Thursday, October 2, 2008

In Celebration of Progress: $11,000 in debt is gone!

One year ago this week, I started my new salaried position as an editor. After ten years of freelancing, I was ready to settle into a steady 40-hour-a-week project with a regular paycheck and benefits when just the right thing came along.

52 weeks later, I can report that I love my job! And I've been able to make good progress toward my goal of living sustainably.

For me, living sustainably is not just about recycling or growing my own dirt using worms and table scraps in the basement; it's not just about reducing my carbon footprint or the mess I make on this earth. For me, it's really about living in a way that is actually sustainable.

Toward that end, I have set about removing myself from the shackles of debt that have plagued me in all the years that I've been too ill to earn a living wage--in other words, too sick to sustain myself. It began with the Year of Healing, which sent me deeper into debt, but which helped me to get well enough to do this job I now have (which sustains me).

Phase one accomplished.

Commencing phase two.
With a level of health that was still not 100%, but which allowed me to complete my 40-hours-a-week of work from home, last November, I set about reducing my debt and increasing my savings.

After one year, I am able to report that I have reduced my credit card debt by more than $11,000. I have invested 3% of my gross income into a 401k with company matching. And I have in my savings two months worth of living expenses. And I did all this while supporting not just myself, but my partner who arrived here in late December.

I confess I wish that it were all happening quicker. I wish the economy were in better shape and that my partner could sell his house and find lucrative work here, which would free up more of my resources to get myself out of the hole--and into a home of my own.

Nevertheless, now that I sit here surveying the work of the past twelve months, I am savoring the progress. It feels really good to have come this far.

How I did it.
I've employed a lot of money-saving techniques that I never seem to have the time to write about here. But, in a nutshell, I followed the basic rules I think are necessary to live a thriftful and sustainable life.
  • I increased my income. In addition to my full-time work, I kept a couple of freelance clients. It was often exhausting to stay at the computer nights and weekends, but it's been worth it.
  • I set a detailed and specific budget in an Excel spreadsheet.
  • I tracked all of my actual spending for one month and compared it to the budget I had set out.
  • I paid cash for things and used my credit cards only for airline tickets, hotels, and rental cars.
  • I took a good solid look at my debt. I got out all of my credit card statements and made a spreadsheet in Excel that listed the cards, their current interest rate, the monthly finance charge I had paid, and the amount I had left to pay.
  • I felt truly dismayed and overwhelmed--and angry--as I looked at that massive number. Then, I took a deep breath and I made a plan.
  • I mapped out in Excel my Debt Reduction Plan. I figured out--based on my original budget--how much I could put each month towards my credit card debt while still meeting my savings and investment goals.
  • I then stuck to my plan. Every time a bill arrived, I opened it, then opened my spreadsheet and updated the interest rate, balance, and finance charge. Then each month, I made a large payment to one of my cards based on the Debt Reduction Plan.
  • I chose to pay off the smallest cards first, rather than going after the ones with the highest balances or the highest interest rates. It created a feeling of accomplishment. Right away I was able to say, "I paid off a credit card today!" and this helped fuel my desire to keep going.
  • I made realistic allowances, such as reducing the amount I would put toward my debt in December and January, in anticipation of holiday expenses--travel and gifts, etc. Ditto June, when everyone in my family seems to have a birthday (or Father's Day).
  • I was a conscious consumer. I paid attention to what I spent money on and I employed good thrift thinking--I used the library a lot. I ate in. I bought things on sale. I planned ahead. I gave myself room to splurge now and then. I was especially diligent about weather-proofing and reigning in winter heating costs. I was blessed by the generosity of friends, who let me stay with them on vacation, significantly reducing my expenses. In other words, I spent carefully and freely, but with thoughtfulness and power.
  • I also used my spreadsheet to motivate myself. I resented that when I began my journey, I was paying more than $140 per month just in finance charges on my various cards! It spurred my desire to reduce that cost. When I wanted to splurge on a large purchase--like a couch, which I want SO badly, or new luggage or a Wii--I thought about that money just disappearing every month to the credit card companies and I made a conscious choice NOT to spend on anything else until that money was back in my hands. Now, my monthly finance charges have dropped to about $50--and that number shrinks every month.
  • I called my credit cards occasionally to lobby for lower interest rates. When I started, the average interest rate on my cards was 7.51%, with the worst one at 17.15% (the card with the highest balance).
  • I switched balances to cards with lower interest rates when the offers suited me. Now, my average rate is 4.74%.
I still have a ways to go, but I'm more than two-thirds of the way there. My current plan has me credit-card-debt-free in April of 2010. This plan allows for a generous contribution to my savings, though, so that I can meet the Phase Three goal of saving up a down payment for a home of my own. However, with some good luck this winter, some careful planning, and continued gainful employment, I may just decide to knock that last bit off a whole lot sooner so that I can celebrate the completion of phase two and finally (finally!) declare myself credit-card-debt-free!

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