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March 13, 2006

Baby I got your money

Recently, I got a flurry of emails asking me to explain my debt-repayment stuff more in detail. Well, Ok. It wasn't recently, as I am currently about six weeks behind on email. Once the server person fixed the mail after the Great Blip Of 2005, he set up all these folders and stuff and I have challenges. I'm sorry. I do suck bad with the techmology, but will one day actually answer your email and I am so sorry if between now and then you forget who the crazy woman is with the cat hair.

Some folks had questions on how ... how! can someone repay debt and still live? I'm no Suze Ormon, because she kind of scares me, but I can tell you what I'm doing and how it's working for me.

1) Come up with a Debt Repayment Plan.
I just used the super-simple Excel budget to figure out the bare minimum I have to pay every month, then I got to see what was left over. That money became Debt Money, and I have a fixed amount I pay toward my debt each month.

2) Pay more than the minimum!
Really. If you pay just the minimum payment on your credit cards every month, your marriage to Visa or MasterCard will last longer than my marriage to you-know-who.

3) Stop the bleeding.
Stop shopping for a full month. Just one month -- buy only groceries and absolute necessities (hi! DVDs and handbags are not a necessity!) This is a one-month experiment to see how much you spend vs. how much you can cut out. You will be shocked. Really. can't stop shopping? Write down each and every penny you spend for a one-month period. i discovered I was spending more money on magazines each month than gas for my car. Not. Good.

4) Create a "leaking" fund
My budget was leaking in the first year. I found that no matter how close I lived to the bone with every extra cent going to Master Card, I still had a 1995 Jeep and a 1997 cat who liked loving, expensive attention at the specialist of their choice. So I re-adjusted my budget, and now I move $50 per week into a savings account. I find that having a cushion of cash flow makes the scary car and cat repairs less scary -- I can pay for them in cash instead of adding more to my debt. It makes debt repayment a little slower, but I am no longer adding to the giant bill, so it's better in the long run for me.

5) Factor in special events
When we decided to take this trip to Paris, I knew I couldn't afford it according to the budget. But I really wanted to go away with my friends. How to do it without charging the whole thing? I began by scaling down the payments I make on my debt for a two-month period (I pay WAY MORE than the minimum) and bringing my lunch to work every single day for two months which freed up enough cash for the trip. Clearly, you don't want to make this your normal method of business, because debt repayment is the key to freedom. But for a one-time special case, it seemed more logical to pay less toward debt while racking up no new debt.

6)Put yourself first
You must remind yourself every day and twice on Sundays that your goal is to be free. Living close to the bone isn't fun, but it's freedom.

I have one goal and it is all achieved a little bit each day: Financial freedom. One day I'll be able to wake up and know I owe nobody nothing. I can't imagine how great that will feel, and the sheer accomplishment of it makes me feel like I'm on the right path. You can never go back an un-buy the stuff you're still paying for. But you can start right now digging yourself out of the hole.

Posted by laurie at March 13, 2006 6:24 PM