The Most Important Rule for Accelerated Debt Payoff

I mentioned in my first post of the year that I had a heavy heart for people to dump their debt AS. SOON. AS. POSSIBLE. Might just be my own paranoia, but I think that seriously unhappy economic times are around the corner. One need only to look at the rising consumer and government debt in the U.S. and in Canada (along with the recent instability in the stock market) to see the hidden instability in the economy.

But alas, I realized it wasn’t fair of me to give you that warning without giving you rock solid tips for dumping your debt quickly. So here they are. Or here “it is”. I’m going to share with you what I see as Rule #1 for dumping debt quickly. This may sound simple, but in reality, following this rule takes serious effort.

Accelerate Your Debt Payoff

Rule #1

Rule #1 in paying off debt as quickly as possible is to spend as little as possible. Again, this sounds simple, but yet most of us don’t truly work to not spend wherever they can. 

Our journey into tens of thousands in consumer debt didn’t come by way of luxury vacations, fine furniture, name brand clothes and fine dining experiences. The fact of the matter is that we literally nickeled and dimed our way into debt. When we bought clothes, we bought them on clearance. When we went out to eat, it was at a cheap buffet or a local drive-thru. It was this subconscious nickel and dime spending that got us into debt, and now it’s the conscious nickel and diming that’s getting us out of debt.

However, learning to nickel and dime your way out of spending takes some serious fore-thought and planning.

For instance, in our old, “spending but not as much” lifestyle, if we ran out of a certain food we wanted, liked or thought we needed, we’d just go get more. If we were out of milk, we’d get more milk regardless of whether we had the money to do so or not. If we were out of batteries for a toy, we’d go buy more whether we had the money or not. We viewed things that weren’t necessities as necessities and thereby increased our spending exponentially.

We’d reason within ourselves with excuses such as:

  • it’s just a few dollars
  • we spend WAY less than most people do
  • it’s a “necessity”
  • it won’t make that much of a difference

Well, it did make that much of a difference after a few years. A LOT of difference. Soon we were tens of thousands in consumer debt and struggling to pay the bills. Even our first years of debt payoff weren’t all that productive because we still thought that we were doing well because we had decreased our spending. We totally ignored the income-to-spending ratio, instead focusing on spending “less”. But even though we were spending less, we weren’t spending “less enough” to get us out of debt.

The Mindset Shift

Now, we’ve learned to look at things differently. J Money’s “Challenge Everything” budget was the starting point for us. Now we make it a habit to see how we can not spend money, and if we absolutely need to spend money, we do it as cheaply as possible.

Here are some of the mindset shifts we’ve implemented:

  • If it’s the 25th of the month and our grocery budget is gone, and we’re out of milk and juice, we simply drink water for the next 5 days
  • If we’re running low on eggs and milk  and the kids want pancakes, I cut the recipe down from 2 eggs to 1, and I replace half the milk in the recipe with water
  • If our meager entertainment budget is gone for the month, we are done with activities that cost money, even though those activities might only add $5 or $10 dollars to our spending
  • If gas is getting low and our gas budget is near its end, we stay home whenever possible.

Even when we’re within our budget we work to find ways to make it lower. Every time we’re faced with an opportunity to spend, we say “How can we do this without spending?”

For instance, if it’s a home repair, we decide whether or not the repair can wait, and if it can’t, we look to see if it’s a repair we can make ourselves or if we can find a less expensive repair service. Two years ago when our heater went out, we were quoted nearly 300 bucks for a repair service. Instead, Rick looked on Youtube and repair forums, diagnosed the problem, got the part from a local store and repaired it himself for $40. This kind of stuff doesn’t come easy for Rick – but he’s willing to put in the effort to educate himself and learn the skill because of the immediate money savings and lifelong skill to be learned.

As we’ve grown more and more adept at asking ourselves if we really need to spend on something, we’ve learned that we can do without far more than we think we can. And as such, our savings is increasing and our debt is decreasing, faster than ever before.

See What You Can NOT Spend Challenge

So, your challenge for the next four weeks is to see what you can get away with not spending. Bring coffee from home instead of stopping at the coffee shop on your way to work. Bring leftovers from dinner instead of eating out for lunch at work. Invite friends to your house for a potluck dinner instead of dining out. Forego buying clothes unless you really and truly need them, as in your underwear has more holes than not holes and your socks are way past darning (no, I don’t really darn our socks. Although maybe I should learn. 🙂 ).

Then, take every extra dime you’ve saved and put it toward debt. If you forego buying milk, put the amount you would’ve spent on milk into a savings account. If you take coffee from home instead of stopping at the coffee shop, put that three bucks you would’ve spent into a savings account. I think you’ll be amazed at how much money you’ve accumulated in little bits at a time. And you’ll get a full awareness of how much your nickel-and-dime spending is delaying your debt freedom.

The “How Low Can You Go?” spending challenge starts today, and ends at midnight on February 17th. At that point, I’ll be reporting in on how much money we’ve saved, and I’m eagerly hoping you’ll do the same. Are you ready?

*UPDATE: I thought I’d better add some guidelines for the challenge. Here’s how it works: Your goal is to reduce spending as much as possible for 30 days in all areas. Here are some ideas:

  • Only buy food on an as-needed basis
  • Conserve as much electricity and water as possible to reduce your utility bills
  • Conserve gas by limiting travel where possible
  • When money must be spent, work to reduce the cost if at all possible
  • Look for forms of entertainment that are free instead of costly

Also, avoid “stocking up” either before the challenge or after. As an example, this challenge will go a bit over half way through the month of February, so we’ll be dividing our monthly budget for February into a 60/40 breakdown, keeping the second half (40%) within the normal allotted budget, and working to spend as little as possible during the first (60%) of the month.

Keep track of what you’re saving (based off prior months’ expenses for the same time period) and put that savings amount toward debt if at all possible. Unless you’re in an extremely tight situation (which I know some of you are) there should be at least some extra money to put toward debt.

Hope this helps!

 

*Photo courtesy of 401(k) 2012

11 comments on “The Most Important Rule for Accelerated Debt Payoff

  1. Ahhh! You’ve made me psyched. I’m going to share this post with my husband, and let’s see what we can do. Since we reached our milestone of paying off all non-mortgage debt, we’ve – not exactly fallen away from, but inched away from this kind of frugal intensity. Back at it!

  2. I’m in! This is going to be a hard one for us, because the little pleasures are definitely our weakness. But we are building momentum and want to keep it going. This challenge is a great way to do it! Thanks!

  3. Every year around January we intentionally begin to eat through stockpiled food. Unlike you, we don’t have delicious canned vegetables from our garden… just stuff purchased on a good deal (this year I went a little nuts on garbanzo beans, so we’re eating falafel). We also stuff our small freezer with meats and veggies purchased on super-clearance, so we eat those too. By intentionally eating through the pantry just once per year, we actually recognize the savings associated with stocking up, and it’s nice to know that food doesn’t get wasted.

    I think our January food bill will end up around $150 cheaper than usual, and that’s with me buying some unusual ingredients to make our meals a little more reasonably delicious.

  4. Well, I’m a bit late to the party, but I like it! I’m going to show hubby. He is crazy spendy sometimes on weird stuff, but then weirdly penny pinchy on normal stuff (normal in my opinion of course). Fun post Laurie! I look forward to this challenge! 🙂

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