Paying Off Debt One Cent at a Time

debtOur 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. 

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  1. SO true, David. We feel the same way about the importance of dumping all debt ASAP. We’ve traded in much of the food we love for cheap food while we pay off our debt, but we will be going back to more creative meals after the debt is gone. :-)

  2. This seems to be a gargantuan task. Yet, we all have to start somewhere. Besides, there are things that are just too hard to get rid of such as the food that we love eating. At any rate, we must get out of debt as soon as possible.

  3. Thank you, Laurie!

  4. Thanks Lauren, for sharing what you’ve found helpful. I appreciate it! Good luck in your own getting out of debt journey. :-)

  5. Oh I could have written this letter! I too am trying to get out of debt. I am finding so much help from reading blogs like this, and also from the book, “Practical Steps to Financial Freedom and Independence: Your Road Map to Exiting the Rat Race and Living Your Dreams” by author Usiere Uko. This book does not just tell you how, but moves you towards action. I can already see a difference!

  6. Zimmy, glad to hear that technique has worked for you too. Using those same practices, we’ve been able to cut our grocery bill by half.

  7. You’re right Tracy, it can be difficult. We’ve learned to evaluate the previous month’s spending at the end of each month and see where we could’ve done better, and that’s helped us too.

  8. You always end up spending more money at the grocery store when you go to just “pick up a few things” instead of getting them all at once. We have started using a list every time and it has worked out better. We are actually spending less on groceries.

  9. sounds like a good plan for ur family..We have rent, daycare, car note that are our biggest expenses so we try to cut everywhere else if possible..but it is hard!

  10. Wise advice, Matt. I find it easier to stick with the rules too. And I like your thoughts about having a plan, instead of just saying “I’m not going to spend” . That way you know that latte’ is coming in a few days, and you can just wait it out instead of tricking yourself into thinking you’re never going to have another latte’ again, which could lead to budget failure real quick!

  11. Ruser, sounds like you guys are doing great! As long as the extra trips are for legitimate things, I can see how those expenses would be unavoidable, but for us, the extra trips included straying off the menu planner, as in “I don’t want chicken tonight, I think I’ll go pick up some steak.” That, and the extra gas costs I think were what really got us. Yes, a zero% DTI is our goal – can’t wait to get there!!

  12. It really is just a mindset and a determination. It’s definitely hard to change habits, and even if you’ve been doing it for a while you’re still going to get cravings for the things you’ve left behind. But you just have to make a choice. I find it easiest to make rules, as you have done as well, so that you’re not constantly deciding. Rather than every day deciding whether or not to stop for a morning latte, you make a rule that either says you never do it or something like you only do it on Mondays. If you constantly have to make decisions about those nickels and dimes, the stress and anxiety is much higher than if the decision is already made for you.

  13. I find food to be the hardest thing to stay on budget with. Last year, my wife and I cut back from eating out from once to twice a week to once to twice a month. We’ve mostly been successful with this. But the grocery store has been a real struggle — we keep making those extra trips to pick up a few things. Most of the time, they’re legitimate extra trips, though: we’ve run out of milk, produce, or meat and need to buy a few things so that we can eat for the rest of the week. I think our budget is realistic — we just need to do a better job at finding deals and using coupons.

    We’ve been using the money we’ve been saving to build an emergency fund. Once that’s done, we’ll be focusing on paying off our 5-yr auto loan — we’re hoping to pay it off in less than 18 months.

    A 65% DTIR is really, high but it looks like you’re on the right track to get it below 30% — and eventually all the way to 0%! Good luck!

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