This week’s guest post is by a fellow british columbian, WestCoastWoolies, who agreed to tell her inspiring story about their journey out of debt.
A year ago my husband and I were facing a few financial challenges. He had been unemployed as a union welder for almost 3 months, and my new business, although keeping me busy, wasn’t bringing in the cash flow fast enough. We couldn’t keep up with the bills, and our credit cards were both maxed.
Our $96,000 in debt seemed insurmountable and we fought about money regularly. Really, we were not prepared to live without a steady income (though I think we thought we were), and the situation we were in had not improved significantly over the previous year.
There is no formula to how we started to turn things around, in some ways we had luck on our side, because within a few months my husband did have full time employment and money from my contract eventually started to trickle in. I think what has really helped us though are a few simple steps, which we had to learn when faced with our financial challenges:
1. Because we do have variable income, we had to create a budget which we could live with, in the lean times. When income is lower than usual we still need to be able to pay bills, debts, and eat. We still need to put some extra money each month towards one debt (a snowball debt) and be able to save. We created this budget back in March 2007, and it has varied little since. The key components are: to cover all fixed expenses, including debts and the mortgage, to plan sufficiently for variable expenses such as groceries, and, most importantly to my husband, have an allowance for each of us so we can play a little each month. This last one, I tell you, has almost completely stopped any arguments about money between myself and my husband (who likes to spend a little). It gives us each financial freedom and responsibility at the same time, while not allowing us to go overboard.
2. When our income is higher than usual, any extra cash goes directly to debt. This concept has meant we have made big strides in our debt repayment at times, while at others the debt appears to change very little because we only have $500 a month in our budget to apply as a debt snowball amount.
3. We also made sure we started planning for our future for the first time. We had some small RRSP contributions, and my husband has a pension through his union, but we went to a financial advisor for the first time and began financial planning in earnest. It was an interesting exercise to work with an advisor to see where could go once our debts paid off. It actually gave me hope that we can be successful and retire (I was worried I might be working forever) and that alone gives me energy to keep paying off debt.
With our regular monthly debt repayments combined with lump sum payments when we could afford them, we have reduced our debt by $14,993 in 10 months. It took us awhile to find a system which worked with our variable income, allowing us to get by in times of lower income, and take advantage of the times when our income is higher (rather than just spending all that extra money on ‘stuff’).
Our credit rating has improved dramatically in this time period because we are no longer at the limits of our credit. And the most exciting part of becoming financially on track for us is that we were able to start a family. I am 20 weeks pregnant, our little boy is due in June, and we have a financial plan in place which will further reduce our debt by about $10,000 and enable us to live off of one salary plus our savings (and still pay off our debts!).