How to Start the Path to Pay off Debt

I love creating a budget! I really do enjoy working with the numbers and getting creative in how to make money work for me and not against me.  Since college, I have had a wide array of different budgets depending on my situation.  From planning ahead just a few months to make it through a semester to planning for a whole year and beyond, I have used the same basic style.  I try to estimate what I will need over the course of a specific set of months for each budget category and put aside an amount each month based on using the average across those months.  I even set up 8 bank accounts to help me do this.  And it worked great.  However, in the past few months Michael and I have decided that we really want to focus our money to pay off debt.  It is really hard to find extra money in the budget when you are trying to anticipate and save for every expense that might come up within the next year.  After reading Dave Ramsey’s Total Money Makeover, we decided to try something new.

I really want to start paying off student loans. I think this might help me get started on the path to pay off debt!

We are currently on Baby Step #2  – Pay off Debt.  We only have $1000 in emergency savings which definitely freaks me out a bit, however so far we have been able to get through multiple “emergencies” without having to touch it.  The new style is sort of a hybrid of our previous style and a few other ways to budget that I have read about.  We now budget month to month.  Each month Michael and I meet and discuss what expenses we will have that month and allocate our money accordingly.  There are expenses that stay the same, but there are some that change or do not apply every month.  Basically, instead of saving say $50 each month for auto repair, we know that in September my car needs it’s state inspection and in November my car’s registration is renewed so those months we will put money towards those categories.  It really helped that I have data for the past couple of years to look through and see which months we had specific expenses.

When you are planning your monthly budget, assign each dollar to a category but don’t allocate more money to a category than is needed – the point is to save money to put towards debt! Any extra money that you have left after allocating money to all your expenses for that month should be flagged as debt payment money.  We decided to wait until the end of the month to actually apply that money towards debt just in case something comes up.

At your meeting to discuss the next month’s budget, take this money and any other extra money you have at the end of the month and pay off debt! This means that if you thought you were going to need $300 for groceries, but only spent $250 – that extra $50 should go towards debt, not get rolled over to next month.

We also decided to try out using cash only for groceries and eating out.  So far I REALLY like it.  It has made me really pay attention to what I am spending at the grocery store – the place where I was consistently going over budget!

Having a different budget month to month has definitely taken some getting used to but has worked really well since we implemented it at the end of January.  We have been able to pay off a big chunk of debt while meeting all of our monthly expenses and taking care of some home repairs – all without touching our emergency savings!

Here are some basic steps if you are interested in trying out this new budgeting style and really want to pay off debt:

  1. Read Dave Ramsey’s Total Money Makeover.  I checked a copy out from the library and read it in two days.
  2. Create a calendar for the next year that has periodic, annual, and special occasion expenses recorded.  This does not include common monthly expenses like utilities, gas, groceries, etc.  Think birthdays, anniversaries, car expenses, tax payments, etc.
  3. Get your spouse on board! We had an initial meeting to discuss our new budget and how we were going to ensure that we both stick to the budget. Make it fun with adult beverages and snacks 🙂
  4. Create your budget for the month! (If you have never done this before, check out my four easy steps to start a budget.)
  5. Meet at the end of the month to see how you did and hopefully pay off some debt.

Anyone else trying to pay of some major debt?  We are just beginning the journey, but I am excited to see where it takes us!

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