How we paid off $30,000 of debt

Perhaps the most powerful antidote to debt that we embraced: saving.

When you begin to save whatever you can, $10 a week, and slowly increase that to $15 and then $25 -- up to 10 or 20% of your income, ideally -- it's like creating a built-in support system.

Not only were we paying off our debts, we had money in the bank to cover those unexpected expenses that trip you up (or most of them).

Be extreme

But of course the thing that finally gets you out of debt is coming up with the extra cash.

The Women in Red message board is jam-packed with advice about how to squeeze more money out of your budget and drum up extra funds.

Some people sell stuff on eBay. Some people move to a smaller city or find ways to cut back (slashing cable and other utilities or trading in a car for a cheaper one are Women in Red favorites).

• 91 ways to save on almost everything

What I found was that small measures were good but that drastic moves were better. One year we took in a roommate. My husband constantly worked overtime; I signed up for extra freelance projects.

Extreme measures are necessary in part because it takes more time and money than you think to dig out of debt.

Earlier this year, I had a conversation with Jonathan Pond, a Boston financial adviser, author and contributor to a series about money on public TV.

Pond says many people have a misconception about how much money it takes to pay off debt: Because they're making payments with after-tax dollars, they have to earn more than they realize.

Let's say you have a $5,000 credit card balance with a 12% annual rate, setting you back $5,600 in a year. To pay it off, you would need to earn about 30% more cash than that. The amount of gross income you need to clear your card is closer to $8,000; after withholdings you end up with $5,600.

This doesn't change the bottom line. You need $5,000 plus interest in cash to clear your card balance. But it helps to explain why it's not so easy to come up with that money and why debt seems to stick around so long.

Tortoise or hare?

On the Women in Red Racers message board, which is devoted to helping readers pay off debt, we talk about the two types of Racers: tortoises and hares.

I thought I was a hare, but as it turned out, I am a tortoise. And that's OK. My husband and I still managed to get to the finish line.

I'd like to say I'm overjoyed, but I'm just relieved.

Now we have an additional $500 a month to put toward saving, especially our emergency fund. Once that's funded (goal: $15,000; target date: fall 2009), we'll be close to the sort of financial stability I think is ideal.

Then, someday, we will take a vacation.

At least now, when we do our budget, there's no cash that has to be set aside for the money-eating credit card. I'm still not used to that. As I run the numbers in my head, I keep thinking, "And pay $500 to the . . ."

But no. That money is ours now.

I thought getting out of debt would feel like we had more money. Instead, it feels like we got a lot more quality of life.

Join columnist MP Dunleavey and a group of women as they seek to strip away the myths around money, liberate themselves from debt and find financial sanity. Follow the continuing quest of the Women in Red every other Wednesday.

Published Dec. 17, 2008

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