My Journey to Payoff half a million in debt

Welcome to my Get out of Debt Blog

Get out of Debt BlogLet 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

Get out of debt goalsGoal 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

Get out of Debt Progress
Click to Zoom In

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 >

 

Good luck


Good luck

Great post, not sure how to


Great post, not sure how to take it though.

Very good idea


And you have understood?

Damn you have some serious


Damn you have some serious debt. Just don't get any bad credit loans and you should be OK.

Getting out of debt


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 a good plan!


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

Bad Credits


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.

U R Right


@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


  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.

 

Maybe, but.....


Thank you for this post, and thank you for this blog in general. It is not so much that people are ignorant, it's simply that credit issuers and banks have the means and resources to knowingly present to you information and offers that are detrimental to your finances. We as individuals take on copious amounts of debt every day that are in reality necessary evils (student loans, rent payments, car payments). It is almost like making a deal with the devil: you know you are entering into risky, murky waters, yet you have little choice. That being said, even for people who are not as financially educated as you, there are still plenty of precautions you can take before and after you apply for a credit card. For starters, don't be embarrassed about bringing in a third party to take a look at your agreement. Also, be sure to check your credit statements monthly, because you might find a ton of unnecessary charges that you can get taken off. From a more individual perspective, obviously saving is better than spending. But this isn't a sermon on self-control and being pennywise. What it simply means is that no one is going to stop you from spending above your financial capabilities other than yourself, because everyone stands to make a hefty profit if you live above your means.

Get Out Of Debt's picture
We've never had any credit


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.

Re:


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.

If you know exactly how much you spent you are half way through


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.

 

Serious debt


Damn you have some serious debt dude :(

Thanks


I just couldn't leave your website before saying that I really enjoyed the quality information you offer.

Thanks

 

wow are you serious! people


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.

The Snowball Method To Debt


Good luck with your plan, I wish you well...

Our members at Debt Relief USA have had a great deal of success by following the snowball method to debt.  Basically, you list out all your debts with the smallest on top.  You then put all your efforts into paying off the smallest debt fiirst and then move on to the next smallest debt on your list, and so on...

The approach creates a great sense of belief as you can actually see the debts being paid off,  slowly at first, but just like a snowball your capital will build after every debt you repay.

 

 

Inspiring


I find you blog very inspiring. I have $25,000 debt because of my unsuccessful business and now I'm trying to make enough money to cover my debts with selling cordless rotary tools.  It is lookin good for now...

This is actually a tax tip


This is actually a tax tip and advice I could use, thanks for sharing. I do my taxes every year and I'm always open to learning new things that I will not only save money but also make sure I'm doing things right and try to avoid anything that will get me into trouble. Windshield Repair Dallas

astrologers


I completely agree with the above comment, the internet is with a doubt growing into the most important medium of communication across the globe and its due to sites like this that ideas are spreading so quickly.

awesome!


Good luck! Getting out of debt took me years or diligent paying and negotiating with my debtors... I was so deeply in debt that I even missed some payment by more than 30 days, which was reported to the credit bureaus, messing up my score badly! I then learned a few tricks that credit repair agencies use to get bad information off your report, some sneakier than others. One is called a pay for delete, which I actually utilized successfully. You'd be shocked (or maybe not!) at how much more interested these guys are in getting money than "doing the right thing." Long story short, debt is no joke and will most likely end up damaging your credit score, which can further put you in debt later in life. Be careful out there! The world is full of wolves!

Your debt blog


Your debt blog is really inspiring me much. I am also in a debt and after reading your post I am planning tpo pay it as soon as possibble.Thanks for such post.

Same Day Loan

Updates?


So what happened? Did you fall back into debt or just forget this blog?

Down the Middle


 Looking at the timestamp of the original blogger...Guessing didn't make any progress. Not pointing fingers, been in this same boat for 3 years myself. Recently turned a corner though, Tried for years spending every last penny in the budget towards debt and then ended using the same credit cards I paid off the next month. What I finally realized...You cant pay debt down unless you create a realistic spending budget based on your habits cause thats the hardest part to change. I take everything I left over after budget and split it down the middle. Half to saving and half to debt pay down. Its much easier to pay down debt when you have liquidity. My two cents. 

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