Seven years ago, Steve Stewart was done with debt; he paid it all off. Since then, he's been working to help others do the same at MoneyPlan SOS. He was kind enough to speak with us about how he got out of debt and how you can tackle your own.
How did you and your wife formulate your debt plan?
My wife and I were lucky. Our debt plan was very simple: $15,000 in auto debt and a few hundred in credit card debt. The credit cards weren't a huge problem because we didn't use them often and were able to pay them off almost every month. It was the five years of car payments that got me fired up! I didn't want to wait 60 months to be rid of the shackles of debt.
We started by creating a household budget. It's amazing how much more efficient your spending will be once you pay attention to where it goes. The impulse spending and unnecessary shopping trips dwindled and our debt repayments swelled. We were able to pay that four-wheel burden off in 13 months.
What challenges were there to paying off your debt that you didn't expect?
The biggest challenge for me was budgeting for things we weren't expecting - or didn't think of. For example: I wasn't budgeting for our semi-annual car insurance bill. We received the bill in the mail about three months into our new budgeting process.
The forgotten bill was demoralizing. I didn't want to feel like a failure after making so much progress on our debt. From that day forward, we put a little money aside each month so the bill can be paid from our cash-flow instead of our emergency fund.
Where should couples who need to talk about money start?
At the dinner table. That's not a joke - I'm being serious.
My favorite time with my wife isn't at a fancy restaurant or in a movie theater - it's talking about our day and, more importantly, about our dreams at the dinner table. This is where discussion of finances come up, and it's not a forced budget meeting. "Oh, I forgot to tell you - we need to get (fill in the blank) for (enter name of birthday boy or room of the house here)" is a common sentence during these wonderful conversations.
This leads to more important talks about vacations, car repairs, where we want to live in 10 years, what to get our daughter for Christmas and whose mother will we be visiting for Thanksgiving. Turn off the TV and spend some time at the dinner table - it'll do wonders for your relationship.
Here's a tip: Have a glass of wine at the table for each of you. Somehow the wine glass operates as a lure to keep us together at the table, away from our devices and all the other distractions. I've tested it - it works!
Why is debt so pervasive in our society?
Why? I call it The Convenience Economy: 30 years ago you had to drive a few miles to find a store or restaurant that was open 24 hours. Now you can stream a movie from the cushions of your couch or one-click yourself a new computer that will be delivered to your doorstep within 24 hours.
Compound the convenience with the ease of obtaining credit and you start to see the problem. The credit industry is making it extremely easy for us to borrow money for things as big as an Escalade and as little as a bottle of water at the convenience store.
The stigma of being in debt has disappeared because debt has become normal in our society. People think it's a sign of financial struggle when you have an older car without a payment when it's really the person who has no auto debt that has the funds to build wealth.
Simply being aware of The Convenience Economy can be the first step towards controlling our money and being purposeful with our spending.
How do we know we've taken on too much debt?
I think any debt is too much debt with the exception of our mortgage - and I'm going crazy trying to find a way to pay it off in the next 15 months!
We actually have enough in non-retirement savings to pay off the mortgage today - but that's not what the money was saved for. We could also accelerate the mortgage with our cash-flow but need it to replace the windows first.
I'm tempted to take out a loan for the windows in order to pay off the house - but what would that really accomplish? We'd still be in debt when the paper ashes float to the ground during our mortgage-burning party.
By the way: When did the window guys get into the banking business? I get confused by companies who would rather sell you their branded credit card or line of credit than the actual item or repair job for cash.
What's in the future for personal finance?
I am keeping an eye on the new payment options that are being developed, like Apple Pay and Coin.
I also think everyone should learn something about crypto-currency like BitCoin - although it's too soon for me to recommend buying any right now. However, peer-to-peer transactions with super-low fees is very attractive to consumers and I do believe the retailers will begin collecting BitCoin in the near future. It's about to get really interesting!