Simple Budgeting: Real World Debt Management

Last month, I wrote about Using What You Have.

This month I tweeted asking for ideas and got two great ones. So I am going to write this month about how to get out of debt thanks to the suggestion from @alyssaavant.

I am not Dave Ramsey or Suze Orman when it comes to debt. I have looked into their techniques and tips. Please take note that I have not studied them in detail or applied their methods to our budget as I feel they are both hard core and well we are not.

So in saying that, I believe there are two methods to managing your debt and I will call them “hard core” and “room-to-breathe”.

Hard Core Debt Management

This approach is like those that Dave Ramsey and Suze Orman talk about. You go down to the basics. When I say basics, I mean basics. Cut the cable, your Internet package, your cell phone plan, etc. Of course there is no eating out, no shopping sprees, no outings. Plain, old, boring basics. In real life this HARD but it gets to that debt free status sooner than my next plan.

Room-To-Breathe Debt Management

The motto of this plan is to take out all of the extra. So go down to basic plans (phone, cell, cable). Limit your activities (eating out, outings, etc) to a set number per month. The most important part of this plan is that you do NOT use your credit card … at all. Does that make it hard? Yes, but you still have room to breathe but if you really need whatever it is, save for it and buy it.

This plan is the more realistic plan for people I think. I did this when I graduated college and my husband was still active duty. We had a car payment and credit cards to pay off when he deployed to Iraq. I lived on basics with a few perks (basic cable, basic Internet, basic cell phone). I didn’t eat out but once a week when the office would go to lunch. I shopped sales and used coupons even for one person. We paid those bills off fast. How did I decide what to pay off? I took my extra amount after living bills (rent, utilities, etc). Then I found the bill with the highest interest rate and hit that one with a massive payment each month. I would pay just above minimum on the other bills. As I paid one bill off, I would move all of the money I was paying to the now paid off bill to next highest interest rate bill till I got them all paid off.

This is also the plan that we are using now. Yes, after paying cards off we ended up with debt back on them. I regret it but two moves and a family entered the picture so it happened. We learned.

Now, we don’t use our credit cards. We have one zero balance card that we can use in a pinch and it gets paid off every month. (I only get paid once a month so yes there are times when you suddenly need a new tire or something crazy two days before pay day!) The other cards we are paying off slowly. Slowly because we don’t have much to stretch between them on my income. The higher interest card gets more towards it though. For now, we are OK with this. We may change our approach at some point but this plan lets us enjoy activities with our family and keep us from going further in the hole! I will point out this plan is also why our newest TV is 8 years old, we don’t own a new vehicle, our deck still needs to be replaced, etc., etc. So this plan isn’t all fun and games but it does let our kids do activities, lets us take a break for dinner out with a coupon, and keeps us sane … most of the time!

Do you use one of these debt management plans? What do you call your plan? Any tips to share? Does this leave you with more questions? Leave me a comment and let me know.

Hope to hear from some of you soon!!