This is the third post of the Becoming Debt Free Series. If you’ve missed any of them, you can find them here.
In February, the pace started to pick up a bit. It was so exciting!
Although we made small payments on both credit cards and payments on the car notes, our total went up from January to February because of debt charged to the credit cards and interest charges. Here’s where we stood at the end of January:
First things first, since we were without living room furniture, I scoured Craigslist every day for a leather living room set. Leather seemed like it would hold up better than the microfiber we previously had with a new baby in the house. I did not want to spend over $400 though, and I did not want furniture someone left outside for their cats to scratch up, so my options were limited in that price range. Finally, I came across a nice set for $250 and it included a nice big glass coffee table. I wasn’t actually interested in the coffee table but I knew I could resell it and I did, for $80. I basically got our new living room set for $170 and I had sold the other set for $600. Not too bad, huh?
We both got our W2’s at the end of January and I completed our tax returns. Since we had Lucas last year, our tax liability had gone way down so we were set to get back $2,774 from federal and $1,136 from state. Right after I filed our taxes, I estimated what our tax liability would be for the next year and we immediately adjusted our withholdings to have less tax taken out of our paychecks. I mean, of course it’s nice to get $3,910 all at once. But can you imagine having another $325 each month throughout the year to pay on debt?
Another big thing in February was our garage sale. As I said in my last debt series post, we had gone through the house and rounded up anything and everything that we did not need or use so it was a pretty good garage sale. Lots of waffle makers and dishes. I can’t remember the exact number, but we made between $300 and $400. $220 of that went directly into our BEF, which completed Baby Step 1.
Now that our BEF was complete (such a great feeling), we could move onto Baby Step 2: Pay off all debt using the Debt Snowball. By all debt, Dave Ramsey means everything but your mortgage. The idea here is to pay off all of your debt from the smallest balance to the largest balance. I know it’s weird, but we didn’t take any interest rates into consideration. Dave Ramsey says that 80% of debt payoff is behavior and I completely believe that. You want to pay off your smallest debts first so that you build up motivation and momentum and get excited about paying off debt.
Using our newly scrutinized budget created in Baby Step 0.3 and entered into our handy dandy YNAB software, we knew that we should be able to use our “extra” $45 every month to go towards our Snowball. We knew $45 wasn’t much though but we were working on cutting other items in our budget. We were realistic in our budgeting though, we knew there was no point budgeting $300 for groceries if we knew we were really going to spend $500. Our grocery budget was one of the biggest ones we needed to cut. In 2012, I spent anywhere from $500 to $800 a month of groceries. That is WAY too much for 2 people. In February, I got it down to $473.37. Go me!
Another thing we considered was that once we did pay off some of the different debts that it would free up those monthly payments we were making on them and that money would be available for the Snowball. Oh, and February was our first month without a Cable bill. I did not miss spending that $50 one bit.
When our tax refunds came in, we paid off the American Express and Lucas’ surgery, which were our two lowest debts. We also made a $70 payment and redeemed $25.35 in reward points towards the Chase. It felt amazing!!
Do you get a large tax refund every year? Do you use it to pay off debts or in a needed area?
I hope you’ll be back next week as I share our March 2013 report in Our Journey to Become Debt Free.
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