debt freedom

Some of you may wonder… So what makes Martilyo qualified to educate anyone about personal finance?  Well, to quote Charles J. Givens, a national best selling personal finance author from the early 1990′s, when he was asked what made him qualified to teach people about money.  He simply replied, “I have a lot of it.”  Well, what makes me qualified to educate people about debt?  Well… I have a lot of it.  In fact, when I started this debt freedom journey only 3 months ago, I was in debt over $100k in personal consumer debt.  This debt consisted primarily of credit cards, student loans, car loans and a home equity loan.

No thank you!

How did I start this journey you may wonder?  I got sick and tired of my money, my income dripping and being sucked away little by little from businesses.  I had digital cable tv with dvr that no one watched, insurance coverage I didn’t really need, a company monitoring my credit score and others that just collected the my money that was dripping out of my bank account.  Then there are the leeches… The big fat leeches that suck your income away.  It is called interest.  Credit cards and loans.  When I added up all of the interest I paid in 2010, I about passed out.  I thought, damn I could have really used all of that money.  I used to feel like I was somewhat intelligent.  Now I felt like a big horse’s rump.

When you come to realization that your boat is sinking in the sea of financial trouble, how do you keep from sinking?  Where do you start?  I did what all overweight people do when they start a diet plan.  Stop eating crap (stop using credit) and get on the scales (no, not the weight scale, but the total debt scale).  Sit down with a pen and paper, computer or napkin and crayon.  Ok, maybe not a napkin and crayon, but you get the picture.  Write down every debt you have.  I am not talking about electricity or your water bill, because they are expenses and not debt.  List out all of your credit cards with interest rate, minimum payment and total amount owed.  Do this with credit cards, loans, medical bills and etc.  Then add them all up and see where you sit financially.  Don’t worry if you forget 1 or 2, I know I did.  It was hard to remember them all.  I ended up tracking all of my debt using a spreadsheet.  If you do not have a spreadsheet program, you can download Open Office for free. http://www.openoffice.org  I set the spreadsheet up so I can track the total by month, so across the top I have Jan-Dec.  This is probably the most difficult part of the journey to debt freedom.

Now that you have all of your debts laid and totaled up (income leeches) it is time to start stop the leaks.  Here are some ideas to keep your income from going down the drain.

• Eat more at home and less in a restaurant.  Add up how much you spent eating out last month and you will probably be shocked how much money you spent.
• Turn off all unneeded services.  Turn off the digital cable, land-line phone and anything you pay for that you don’t use.
• Buy in bulk – usually you can save money by buying items you always use in larger quantities.
• If you are still paying for cell phone insurance and your phone isn’t really all that new anymore, turn it off.  See if your cell phone company offers a discount for the company you work for.
• Raise the deductibles on your car insurance from to $500 or even $1000 and turn off rental car reimbursement and roadside assistance.

These are just some of the things that I did to lower my bills every month.  I will have more ideas later to come, use what you want if it will help you save your precious income.

Ok,  Now you have a good idea where you sit financially, what is next?  I am going to lay out some steps, or what Dave Ramsey calls “baby steps” to help make this journey much more organized and focused.  Before I tell you how to do this, I am going to tell you that there is nothing that will help you get out of debt unless you stop using credit cards.  STOP BORROWING MONEY!  Ok, on to the steps…

1. Start a $1000.00 emergency saving fund – Save up $1000.00 in an account and save it for emergencies.  No, a sale at Kohls or Home Depot is NOT an emergency.  This fund will keep you from using a credit card for an emergency.
2. Start paying off your debt by creating a debt “snowball.”  Find the loan or credit card in which you owe the least amount of money.  This is the card you are going to focus all of your extra cash on.  Pay the minimum owed on all the other debt except for this one.  Lather, rinse and repeat.  Once that card is paid off, go on to the next lowest balance debt.  Keep doing this until all of your debts are paid off and you are debt free with the exception of your home.
3. Continue putting money into your emergency savings until you have 6 months worth of expenses saved.  Yes, six months.  If you ever lose your job, you will be grateful you did.
4. Invest for your retirement – Invest in your company’s 401k and max out a Roth IRA.  Invest at least 15% of your gross salary.  Where you invest depends on your age and risk tolerance.
5. Save for your children’s education – Invest in Education Savings Accounts and 529 College Savings Funds.
6. Pay your home off early – While investing 15% for retirement and you have your children’s education funded, start treating your home like your debt in baby step 2.  Keep attacking it until it is paid off.
7. Now that you are truly debt free, it is time to build wealth, enjoy your money and give all that you can!

I am currently on baby step 2 and will be there until my consumer debt is paid off.  Stay tuned to my goals page and I will keep that updated with my progress.  Good luck on your journey and let me know how you are doing.  I love helping people keep motivated.

Martilyo!