bit angry at myself but has also gotten me to start packing my lunch from home. I know it may seem like a small and insignificant step but I'm seeing just how much things can add up.

@Brant Richardson , 38,150 but I'm going to work my butt off to pay that off. It is a lot but I know that lots of other people have paid off more. We are currently renting a house so we don't have a mortgage...but that also means we are not building equity. 

@Ron Fletcher thank you for the suggestion, I will add it to my list of books to read. 

@Mac F. yes I am married. I am working on getting her on board to get our financial life in order. It is a pretty big change and some of them are a little hard for her to stomach but she is coming around. The good thing is that while she is not fully on board, she is not fighting me on it either. She is an incredibly good woman and I think that she sees the path we are on is not leading anywhere good. 

@Rigoberto Medina , this is just my experience, but when it comes to finance you two are either on the same page or you're not. I blow sales people all the time by saying 'lemme think about it.' A plan where you two agree on what, why, and how will have the greatest chance of success. And if momma ain't happy, ain't nobody happy. 

Minor update. 1st step of my plan has been taken. $1162 has been applied to my first debt to pay off, there is a remaining balance of $250 which will be paid off on my next paycheck as well as $1038 that will be paid to my next debt. It feels good to be taking this first tangible step. Reading, planning, building the budget, and the great advice I have gotten here have all lead to this step and I will keep moving forward and posting as I go. Starting debt amount $38150, paid $1162, $36988 left to go. The great part is that as I pay off my debts, I will be able to snowball those payments into paying off the rest. 

As an aside, has anybody heard of, used, a concept called paycheck parking? I have been doing a lot of reading and research and the concept seems to make sense, just seeing if anybody has had any success with it.

Originally posted by @Rigoberto Medina :

Minor update. 1st step of my plan has been taken. $1162 has been applied to my first debt to pay off, there is a remaining balance of $250 which will be paid off on my next paycheck as well as $1038 that will be paid to my next debt. It feels good to be taking this first tangible step. Reading, planning, building the budget, and the great advice I have gotten here have all lead to this step and I will keep moving forward and posting as I go. Starting debt amount $38150, paid $1162, $36988 left to go. The great part is that as I pay off my debts, I will be able to snowball those payments into paying off the rest. 

As an aside, has anybody heard of, used, a concept called paycheck parking? I have been doing a lot of reading and research and the concept seems to make sense, just seeing if anybody has had any success with it.

 Paycheck parking is a gimmick that sounds good. It makes spending easier (which means you are likely to spend more). Making spending harder (more painful) has a much bigger impact. When I want to keep my spending under control I do things like: creating and following a written budget, only using cash for impulse purchases, using a debit card for purchases instead of a credit card. All of these have the impact of limiting my spending and have an impact much bigger than any gimmick I've tried. It was also more sustainable for me.

Paycheck parking can have a small positive effect on your credit score but, if you pay your credit card bills before the credit bureau reporting date rather than the due date, you'll probably get a similar impact on your credit score. Over time it won't matter because your consumer debt/income ratio will have improved because you are steadily eliminating the debt. Actual consumer debt elimination will make the biggest difference.


@Mac F. , thank you very much for the information. I will just continue on my path then and stay away from paycheck parking. I had not thought of it that way, but you are absolutely right, it would make it much easier to spend. Thank you again.

@Rigoberto Medina

Real numbers showing progress.  I love it!

I'm going to say it again. Try to get another credit card which will offer you 0% APR on balance transfers for the first year. If you transfer $10k from a 24% card that will save you $2,400 which you can use to pay down the debt. It takes a very small time commitment and its free. Take action on your next day off.

Another paycheck, another update. $1491 paid toward consumer debt. Conns account completely paid off, sizable dent put into my capital one credit card debt. Next paycheck I will continue paying off my capital one card and hacking away at this debt. Interestingly as soon as I started doing this we had 2 of our vehicle break down, luckily my wife's van was covered by warranty but still had to pay almost 600 for non-warranty repairs and my work vehicle broke down. Youtube and some sweat and tons of swearing later, I was able to save almost $1000 on the repair by doing it myself and stay on my path. $35,497 left to go. Seems like a big task but 1 debt has already bitten the dust and I saved a good amount on interest, feels very good.

@Brant Richardson , thank you very much for the advice. Once I fully trust myself, that may be a great strategy. I have a lifetime of bad habits that I am trying to break and I have been doing very good so far but I have not fully convinced myself yet. I have lots of people start lifting with me and hang for a short amount of time only to go right back to holding down a couch not too far down the road. Once I feel inside that I can fully trust myself with a large revolving credit account, I am going to do that and short circuit the compound interest that is working against me, coupled with paying everything off fast.

Originally posted by @Rigoberto Medina :

Another paycheck, another update. $1491 paid toward consumer debt. Conns account completely paid off, sizable dent put into my capital one credit card debt. Next paycheck I will continue paying off my $35,497 left to go. Seems like a big task but 1 debt has already bitten the dust and I saved a good amount on interest, feels very good.

Awesome! I paid off $87k using the snowball method of smallest to largest.  Not easy but very much worth it.  You are inspiring to many. Thank you for the updates and keep up the good work 👍