If you're surfing the radio channels and come across a voice yelling, I'm debt-free! You've undoubtedly hit upon the Dave Ramsey Show. Featuring real people with real financial challenges seeking real help, the show offers the same advice your grandmother would give, only we keep our teeth in. Granny and Dave Ramsey are not the only ones giving such counsel. Mary Hunt, Howard Dayton, and the late Larry Burkett have been voices speaking similar words for a number of years. It’s a common sense approach to money: don’t use credit, pay cash, and live within your means.
Thousands of people are pursuing this idea of living debt-free. Are they crazy? Aren't credit cards, car payments, and a mortgage (or two) part of the American dream? Not so, say many who desire to be free from debt.
Today's families are seeking financial freedom for a number of reasons. For some, it's the realization that while they make a good income, they have nothing to show for it. They conclude that finance charges are monies that could be funding kid’s college tuition and retirement. Others realize that debt limits their freedom to enjoy good things or to give generously to others. It’s an age-old truth that King Solomon penned quite eloquently thousands of years ago; the borrower shall be slave to the lender.
So, how does one go about living debt-free? Here are some of the secrets Kansas City area residents are using to dig themselves out of the hole.
Cut the credit
Even if you pay off your credit cards at the end of the month, some financial advisors suggest ditching the plastic completely. By simply paying cash, you will save money. A Dunn and Bradstreet study calculated that credit card users spend more money, about 12 to 18% more, than shoppers who pay cash.
There is an emotional experience that occurs when you hand over those greenbacks. You sense a feeling of something being lost, or spent. Using credit cards anesthetizes that pain. You don’t feel it until the bill comes. By then, the money is gone. If you can afford to pay it off each month, you can afford to pay cash.
Set a budget & stick to it
A budget is a self-imposed limit on how much you will spend. It makes sense that what you spend should not exceed what you earn. In fact, creating a budget that is less than your income allows extra funds to go toward paying down debt, saving for emergencies, and building wealth.
Many families find that they are most successful at budgeting when they switch to an envelope system, where the allotted amount for each expense such as gas, food, clothes, etc. is placed in an envelope at the beginning of the month. Angela and Darren Coffman of Kansas City found this to be helpful. Angela comments, When we decided to get out of debt, we cut up all our credit cards and switched to a cash only envelope system. We were able to see then at every purchase how much money we had left in the budget. When we were out of money, we were done spending.
Systematically pay off debts
While keeping current with all your accounts, throw all extra cash at one debt. Some experts suggest choosing the debt with the highest interest rate as the first to payoff. Others prefer the debt with the lowest balance so that you can see yourself making progress sooner. Either way, come up with a plan of action and get all family members on board. After the first debt is eliminated, take its regular payment as well as that extra income and apply it to the next debt. Continue this until all the debts are paid off.
Lawrence and Briana Almengor are doing just this. Briana explains, "We apply Lawrence’s increase in salary each year toward an extra payment to our car. Then once we’ve paid it off, well apply any money we were putting toward that to paying down further and further my student loan.”
Discern Between Necessities & Luxuries
Summer homes, new cars, ipods, fancy sneakers -- there will always be something that the Joneses have that your family wants. But, a want and a need are two entirely different things. It’s important to determine that difference as you prepare your family’s budget.
This was the biggest change for Mich and Diana Fisher. They started to teach this principle to their two sons and realized that the boys would learn better from example. Diana advises, "Don’t buy something right away. Sit back and think about it. Is it something you truly need? Taking time before a purchase, consulting with other family members, and even applying a waiting period will help you in making wiser purchasing decisions.”
Live frugally
Digging out of debt involves delayed gratification and an adjustment in priorities. Some may view putting off new clothing or home furnishing purchases as a sacrifice, but it is a fleeting one. If you are tenacious, you’ll see the rewards in a short amount of time. Mother of three young children, Amy Malcolm of Olathe makes the most of yards sales and consignment stores. She finds gently used items for a great price and is able to stretch her dollar a little more.
Diana Fisher has reduced her grocery spending by using the services of TheGroceryGame.com. For a set fee, members receive helpful info about what is on sale and what can be discounted through couponing.
The Coffman’s were so successful at their frugal living that they paid off close to $100,000 in less than three months. Angela explains, "I learned to feed my family [of five] on $180 a month by shopping creatively and cooking completely from scratch.” Angela has even created a website (GroceryShrink.com) to help others creatively apply frugality to their own lives.
Work extra hours
For some families this may mean working as much overtime as possible, taking on a second job, or having the stay-at-home parent go back to work for a season. Consider your skills and what you enjoy doing or that will fit your family’s season of life. This may entail doing yard work, delivering pizzas, teaching music lessons, tutoring, or performing handyman tasks.
Tami Lawler, a stay-at-home mom, started her own business in an effort to relieve the pressure of debts. This change in their everyday meant life had to get more organized, says Tami. Planning and preparing meals ahead of time for nights when she was gone, getting the kids accustomed to Dads handling the bedtime rituals, and Dads regularly doing household chores to compensate for moms absence were incorporated into their way of life. In the end, it was worth a little sacrifice for the freedom they desired.
Sell stuff
Shopping may have helped land you in debt and shopping someone else’s -- may help you out. Clean out closets and bookshelves for unwanted or unused clothing, books, and other household items. Yard sales, consignment stores, CraigsList.org, and EBay are excellent avenues for earning extra funds by selling your discards. Consider selling any financed vehicle and replacing it with an older, used model for which you pay for cash.
Sell the house.
For Devin and Jessika Leonard selling their house in an expensive market freed them from debt. They liked the feeling so much that instead of purchasing another home, they chose to rent a duplex from family at low cost. Despite pressure from others to buy another home, Devin says, "We are currently very happy and unburdened. Jessika's parents bless us with low rent and babysitting, and we bless them with yard work, fixing things, helping them, and providing safety.”
Teach Your Children a New Way of Living & Spending
One of the best dividends of pursuing a debt-free life is the financial heritage you pass on to your children. It may take several forms: a large monetary inheritance, a fully-funded college education, or simply (and perhaps most importantly) the knowledge of how to live in a financially responsible way. The credit card companies are marketing to teenagers, and toy aisle feature plenty of pretend plastic cards. Rather than let your kids fall into the bondage of debt, prepare them to make do with less, to prioritize purchases, and to delay gratification.
One Leawood family recently took their kids to the bank so they could observe their parents paying off the balance on their home -- about 20 years earlier than most. Mom, Susan, says, "We talked about what an accomplishment it was, how hard Daddy works to provide for us, and how carefully we try to spend our money. People at the bank were very excited and congratulated us, so [the kids] knew it was something special. I don’t recall a lot of conversations about handling money when I was a child, but I think that day made an impact on our children and will be something they remember.”
Angela Coffman comments about their experience, "We had to move from valuing things to valuing people. We learned to enjoy spending time at home with our children more than going to dinner and a movie. Our children benefited so much from our shift in focus. They were spared the materialistic attitudes Darren and I were fighting to overcome.”
These families and many more are pursuing freedom. They desire a life free of payments, interest rates and money worries, and they’re willing to get a little dirty to achieve that goal. Digging your family out of debt may involve a few sacrifices, but eventually you’ll hit pay dirt in the pocketbook and in personal happiness.
Helpful Books & Websites
- Crown.org
- DaveRamsey.com
- DebtProofLiving.com
- GroceryShrink.com
- MyTotalMoneyMakeover.com
- TheGroceryGame.com
- Debt-Free Living by Larry Burkett
- Debt-Proof Living by Mary Hunt
- Debt-Proof Your Kids by Mary Hunt
- Financial Peace by Dave Ramsey
- Miserly Moms by Jonni McCoy
- The Total Money Makeover by Dave Ramsey
- The Dave Ramsey show can be heard on several KC radio stations: 680 AM KFEQ, St. Joseph, MO
- 7-10pm, 710 AM KCMO Kansas City, MO 11am-2pm