Our family is in the middle of a journey to rid ourselves of debt. We started digging our way out of debt in January of this year, and we’ve got a ways to go before we accomplish our goal. But we’ve already learned some important tips along the way.
One of the reasons our family ended up in so much debt (can you say “65% debt-to-income ratio”?) is because we didn’t comprehend the importance of each and every penny that came into our household.
We didn’t get ourselves into massive debt by going on vacations, buying new furniture or vehicles, or even by buying an abundance of expensive clothing. We got ourselves into debt a nickel and dime at a time.
Let me give you an example or two:
In 2012, when we made our first “real” attempt to get out of debt, one of the first things that went was that we cut eating out at restaurants dramatically, down to once a month or so. We thought we were doing well in this area until we began our real getting out of debt journey in January of 2013.
In order for us to get a better handle on our spending, I went back and tracked all of our 2012 grocery purchases, gas purchases (for me, because I’m a stay-at-home mom) and out-to-eat/entertainment purchases.
What I found was staggering
Even though we only went to “real” restaurants once a month, we wasted nearly $175 a month on grabbing snacks at the Target snack bar, trips to McDonald's, and going to Chipotle to get orders of rice and a side of guacamole instead of a whole meal, which I prided myself for as being frugal. $175 a month!!!
When I went over our grocery bill, I found out more clues to how we ended up so deeply in debt when we “weren’t spending any money”.
Our self-imposed $600 a month grocery limit was actually more like $900 a month. Why? Because of 2 or 3 extra trips a week to the grocery store to “pick up a few things”. That left us $3600 over our so-called grocery budget for the year.
No wonder we were in debt!
What I’ve learned after studying last year’s habits and then changing the game up for this year (by tracking all spending and staying on budget) is that every single penny really does add up, whether for the betterment of your financial situation or for the destruction of it.
Crunching the numbers
Let’s take a look at how much money you’re really saving with those pennies, should you choose not to spend them.
Let’s say a person has $25,000 in credit card debt, is paying 10% in interest, and paying $500 a month toward those credit cards. The cards will be paid off in 65 months, with a total of $7,474 paid in interest to the credit card companies. (Yes, you just handed the credit card company a check for nearly $7,500).
But if that person pays only $30 extra a month on those cards, roughly a dollar a day more, and the cards will be paid off in 61 months instead of 65 months, and the total interest paid will be $6,892 instead of $7,474. So, instead of paying $32,500 on your credit cards over that 5 years ($500 x 65 months), you’ve paid $32,330 ($530 x 61 months), so, $170 less in total payments, for which you “earned” $582 in saved interest paid.
If you’re considering a debt payoff journey, or are currently on your road to debt-free, I encourage you to, at least for a short while, take those extra “few dollars” that you spend on lattes, eating out, or snacks at the grocery store, and shelve those habits for just a little while. If you do, your arrival at your debt-free destination will happen much, much quicker, and you’ll save hundreds of dollars for the sacrifice of a few dollars here and there. Here’s to a debt-free you!
Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.