One reader describes how he and his wife made a debt plan to save $22,000 and ditch their debt in a year
Following is a PeerStory from Francis Wheeler about how he and his wife tackled their debt problem. Francis’ is one of the most detailed debt plans I’ve seen and really shows how saving on little expenses can add up and save you big money in a short amount of time. Between the two, they were able to save or make an extra $22,000 to pay off about all their debt in just a year.
Check out Francis’ debt plan steps to ditch your own debt and save money. I’d love to hear your story of personal finance challenges and success so send me a note and help everyone learn from your experience.
Now Francis’ story…
Make a Debt Plan to Ditch your Debt
The first thing my wife and I did to ditch our debt was to make out a debt plan including listing out all our consumer debt. Beyond our mortgage loan which had a fixed rate of 5.6%, we had $6,000 left on a car loan along with $12,000 on credit cards and a department store card.
We really weren’t too worried about the mortgage loan. The interest rate was lower than we were making on our investments and the monthly interest on the loan was well under what we’d be paying in rent. We set a goal of paying off the rest of our debt within a year and figured we could pay off the $18,000 if we really worked at it.
The loan on the car was at a 9% rate while the credit cards and department store card all carried rates of about 20% on the balances. We decided to consolidate our credit card debt into a personal loan from Avant which lowered the rate to 11.8% and there was no origination fee. The loan was for three years with a fixed payment but we resolved to pay extra each month to get it paid off over the year. I estimate that the loan consolidation saved about $1,500 in interest that we would have paid on the credit cards and it was nice to have one payment a month instead of four.
Most personal loans don’t have a prepayment penalty so we could pay it off early and not worry about fees. The upside of the personal loan was that it was non-revolving credit and would be better for improving our credit score compared to the revolving debt on our credit cards.
Using a peer loan for debt consolidation is a great idea, especially if you can lower your rate significantly. Check out this free video that explains peer lending and how to get a personal loan.
How I Saved $22,000 to Ditch my Debt in a Year
My wife and I then set out to find money everywhere we could. This included making money as well as saving money. Some of the debt plan steps were pretty tough at first but after a while, we found that we were saving all kinds of money and barely missed some of the things we’d given up.
Ditch Debt Plan Idea #1 – Making extra money freelancing
With two full-time jobs, my wife and I were not looking to take on too many extra hours of work each week. We are both salaried and work a little over the standard 40 hour work week so there wasn’t going to be any extra money in overtime pay.
Instead, we decided to find ways to freelance and make a little extra money every month without busting our butts too much. We wanted to get out of debt but were pretty confident we could do it without overworking ourselves in the meantime.
My wife had always liked to write and her job in marketing gave her some pretty good skills in copy writing. She reached out to a few travel bloggers for regular writing assignments and found a few clients on the Problogger job board. She started off with smaller projects making about $0.05 per word but was able to get better projects and more pay by the end of the year. Looking over her invoices, she made $4,060 for working about 180 hours throughout the year. She still writes for some of the clients but on a more limited basis.
For my part, I set up a real estate referral system by using social media and a starter website. I set up the website, started filling it with short articles on the local real estate market and did some advertising on Facebook and Google. Since it was all local, the advertising costs were pretty low and I was able to get targeted leads to the site. I collected email addresses on the site and reached out to visitors about their real estate needs. After a few initial talks to qualify people, I would introduce them to a real estate agent that paid me $50 for each lead and a 0.5% commission if they ended up buying anything. I ended up making $5,200 over the eight months after deducting costs for advertising and the website.
Interested in how you can make money freelancing or how to get started? Check out my work from home blog and how to make money online.
Ditch Debt Plan Idea #2 – Become a one car family
One of our cars was paid off and we decided to try out being a one-car family. We sold our 2009 Ford Taurus for $9,500 which was about the blue book value. Selling the car saved us $34 a month in car insurance and about $40 a month in gas (estimated after reducing for extra miles on our other car).
I actually started biking to work twice a week which meant I could drop the gym membership and save $25 a month. We live in Omaha so it was only practical to bike for about seven months out of the year.
The first two months of being a one-car family were tough but it really wasn’t that bad once we adjusted to it. My wife and I work fairly close to each other so we take turn driving or arrange to carpool with coworkers if one of us is working late.
Ditch Debt Plan Idea #3 – Increase car insurance deductible
On the car we kept, we increased the insurance deductible to $1,000 and lowered the coverage a little. It was still a fairly comprehensive plan that covered uninsured drivers, liability and theft so we weren’t too worried. It saved about $10 a month which didn’t seem like much but we’ve gone years without an accident so it was money well-saved.
Adjusting your insurance is one thing but resist the temptation to drop it altogether. Check out our prior post to see exactly how much insurance you need and how to save money.
Ditch Debt Plan Idea #4 – Sell the stuff
Like most people, we had a lot of stuff laying around the house that we had never used or had used maybe once or twice when it was new. You know the stuff, a treadmill that sounds like a great way to get in shape but turns out to be a great way to hold your coat.
We gathered up all our junk, I mean precious stuff, and put out ads on Craigslist. We ended up selling a treadmill, an old laptop, the some furniture we had in the attic and some other smaller stuff. It took just under a month to get rid of it all and we ended up making just over $350 and change.
Ditch Debt Plan Idea #5 – Cutting the cord for a few months
One of our best decisions was to cut the cable cord for a few months. The renewal on our cable TV service was coming up in May so we planned on letting it lapse for a few months. The weather would be getting nicer outside and it would give us an excuse to get out of the house.
We still kept our internet connection which was with a different provider so we didn’t miss our TV completely. We ended up getting a DIRECTV package after a few months of no cable. We still saved a lot of money and it’s nice to have during the long winter. For the five months we went without cable service, we saved $240 counting taxes and all the other charges.
Ditch Debt Plan Idea #6 – Ditching Starbucks for big bucks
One of my biggest expenses, though I didn’t even realize it was my morning stop at Starbucks for coffee. I’m not even one of these Venti double-latti cappa-frappa-chino type of guys but I was still spending more than $9 a week for a regular coffee.
It wasn’t even that I loved Starbucks that much, sorry to all the fans out there. It was just that my butt was too lazy to get out of bed in time to make coffee and there was a Starbucks on the corner by work.
We bought a new Mr. Coffee machine with a timer system for $35 and the 12-cups it makes is more than enough. I set the timer each night to have the coffee ready before I leave for work. Even after paying for the machine, I save about $400 a year by not going out for coffee.
Ditch Debt Plan Idea #7 – Becoming the coupon Queen…err King
We don’t get the same kind of coupon deals in Omaha that you see on TV. Most of those super-coupon shows are set in California where you can double-up on coupons or do all kinds of crazy stuff. We’re a little more limited here but the wife and I still managed to save about $13 a week in groceries.
It’s actually been a lot of fun too. Every Sunday, we open up the paper after breakfast and look through all the coupons. We try not to buy anything we wouldn’t normally just because we have a coupon. That’s a big trick we learned pretty quickly, that a lot of the coupons are on pricey, top-shelf brands and you’re really not saving much if you normally shop frugally anyway. Still, it’s nice to sit there and talk through the deals and we save a little in the process.
Ditch Debt Plan Idea #8 – Discount date nights
We’ve always made it a point to go out at least one night a week to dinner, a movie or just something to do together. We used to go out towards the end of the week or on the weekend until we discovered how much money you can save by going out mid-week. Tickets for movies or other events are often discounted on Tuesday or Wednesday nights and you can usually find other deals if you look for them. If nothing else, it’s always less crowded mid-week so there’s no lines.
We also started watching for Groupon Local Deals for things we want to do. The site always has some kind of offer going on and you can save quite a bit of money on things you were going to do anyway.
It’s hard to say how much we saved by going out during the week since we really didn’t keep track that well. I would say we saved at least $20 a month which doesn’t seem like much but we didn’t have to do anything differently but change our plans a little.
When it was all said and done, we had actually saved just under $22,000 over the year and was able to pay off all our debt including some of the mortgage loan. We’ve reverted back to some of our old spending (deleted) and we do not spend as many hours freelancing but we still save quite a bit more than before our debt plan. We don’t even miss some of the things we gave up and I’d recommend everyone try out some of our debt plan steps for at least a few months.
I want to thank Francis for sharing his PeerStory and a great debt plan for getting out of debt. Even if you don’t need to save as much as he did, try out a few of the debt plan ideas in his list and share your experience with the group.