(Guest Post by Travis of Enemy of Debt)
Imagine coming into work Monday morning, and being informed by your boss that your yearly salary is being increased by $40,000. Doing some rough estimating, after Uncle Sam takes 25% you’re left with a cool $30,000, which works out to an additional $2500 per month.
How would you feel? What kind of impact would that make on your life? I think most people’s reaction would be a cautious smile until you exit the workplace at which time you may find yourself doing back flips through the parking lot while screaming at the top of your lungs.
I’m not sure exactly what my response would be, but my wife and I are going to find out on March 28th, 2014. We are three and a half years into a debt management program (DMP) eliminating our credit card debt. Our DMP payment is our single largest monthly bill. It’s bigger than even our monthly mortgage payment, and not just by a little bit.
How in the world we got there
My wife and I began overspending from the very beginning of our marriage. We supplemented our income with credit cards thinking that eventually our pay increases would outpace our spending and we’d see our debt disappear. However, with each pay increase, the extra money wasn’t used to reduce our debt. Instead, it was used to simply keep up with the rising minimum payments on our lines of credit. More income allowed us to charge more, resulting in more credit card debt. It was a vicious cycle we just couldn’t break.
Eventually we hit that crossroads where we were unable to meet our monthly financial obligations. We enrolled in a debt management program in which we make a single payment to our debt relief company each month. Part of the enrollment process was to add up all our debt, which inexplicably, we had never done. It was the first time either of us saw how much credit card debt we really had, and how much we were paying each month to credit card companies.
It was mind numbing.
We had accumulated $109,000 in credit card debt, and our monthly payment to our DMP was going to be $2,489. In order to successfully make a payment that large each month, we were going to have to make some major changes to our lifestyle.
What we decided to do about it
Over the past few years we have been in a mode of continuously cutting expenses. Every month we scrutinize every bill asking ourselves if that service is worth keeping, or if we could somehow reduce it. Unfortunately, eliminating unnecessary expenses has been the easy part.
Making payments to our plan and reducing spending will go a long way towards eliminating our current debt, but the hard part has been changing the behavior that led us into debt in the first place. We needed to learn the skills to live within our means, and handle our finances the right way:
- Communication: Vonnie and I didn’t communicate about our finances at all. Most, if not all, of our financial discussions consisted of her asking if we were OK, and me saying, “We’re good.” Which was a complete lie. We needed to learn how to sit down and have honest discussions about our income, our expenses, what we could afford and what we couldn’t.
- Budgeting: For the first 13 years of our marriage our budget consisted of a worn out piece of paper folded up and tucked in the back of the checkbook. It listed our monthly bills, our income, and money left over. It was certainly a good start, but when we ran out of money, we’d just use a credit card. That’s not a budget, that’s a recipe for financial disaster. It’s taken several iterations, but we’ve finally found a system that works for us.
- Be Selfish: I read a post recently that said we should be selfish with our money. That phrase really hit home for me, as I think of it often. When Vonnie and I create our weekly spending plan we evaluate every potential expenditure to determine whether it’s worth parting with our hard earned money.
It has been a difficult process for my wife and I to learn and truly execute these new skills, but we’re definitely traveling down the right path at this point.
We are projected to make our last payment on March 28th, 2014. When that last payment is made, we will be free of our credit card debt, and instantly get a $40,000 a year raise. Our available funds will be increased by $2,489 each and every month.
That’s a lot of money.
What this new “raise” will mean
We both agree that we need to have a clear plan as to what we’re going to do with that extra cash flow once it arrives. We’ve talked about it several times and have come up with a couple of major categories:
- Retirement: Fortunately, even as we funded our lifestyle with credit cards, we put a fair amount of money into a 401K early in our marriage while the internet boom was still in full swing. Even though the 401K had to be neglected while we work our way out of debt, my employer still contributes some amount each pay period. That being said, once we have these extra funds available we’ll start throwing more dollars at retirement.
- Education funds for the kids: We had intended to start education funds for the kids immediately when they were born. Our out of control spending lifestyle prevented us from doing that, though. We may not be able to help them as much as we had wanted, but we’ve still got some years left to save for them.
- Emergency Fund: Bigger is better, right?
- Increase Monthly Budget: I’m just going to go full frontal and admit it. We’re going to spend a little more on ourselves each month. With the spending cuts we’ve made over the last three and a half years, as well as the income increases we’ve gained due to taking on extra work, we’re in a pretty good place financially. We’ve even started to build an emergency fund. I feel life is meant to enjoy and given such a substantial raise I don’t think it’s out of line to enjoy it just a little bit more.
So what will I feel l when I get that $40,000 raise? I think I can sum it up in one word: Secure.
What are you doing to get your raise?
Travis blogs at Enemy of Debt where he candidly shares his personal journey to pay off $109,000 of credit card debt and the tips he’s learned along the way. As a father and husband he provides a unique perspective on balancing debt, finances, and family.
[EDITOR’S NOTE: That debt management program (DMP) Travis mentioned and is enrolled in? It’s through a company called CareOne Debt Relief Services – a place Travis also blogs at and shares his debt killing stories on :) For those who were wondering…]
(Photo by: Vectorportal)
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!