Nicole Hardy, 42 planned a year-long, round-the-world sailing trip, but her finance and debt payments were covered by the final installment of her book advance and it was adequate.
The writer quit her freelance and teaching jobs, with paycheck worries behind, and went off to sea. Nicole’s trip cost more on hotels than anticipated and renting the Seattle-area house was a net loss due to tenant-related damages. Constant exposure to the sun for a year, led to extensive skin biopsies and huge bills. Reviving her freelance income took a year and her debt rose to $22,ooo. But within six months, Nicole was out of debt, without disturbing her busy social life, writing career, and plans to travel again. She lists down 6 steps she took to regain control of her debt;
STEP 1: CONFRONTING REALITY
Like all good Americans (43% carry debt balance of $6375 over two years) Nicole ignored her dues for over 6 months as she was numerically challenged. When faced with a hefty bill, she found only $7 in her bank account and that was a shocking wake-up call.
With debt spread over two credit cards and several outstanding health-care dues, ignoring total costs hitherto was easy. Putting down expenses on paper, she realized the Debt Trap she was headed for. How did this happen? But this cannot happen overnight. All behavior had consequences and the problem could only be solved by her alone.
STEP 2: DOWNLOADING A BUDGETING APP
Nicole carefully analyzed spending patterns and prepared a blueprint to work from by downloading a free budgeting tool called EveryDollar and plugged in her previous month’s expenses (credit cards and bank statements), categorized all the charges, and realized spending more on restaurants than on mortgage repayments. Maintaining records of every amount earned or spent, took 30 to 45 minutes a day but showed results.
These financial workouts enabled Nicole to adjust her budget as necessary, for every dollar. She didn’t avoid restaurants, but she spent less at them. And anytime she ended up with extra change in one budget category, she would put it toward her credit card. Handling numerous micro-payments of $5 was the key. With progress, she felt confident to repay her debts faster.
STEP 3: DECLUTTERING LIFE
A friend recommended Dave Ramsey’s Total Money Makeover and his spending ideology was useful as budgeting is not self-deprivation but leads to behavior modification. Instead of denying herself, she tried new things. As her house was in a mess she never wanted friends over and preferred to eat out instead. After decluttering, she opted for hosting cheaper dinners at home.
Scrubbing her life of extraneous material things was painless. She sold everything and returned clothes never worn and gift cards never used; she cut lifestyle expenses like the gym membership she never used and TV channels she rarely watched. Nicole’s financial crisis allowed her to value her expenses, and exactly how much money she could afford. If a friend wants to hang out, Nicole declares her budget upfront now.
STEP 4: ADDITIONAL JOB AND SALARY RE-NEGOTIATION
Her freelance income could have paid off Nicole’s debt, but to speed off the process she took a corporate job besides re-negotiating her salary as she was unsure of how her skills were worth in a corporate setting. She extensively researched on the valuation and retained her best freelance clients by working around the clock and earning more than ever before.
STEP 5: STRATEGIC REPAYMENTS
Her golden rule is repaying debts with the highest interest rate first. The credit card APRs were stressful and she consolidated her debt in a zero-interest balance transfer card, which left about $3,000 remaining on her credit card with an APR of 9%, and called the company to lower interest rates. After this was done, she repaid her medical bills, whose minimums she had been paying throughout.
With one credit card now, she pays off immediately whenever it is used. For groceries she pays that bill then and there, in the store or uses her debit card to avoid spending money on credit.
STEP 6: BONUS –SELF REWARD
Nicole did indulge in small luxuries along the way like an occasional Latte, but peace of mind is the ultimate reward. Getting a grip on expenses helped in becoming a better human with lowered anxiety and better control of personal health, better time management for personal care. Her latest goal is a scuba-diving trip this fall if she saves enough money first. No more Debt!