Get Out of Debt in 2012: How Much Do You Owe?

It is now almost the end of January.  If you have not already abandoned your New Year’s resolutions, this is a great time to solidify a resolution that is probably already on your list – getting out of debt.  Or at least, it’s prime time to begin formalizing a plan to get out of debt in 2012.

I know that you probably go to work and pay your bills religiously, but you might feel as if you’re going nowhere.  I did the same thing for years.  I woke up every morning with the ominous shadow of a huge debt and the threat of being sued by the landlord of the commercial property where my business had been located, for future rent.  Anxiety and TUMS ruled my life, but still, I paid my bills on time.

At that time I felt as if I was stuck on a hamster wheel.  I went to work every single day, paid as much as I could every single time my paycheck hit my bank account; but yet, I would check my account balances the following month only to see that I had barely made a dent in my overall debt.  Interest pretty much consumed everything that I paid.  I felt, in a word, stuck.  I was stuck at a job with a verbally abusive boss because I needed the money to pay my debt.  Or, I felt that I did.

I don’t want you to feel that way.  I don’t want you to purchase enough TUMS to be a Class A shareholder of the company.  I want you to be able to wake up every day the same way that I do now – greeting every day as an awesome blessing to be alive, pregnant with the promise that every new day is an opportunity for improvement.

I’ve thought very long and hard about how to best accomplish that.  Some of my blogging friends and colleagues have written e-books, published paperback books, and full on courses on how to get out of debt.  I applaud them for their efforts, and I can recommend some very good books to you.  But, something about selling you a get out of debt course for $97 did not sit right with me for two reasons:

  1. It felt awfully disingenuous to me that I would tell someone struggling with debt to shell out $97 to buy something to help them get out of debt.  That’s money that could be put towards a bill payment.  I know that when I felt as if I was drowning in debt, I would have tried anything that someone I trusted recommended.  Such a mental state leaves you open to becoming victimized by any number of vultures claiming to sell you the one thing that you absolutely need right this second that will change your life forever!  But act now, because it’s only $19.95, and this low introductory price will never be offered again.  I don’t want to be one of those vultures.
  2. Getting out of debt is actually pretty simple.  If you remember elementary school math, this will help you:

Money Earned >= Money Spent

If you need that equation translated, here it is in plain English.  The money that you earn must be greater than or equal to the money that you spend.  Most of us tend to be okay with the left side of the equation; it’s the right side that’s the problem.   I know that many of you will probably disagree with me and say that you’re just not making enough money, but trust me, that’s usually not the case.

Since getting out of debt is so simple, why aren’t we better at it?  This part really IS simple.  It’s because we

drowning in debt

Stop drowning in debt!

don’t have a plan, or a roadmap for getting to where we want to be.  I’ll use an analogy from my boss: it’s like drive to California from the East Coast without a GPS.  You know that if you drive west long enough you’ll get there eventually, but it would probably be easier and quicker to get there with a GPS.

This is your GPS.

After three years of working on my own debt, it’s time to begin sharing some of the techniques that I’ve learned with you.  Over the next 12 months we’re going to go through this process together.  My plan is that after this year, you will successfully be on the path towards debt freedom, and you should be able to sleep freely and easily.

If you’re a long-time reader (love you), you might follow my monthly posts (usually on the first or second of the month) where I spell out my debt, how it was impacted and how I made some extra money during the month.  This is the cornerstone of my blog, because it’s also the cornerstone of my debt reduction plan.  If you’ve never really sat down and look at all of your debt in one place, you may need to prepare yourself.  Your first task is to gather all of your debts and put the totals together somewhere.

I used to compartmentalize my debt.  I owed student loans this much on this loan, this much on that loan, oh and this much on the other loan.  I owed Macy’s this much every month.  I owed the MBNA MasterCard that much per month.  It wasn’t until I really sat down and wrote down my how much I actually owed each of my creditors and what my minimum monthly payment for each of them was that it really hit me.  I was in some deep shit and the money that I threw at my debt every month was never going to plug the hole.  Seeing all of your debt in one together in one place gives you real and lasting perspective. It’s like a having ice cold water tossed in your face in the middle of winter.

It’s up to you to decide how to do this.  You can start with a little notebook if you’d like, or an Excel sheet if you’re more electronically inclined.  If you’d like to go a little further and take advantage of some online tools, I would suggest signing up for a program like Mint.  It’s completely free and creates all sorts of little charts and graphs for you.  Again, visual tools have an amazing way of putting things into perspective for you.

jan debt

My January 2012 Debt

So, this is your homework.  You are to gather all of your debts within the next two weeks and either write them down or enter the totals into free software.  We’re not going to tackle recurring bills such as your phone bill or car insurance just yet.  At the very least I’d like you to enter your consumer debt into a program or notebook and total them all up.  I’d also like you to know what the minimum payments and interest rates are on these debts.  This can look any way that you’d like it to look since no one will see it except for you.

In about two weeks, we’ll take a book at the “B” word (budget).  I hate them, but you’ll need one for the first two months at least while we get you on track. Plus, J. Money says that Budgets Are $exy!

Give me some feedback.  Do you have more debt than you thought?

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21 thoughts on “Get Out of Debt in 2012: How Much Do You Owe?

  • Budgets are indeed sexy. 6-7 more months and we’ll be debt free minus the house. I can’t wait to get there.

    Spending less than you earn is the first step (after realizing you hate debt). Thanks for sharing.

  • That sounds motivating for me because I’ve just started. And I’ve already done my first homework with putting all things in one place so I’ll be waiting for budgetting stuff. I’m not good at making compliments but I have to admit your site had the biggest influence on me. I found that place few months ago when I wasn’t “the most glowing sunshine”. So… thank you.

    • You’re a little unique because your mortgages are tied to your income because they’re rental properties. Worse issue you might have is a cash flow problem initially. Off with you!

  • Our Debt = 0..but I’m at the tail end of this exercise. Facing the debt head on and understanding the magnitude of it all is more than 1/2 the battle. Good luck to everyone who is starting their journey. It’s never to late to start and all progress is good progress, even if it feels miniscule relative to your overall debt burden.

    • Good for you Sandy! I want to bask in that debt free sunshine too. It must be so nice to not have to worry about your debt. But, I know that you also have all of those awesome Babci stories to keep you occupied to.

    • Do people think that it’s strange that you know the exact amount that you owe? I find it weird that people don’t know!

  • My debt level is actually going to go up this year. We are buying a house in May. Fortunately, we only need a $95,000 mortgage payment, but that still puts us into 6 figures of debt as well. That said, my $3k challenge is about paying off my last credit card this year, so that we will only have student loans, mortgage, and car loan.

    Without taking the time to look up exact numbers, my current debt is:
    Credit card (ME): $5,000
    Credit card (wife): $30 <-annual fee just hit, getting paid off when bill comes
    Student loan 1 (ME): $4,700
    Student loan 2 (ME): $27,000
    Car loan (wife): $4,200
    Total: A bit under $41,000

    Current budget shows us paying off ~$5000 of these debts this year, plus an additional $3000 (hopefully) from hitting my online income goals with the challenge. So 12-20% of non-mortgage debt.

  • Your blog inspired me a few months ago to track my debts. I put them all in a Google Document and keep tabs on what is owed where. I log it by separate debts but I have totals at the top of the page. I also made a graph to see it visually. I was shocked when I put in all the numbers. Especially when I learned that I was actually in more debt than my husband. I always thought he was worse off than me…but I guess reality can must be faced eventually. I definitely feel like I don’t have a plan for getting out of debt other than trying to cut costs and trying to make some side money to throw at it. I will continue to follow your blog and this post series. Thanks!

  • I entered the work force, a college graduate, 31 months ago. When I entered, I was about $56K in the hole. Now, I am about $232K in the hole, BUT that includes a mortgage on the house I just bought. If you take out the mortgage, I am about $24K in the hole. Not bad in my opinion, paying off 32K of debt in less than 3 years and purchasing a house to boot. I’m not as allergic to debt these days as I should be. Don’t get me wrong, I still pay off well over the minimum every month but…well, the last year Iv’e just been exhausted of the extremely frugality I excersized my first year and a half in the work force.

    I’m looking to 2012 to be a successful year, financially. My car will be paid off, and I should be able to put some down towards my student loans as well. I need to build up a bigger emergency fund to boot.

  • I also want to add that, the best way to pay off debt quickly is to increase your income. Any *single* person who does not take full advantage of employer paid education, or employer education assistance is a fool. (Family men/women have a good excuse not too…family!) I’ve maxed out my employers assistance every year, and have seen my paycheck grow leaps and bounds. Sure I have to pay a bit upfront, but ultimately get reembursed for every dime spent.

    The best investment one can make, is in oneself.

  • I also want to add that, the best way to pay off debt quickly is to increase your income. Any *single* person who does not take full advantage of employer paid education, or employer education assistance is a fool. (Family men/women have a good excuse not too…family!) I’ve maxed out my employers assistance every year, and have seen my paycheck grow leaps and bounds. Sure I have to pay a bit upfront, but ultimately get reembursed for every dime spent.

    The best investment one can make, is in oneself.

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