My Journey to Payoff half a million in debt
Welcome to my Get out of Debt Blog
Let me introduce myself. My name is Alex. I am a married man with two kids who is in a unique money situation. Our household income is well above average, but so are our expenses. I’ve been posting quite a bit on other finance forums as to how we can make so much money and still be a half million in debt. I was approached by MoneyStance.com staff to see if I would be interested in chronicling my mission to get out of debt with a featured blog on this site. I really need to get all my ducks in a row, receive other’s advice, and have a record of this process…so I gladly accepted. This will be fun and educational for me and hopefully for you as well. I’m looking forward to your input.
My inspiration to accept and document this process came after reading Dave Ramsey’s “Total Money Makeover” book. He outlines a series of baby steps for those willing to give “gazelle intensity” toward getting out of debt. This approach is great for probably 95% of people in debt. However, I’ll use the free MoneyStance.com budget spreadsheet, and will be taking a more modest approach to getting out of debt. Rather than squeezing my family into a card board box, selling my cars, picking up a third job, and the like, I'll proceed as best I can without killing all enjoyment. My wife and I have worked very hard getting great careers and increasing the income generation of our household, but now we need to get a handle on expenses and start paying down this debt.
My Get out of Debt Goals
Goal 1: Achieve a Net Worth of $0 by paying down debt and increasing savings and investments.
Goal 2: Have $0, and I mean ZERO debt and liabilities.
Goal 3: Increase my net worth to $500,000. Basically, turn half a million in debt to half a million in assets…a daunting task to say the least.
My Get out of Debt Status
Let’s begin by defining my current financial status:
| DEBT | EQUITY | Asset Value | |
| Property | $277,104 | $320,000 | $42,896 |
| Remarks: This is our home plus our 4 unit rental property. I took the value of the properties from Zillow to determine equity and subtracted the remaining balances on the mortgages to figure the Asset Value. | |||
| Equity-Line | $39,500 | $0 | -$39,500 |
| Remarks: Took this line on our primary residence to fund the down payment on an investment property. | |||
| Credit-Cards | $12,241 | $0 | -$12,491 |
| School-Loans | $156,565 | $0 | -$156,565 |
| Remarks: Yup, it's a lot. Between the both of us there are 13 years of schooling with no parental help. | |||
| Vehicles | $33,916 | $28,200 | -$5,716 |
| Remarks: I took the trade in values for both vehicles from Kelley Blue Book to determine equity and subtracted the remaining balances on the loans to figure the Asset Value. | |||
| 401Ks | $0 | $40,096 | $40,096 |
| IRAs | $0 | $6,600 | $6,600 |
| Investments | $0 | $7,000 | $7,000 |
| Remarks: This is a gamble on an IPO that still hasn't panned out. | |||
| Savings | $21,800 | $21,800 | |
| 529 | $1,318 | ||
| Remarks: I can't let my kids have the same burden as my wife and I with school loans. Our goal is to pay for at least half of their college education...which is not included as assets. | |||
| Totals | $519,326 | $423,696 | NetWorth: -$95,630 |
My Get out of Debt Monthly Budget
Income and Expense tracking has begun for the month of June. Let's see how good my budget estimates are at the beginning of July. Keep in mind this is for both our home and rental property.
| Income | This Month | Over/Under | |
| Salaries | $15,382 | Check back after July | 1st to see how I did |
| Rental | $2,797 | ||
| Other | |||
| Total: $18,179 | |||
| Deductions | |||
| Taxes | $3,841 | ||
| 401K | $1,240 | ||
| Remarks: We could put this toward debt, but I need to match company contributions and the investment market is just so under valued at the moment. I hope I'm making the right choice. | |||
| Life-Ins | $48 | ||
| Health-Ins | $465 | ||
| Dental-Ins | $30 | ||
| 529 | $100 | ||
| Total: $5,724 |
Remaining Income: $12,455 | ||
| Long Term Debt | |||
| Mortgages | $2,737 | ||
| Equity-Line | $250 (min) | ||
| Vehicles | $821 | ||
| School-Loans | $1,286 | ||
| Total: $5,094 | Remaining Income: $7,361 | ||
| Expenses | |||
| Insurance | $415 | ||
| Day Care | $450 | ||
| Gas | $500 | ||
| Food + | $1,100 | ||
| Remarks: The + means anything you would buy at a retailer, such as a shovel, toilet paper, lawn bags, clothing, etc. This is so high due to formula, diapers, and feeding 4 mouths. | |||
| Electricity | $450 | ||
| Oil | $800 | ||
| Water&Sewer | $255 | ||
| Trash | $20 | ||
| Internet/Tele | $80 | ||
| Cells | $90 | ||
| Cable | $130 | ||
| COH | $400 | ||
| Remarks: COH is Cash on Hand that is spent every month on lunches at work, fast food on the go, tolls, quick marts, incidentals, small apartment fixes, and the like. | |||
| Credit Card | $275 (min) | ||
| Newspaper | $10 | ||
| Gift Savings | $100 | ||
| Dinning Out | $200 | ||
| Total: $5,385 | Remaining Income: $1,978 | ||
I bet many of you in debt are looking at this and shaking your head. I agree, we make decent money but spend way too much. Somehow, I need to bring this budget in line or this half a million in debt, at $1,978 extra each month, will take 22 years to pay off. I also have a feeling that when I calculate what was spent each month our expenses will probably eat up that extra two thousand. Let’s see where it goes the first month, then I’ll figure a strategy.
My Get out of Debt Progress
My Get out of Debt Conclusion
So I’ve established my debt is well over half a million and my net worth is hovering around 100k in the red. I have estimated the household monthly spending habits in the budget and will analyze with accurate data at the end of the month. From there I’ll be able to assess exactly where the money is going and where we can cut the fat. Now I’d like to here from you. Call me a moron, tell me I’m inadequate to handle money, give me some advice, or just wish me well on this endeavor. You can comment on this blog below, or if you wish
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| Getting Out of Debt Blog | Getting Out of Debt June 2009 > |
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Good luck
Great post, not sure how to take it though.
And you have understood?
Damn you have some serious debt. Just don't get any bad credit loans and you should be OK.
Thanks for sharing your plan and progress thus far for getting out of debt. I know a lot of people in this situation, many who make a decent income but like you also spend a decent amount of money. It's all about adjusting your lifestyle and cutting costs where you can. After getting out of debt, the next step would be to start investing (yes even in this down economy). Dividend funds and some money market funds would be a good start. Looking forward to seeing an update. For those interested, you can check out my savings interest calculator site to see how much even a 1% interest rate increase can make to your savings over time.
Looks like you have a good start! Congratulations for digging yourself out instead of reaching for a bail out!! Kudos to you my friend!
Sarah at car rental UK
http://www.aspectcarrental.com/car_rental_uk.html
I guess you are ignorant of bad credit cards and the problems that debts might cause. You better get a clear picture of these first otherwise you might get in to serious troubles from the creditors end or collectors end.
@Bad Credits,
You are very right, having a good credit history is imperative for making fair monetary deals. I took help from Credit Repair Canada
I know a lot of people in this situation, many who make a decent income but like you also spend a decent amount of money. It's all about adjusting your lifestyle and cutting costs where you can. After getting out of debt, the next step would be to start investing.
We've never had any credit issues, never been late on anything. I believe our scores are in the upper 700's near 780. Once we get some of this debt down, I'll bet we can break 800. However, once the debt is paid off, I'm not going to rush into any more loans diminishing credit scores importance in my life.
Thanks for sharing a lovely article. Well i think that a person who is able to work through these emotions may feel stress, irritation, anger and frustration when faced with a severe financial hardship. Most people are able to work through these emotions and focus on taking action to resolve the problem. Apply the same circumstances to a person suffering from depression and Financial Spread Betting but the results may be very different. Already feeling as if life cannot get any worse, this person may sink deeper in depression making it impossible to face, let alone correct the situation.
Everyone should be aware that realistic expectations and goals are the key to not getting to deep into debt. If know exactly how much you can spent and are immune to emotion driven shopping you can definitely succeed.
Investment in real estate is just one of the assets that will keep you on safe ground looking form your personal financial perspective.
Damn you have some serious debt dude :(
I just couldn't leave your website before saying that I really enjoyed the quality information you offer.
Thanks
wow are you serious! people actually get themselves in this much debt!!! that is outrageous and totally ridiculous for them to do. but i guess in the end they have to pay for it.