All or Nothing
Posted by Gail | Filed under Credit Wise
One of the biggest temptations once you decide to become debt free is to throw yourself into the process – balls to the wall – in your desire to create your new reality. You want to use every spare cent to repay your debt. You’re willing to give up all ideas of having fun. You go at it like a dog!
So how long do you think you can keep it up? Leaping from a life of overspending to one of frugality will leave you feeling like you’ve taken a Polar Plunge. Brrr. And if you find the waters too chilly, you’ll simply give up. It may start small… the odd credit charge, a little overdraft, dabbling with your line of credit… but it will grow.
Getting out of debt, and staying out of debt, requires that you do things differently, but not so differently that you feel like you’ve been exported to someone else’s meager life. Just different enough to get you to where you want to be.
Make a plan. Decide that you want to focus on being debt free, and then figure out what it will take (in terms of money) to get you there. If you have $36,000 in debt, and you want to be debt free in 24 months, you’ll have to come up with $1,500 a month above and beyond your interest costs for debt repayment. Did you see how I got that? (36,000 ÷ 24)
Look at your budget and see where you can trim (without leaving yourself without a soux for fun) to come up with the money. Are there things you’re spending money on that you consider “needs” that are really “wants?” Would you die if you didn’t have food? Yes. A need. Would you die if you didn’t have cable? No. A want.
Not enough in your budget? Then maybe you have to find a way to make more money. Or maybe you need to extend your debt repayment schedule: aiming to be debt-free in 36 months would require that you allocate $1000 a month above your interest costs to your debt repayment.
Don’t go over the 36-month-mark when setting your debt free goal? Why? Well, having been in debt for a while, you’re no doubt pretty close to believing that debt is something everyone has to live with, that it’s inevitable, and that there’s no way to get out. That’s called Debt Fatigue. Once you decide to become debt free, it’s like drawing a line in the sand and starting over. But if you linger too long in the desert, you’ll feel Debt Fatigue start to set in again, and you may fall prey to whatever great “offer” comes you way.
While you’re working on getting to Debt Free, you should cut back as much as possible so that you can reduce the time it takes and minimize your interest costs. But while living on less is a good idea, you can’t live on so much less that you begin to feel deprived. Your desire to be debt free has to be tempered with a sustainable plan to get you there. The last thing you want is to lapse back into bad habits.
Make sure you have a debt repayment plan that works for you. Don’t over-commit to debt repayment and then end up in a Debt Rebound because you can’t sustain your momentum. And make sure that while you’re on the journey to Debt Free Forever you have a little fun along the way.
Here are the winners of Kerry Taylor’s (Squawkfox) 397 Ways to Save Money:
- Pam
- Marianne
- Veronique
- Erin Brown
If you send me an email (getgvo@gmail.com) with WINNER in the subject line and your complete mailing address, I’ll have the books off to you at the end of this week. Congratulations, and watch for your stories to be posted over the next few weeks.
I am also NOT planning on redoing the Life Planner next year. The reasons are complicated, but relate mostly to how long the planner was sold after it should have been. Since I have no control over the sales end of the deal… I’m just the author… I’ve decided not to repeat the experience.
July 6, 2009 at 7:48 am
Getting out of $60,000 in debt in 18 months taught me a couple of things.
1. I’m an extremist when it comes to things like debt. I love a challenge and I face it head on. I cleared everything, and put every single penny I had towards debt. It was some sort of obsessive fever and people started to worry for me.. but I didn’t care. I just wanted that monkey gone.
2. I DEFINITELY had to come up with a budget and track my spending. WOW did that make a difference. Without a spending tracker (the most important), tied up to a budget, you might as well still be floundering around in a boat with only one oar.
3. I didn’t cut out fun completely, but I saved up a lot of my $20 – $50 fun money into my savings and then spent it all at once, instead of buying little things here and there. I like big rewards… so that helped to have a goal of one expensive toy.
I don’t think my approach could work for a lot of people, but honestly, after a while, I didn’t even notice that I was cutting back on so much. It became habit, and I didn’t miss the money.
I was just regretting it had to go to student loans LOL!
July 6, 2009 at 9:49 am
I think that perhaps I have this debt fatigue. I feel like no matter what I do, I just can’t get rid of my $2500 credit card debt. I have a few student loans too, but they don’t bother me nearly like the CC debt. It’s so small, and so silly – but I just feel like I can’t get rid of it. I dedicate so much money to the card ($500/month), that I wind up using it to buy groceries.
*sigh.
I probably need to cut it back to $250/month and just cut the stupid thing up.
July 6, 2009 at 10:03 am
I am sorry to hear there will not be a planner next year
I have found it useful, so thank you for putting one together. It will give me a good template for next year!
July 6, 2009 at 11:50 am
Jessie:
DO NOT USE THE CARD! Read the details of the interest rate charge. Many cards will charge you interest for your NEW purchases of the month if the balance is not payed off in full. Therefore new purchases are costing you interest. Look at your statement and see how much you pay each month to the cc in interest alone.
(The federal govt. seems to want to change that rule, but I do not know when it will take effect.)
Debt fatigue:
My student loan was payed off in under 6 years. The last two were annoying. This loan did allow me a better job, but it is annoying to not be able to enjoy evey penny of the job. So glad it is over.
I understand why Gail recommends under three years!
July 6, 2009 at 12:30 pm
Too bad about the planner Gail. I didn’t buy one this year (never saw it until I came on this site and didn’t want to buy one so far into the year). But I understand how you feel about products with your name on them. I will look forward to the next book!
Today’s post makes me think so much of dieting with food too. How many times do we see people who struggle to get weight off through the same extreme yo-yos? We are working on debt repayment right now as well but I often feel like I’m putting too much one month and not enough the next. We end up going on a lot of small trips to visit family and other events and those seem to be the hardest for me to budget. Mostly because they are already planned (such as my sister’s wedding, a camping trip with friends from out of town who we haven’t seen in 6 months, going to visit hubby’s family next month, etc). These trips usually end up costing us an average of $500, which usually comes out of money we could be putting towards our debt. However, I don’t see them as optional as I’m not willing to put that need (seeing family and friends) on hold. I’m pretty sure that if I paid all my cash on the debt it would make us end up using the cards again to make it through those trips.
It is not easy that we moved last year. We no longer have any of our family or close friends nearby and not seeing your loved ones or getting your emotional support needs filled winds up making me feel like this move and better job was all for nothing, and then I just wind up apathetic to getting out of debt.
We don’t even have that much.. just an annoying sum of 8k on one card from having to buy a car last year for the move (the card is only 1% so it made sense to finance the used car this way) and another 7k in student loans…. any suggestions are always appreciated:)
July 6, 2009 at 12:55 pm
I was having the EXACT problem that Gail’s talking about. At the beginning of this year, I decided “I’m getting out of debt NOW!” (Ok 2 years – I want to buy a house, as soon as possible!)
I put about 65% of my income towards debt repayment for the first 3 months. My bf was nice enough to pay for the occasional night out, since he knew what I was trying to do. BUT, any thing extra that popped up (a course I really wanted to take and I’ll admit it, clothes and jewelry making supplies) went on the credit cards because I was budgeted so tightly for these expenses that I didn’t have the cash to pay for it. I still hadn’t 100% learned the needs/wants lesson.
By March, I was actually more in debt than I was in January! So, then I figured, ok, enough is enough! I looked at my budget, I allotted more money towards clothes, entertainment, and jewelry supplies. It still balanced, but my debt payments would be at the paid off in 3 years as opposed to the 2 years that I wanted.
So, I decided that to keep those payments to the debt, I would have to MAKE MORE MONEY! I’m now working 2 part-time jobs (over the internet) so my debt payments are the same AND I have enough “play” money so that I don’t feel deprived. Oh, and an emergency savings and RRSPs too
July 6, 2009 at 1:10 pm
Jamie, I allocate 40% of my take-home pay to my student loan payment, and that means it will be paid off next year (within three years of graduating! YAY!). I could take all the money from my Emergency Fund (10 months worth) and put that against my student loan, and pay off the entire loan by this November, but that doesn’t really make the most financial sense, since I’ll have to get that EF back up, and who knows what will happen with this economy. Besides, I can always apply for interest relief if I can’t make my minimum payment of 12% of my take-home pay if I’m out a job, but I can’t pull the rent/food money out of nowhere!
I don’t live an extravagant lifestyle, which helps, but I do spend money on life as needed. And sure, I could forego the vacation to Cuba in September (booking it mid-August), but I’d rather use my “bonus” pay for new clothes and a vacation, rather than paying my loan off a month sooner. I’m still meeting my personal goals, and enjoying life, though my decisions wouldn’t work for everyone.
I know vacations aren’t considered a “high-priority”, but at $550 for the week, I’m more than happy to take a week-long vacation in the sun, and just let the loan take a little longer to clear.
July 6, 2009 at 1:15 pm
Jamie…. How are you working over the internet???
My situtation is basically the same as yours. I’m just going to redo the budget to fit in the extra stuff that I was budgeting for and now my debt repayment amount will go down, much to my chagrin. I am trying to find a second job that will accomodate my primary job… with no luck yet. This money stuff certianly isn’t easy and it takes sometime to get something that works… Pressing on!
July 6, 2009 at 2:04 pm
Being debt free is acheivable and worth the effort!
How empowering it is to get a credit card bill with a ZERO balance!
How fantastic it is to have some money tucked away for emergencies!
It is wonderful to know that no bills are going to go overdue AND there is food in the pantry!
Debt fatigue is real, and it is terribly sad to get caught in the mentality that everyone has debt and that debt is normal. For shame! It’s never too late (or too early) to wake up to the possibility of day to day life being free of the credit. It is possible to save up for things and still get them in a reasonable time too!
When I was 23 I bought a great computer on a “buy now pay later” deal. Interest free for 6 months. I saved up SOME of the money in time, but as the deadline drew near, I knew that the interest was going to be RETROACTIVE to the date of purchase! (READ THE FINE PRINT!!!!) The computer was being used for my work, I needed it for my livelyhood. SO I SOLD MY CAR to pay the balance 5 days before it came due to compound the interest. And I had enough left over to get a crappy little scooter to get me from A to B with no debt. That frantic maneuvre saved me hundreds of dollars on the computer and taught me a valuable lesson on the merits of saving NOW so that I’m not pinched later!
July 6, 2009 at 2:22 pm
There is a reason Gail makes people give up their credit cards–
if it is not there, you can’t use it.
Debt can’t be paid off if the cards or the LOC continue to be used, regardless of how much money you are throwing at it.
If you need to retool your budget to fit in more things, then you need to read the blogs on needs/wants.
It is great to receive bills that say $$ 0.00 owing and it is also very freeing to not be arguing with a spouse regarding money.
That peace of mind alone is worth all the hard work of paying off the debt.
@Pol, WOW!! that is a lot of discipline for anyone, but esp. for one so young. You really had your act together.
July 6, 2009 at 2:27 pm
I finally did it on Friday – paid off the remaining balances on two credit cards!!!
OMG, it feels REALLY good!! Now to tackle the rest of that nasty student loan! But yea, I can finally put the credit card monster to rest!! Woohoo!!!
The hard part now is to stick to the plan.
I started off with small steps 1. Stop spending online (that is my weakness), 2. Make meals and eat more at home 3. Tackling the credit cards.
A huge weight has been lifted.
Now I can look forward to the future!! Thank you Gail!!
July 6, 2009 at 2:33 pm
YAY for you Ina!!! Celebrating with you!
July 6, 2009 at 3:04 pm
Emma – Congrats on paying off the student loans, mine will be done in November (6 years after graduating, but 5 years ahead of schedule). We’re planning a trip next year as 2 of the 4 debts will be paid off and the credit cards should be well down – paying for the trip in cash, of course! But, everyone needs downtime.
Rachel – unfortunately, I can’t give out much information since I know they’re not hiring anymore, but basically I twitter to get interest for a website. I found that job on craigslist under gigs. There are occasionally part-time online jobs that pop up there. Good luck!
The part of the budget that made it not work for me in the past, and give up on it, was that it was unrealistic. I thought that if I budgeted $0 for clothes and entertainment, then I would make sure that I didn’t spend any money on them. HAH! That’s not how budgets work. You have to track the spending on a regular basis and see what you’re ACTUALLY spending on those categories and change your budget accordingly. As long as it balances and YOU DON’T SPEND MORE THAN YOU MAKE, you’ll be fine.
July 6, 2009 at 3:19 pm
Thanks Jamie!
July 6, 2009 at 4:02 pm
A trick I’ve learned is to have some things that rotate through my budget. For instance, one month I budget clothing in, the next month I budget personal care (really makeup and toiletries). I never spend as much on toiletries as I do on clothes, so I have some of the toiletries budget carry over to the next month’s clothing budget. I don’t think this would work for everyone, but for me it’s worked because I found myself justifying overspending on clothes and toiletries far too easily because they’re things that we actually do NEED (particularly for the kids, since they grow out of their stuff faster and I have less guilt about buying THEM things than I do bying myself things). It’s just a question of WHEN we need them.
Now, when I’m tempted to blow my budget, I can tell myself “well, my son still has that sweatshirt at home that will last him the rest of the month…maybe when I come back next month–when clothes are in the budget–this one will be on sale anyway.” I have that date in mind (the first of the next month), so it’s a more concrete goal than just “I can’t spend money on that.” And if there’s an article of clothing I feel I desperately need now, I take the money out of my “allowance” to get it (and it’s still kindof a treat).
*shrug* Maybe I’m weird…but it works for me.
July 6, 2009 at 4:04 pm
“Are there things you’re spending money on that you consider “needs” that are really “wants?” Would you die if you didn’t have food? Yes. A need. Would you die if you didn’t have cable? No. A want.”
That’s a good point. Many times, I’ve seen people classify things that are really “wants” into “needs” simply beacsue they think that “everyone else has it” and secretly feel that their friends would abandon them and they’d be social outcasts if they didn’t have it.
“It” can be anything: a new car, a big house, that jacket everyone else has. It can also be intangible: your cell phone plan, your cable costs, or your gym membership. None of these are “needs,” yet it’s amazing how many people will balk at the sugestion to cut them out.
Case in point: Replace the word “cable” in the Gail’s quote with “Internet.” Would you die without internet access at home? No. A want.
July 6, 2009 at 4:12 pm
Thanks Rachel! =) Oh yes, repeating, “Do you really NEED this?” has also helped tremendously!
July 6, 2009 at 4:40 pm
My goal for 2009 was to get organized. My clothes, room and fiances. As I was coming up to the start of my contract and projecting the length my contract will be in 2 depts. I put in my budget the time I will be in between contracts. I am saving and repaying. My student loans will be paid of in 16 and 20 months and my cc in 7mths. I still am saving, er funding, and rrsping. I have setup a direct transfer 2x month for my rrsp. I banked my tax refund in march for a trip that I am planning for March 2010.
July 6, 2009 at 5:36 pm
Jessie: It looks like you need to get on the jar system. Look in Gail’s tools to get a handle on your finances. I can speak from experience in saying that as long as you’re still using the credit card for new purchases, the chances of paying it off are almost nil.
If you have a working budget, you will not be strapped for cash and needing the credit card to fill in the gaps… that’s what got us in the mess to begin with.
July 6, 2009 at 10:14 pm
By following Gail’s advice and making a budget, I am 52 days away from being debt free (yeah!). CC balances are zero or if I have to use them I transfer the money right away which I have set aside for the purchase. The great thing about a budget/plan/jars is/are that it disciplines you – me! – and helps you – me! – to see that the debt has an end.
And in 53 days I will still come back to this website because I don’t want to go backwards and Gail’s advice will still be as relevant to me. Thanks Gail.
July 7, 2009 at 9:07 am
hey gail,
i was thinking you could do a perpetual calendar. one that doesn’t have the year or the days of the week, simple july 7, july 8, july 9, etc. that way if people bought it in may they could use right through to next april, y’know? & perhaps the most frugal of us (hahaha) could reuse the calendar year after year.
July 7, 2009 at 12:32 pm
When we started to get out of debt it was the ALL plan. We just threw everything we could at the debt without any real thought and certainly no time frame. This of course left us financially strapped for the day to day living expenses and without the money to have even a small emergency fund. Big mistake.
We were quite miserable but survived because we were desperate. We got caught up in the fear and then the frenzy to get it ALL paid off as quickly as possible. Exhausting. Eventually our lives became stabilized so we started paying about 25% towards debt (still too much) so we still failed at budgeting and saving still didn’t have a real time plan – just the idea to be debt free as soon as possible. Of course in the beginning we didn’t know about Gail and what was possible so thought that possible meant until it got done.
If I had to do it over again I would stick with Gail’s budget chart of percentages. By allowing 35% for housing, 15% for transportation, 25% for life, 10% for savings and 15% for debt repayment you get the job done but also get to live and save. This is very important because the most important thing is not to add any more to your debt. If your budget is too tight you will just end up making more debt sooner or later – unexpected increase in daily expenses or an emergency. Of course the 15% debt repayment is just the planned monthly repayment. You can always earn more to pay more – which should be part of any debt repayment plan anyways.
As soon as I learned about Gail we started following her budget percentages. She wants every one to be out of debt in a maximum of 3 years which is ideal. In our case to be out of debt in 3 years using the 15% debt repayment plan would have left us with about $1.95 to live on. Using a 5 to 6 year plan gave us wiggle room to live and save. Not ideal at all when you add up the interest but at least a plan. In the end we did pay off our debts in approximately 3 years but we had to earn a lot of extras to boost the 15% monthly payment.
July 7, 2009 at 12:44 pm
Sorry. That line should have read – In our case to be out of debt in 3 years would have left us with about $1.95 to live on.
July 8, 2009 at 11:48 am
I have slowly changed my habits to save myself money.
- I’ve been riding my bike to/from work instead of taking the bus.
- I don’t own a car, so in the winter I will take the bus instead of driving, which saves a ton of money.
- I’m spending more with cash instead of CC.
- Budgeting
- Planning purchases
- I read the flyers for the grocery stores and shop with a list, mostly buying things when they are on sale.
- I rarely ever buy myself clothes, so the last time I went shopping I spent an entire day at Value Village. I blew about $100 on clothes but I got so many pieces that I do wear. I would have easily spent 3x that
-I’m currently working 2 part-time jobs but getting part-time hours even between the 2, so I’ve been looking for something full-time and steady.
- I don’t have cable. I watch my shows online or at my boyfriend’s.
I’m still in a bit of debt, but I’ve been able to get my own apartment, fully furnish it, and much more. (aka all the things I neglected when I was a student) I feel like my life is finally together again and there’s only one more step – getting rid of the credit cards!
July 8, 2009 at 11:48 am
*I would have easily spent 3x that buying them new.
July 10, 2009 at 5:38 pm
Hello Gail,
I’m sorry to hear that there won’t be another planner; I didn’t find out about this one until June, so I was waiting to buy one until 2010. Have you thought about a self-published downloadable planner? People could pay to download and then either work with it on-screen or print out a paper copy, and you could control when it was available — but I know that your publishing contract might thwart that idea even if you liked it.
Thank you so much for the show and for this blog — your ideas are so helpful!