Debt Recovery Starting Line

If you haven’t read the background that led to me creating this blog, you should check that out first.

Every person who travels the debt recovery road has a starting point.  For us, the short version is that we’re starting with approximately $26,000 worth of consumer debt.  Every story is unique.  I don’t expect everyone to start in the same position we’re starting at.  Your story may be worse or it may be better, but I hope that by opening up about our financial picture we can help inspire you to do the same, no matter whether you’re starting with a worse handicap or starting in a better position than us.

Fortunately for us, both Kyle and I have jobs.  I work as a Human Resources Director for a small business services company, earning $80,000 a year.  Kyle left bartending a little over a year ago to pursue an office life with regular daytime hours so that he could spend more time with the family.  Right now he works as an Administrative Assistant for a small non-profit on a part-time basis, earning roughly $31,000 per year.  So together we earn about $110,000 in a year.

This isn’t bad at all, even for Los Angeles, where the cost of living is very high.  We don’t struggle for money, even with our current level of debt.  I am very protective of my earnings—I don’t like to take on debt, and I’m not a big spender most of the time—every once in a while I get tired of having nothing to wear and splurge on several new articles of clothing (about once every 18 months). I also take unnecessary pride in my gift-giving abilities and tend to overspend for birthdays and other holidays.  My hobbies are mostly indoors-y type things like reading and writing, so I don’t spend much on those.

When we first moved in together in 2014 we got a cheap apartment in an old part of Los Angeles and have benefited from the city’s rent control measures, so we only pay $1,400 a month in rent (very, very low for Los Angeles).  However, we absolutely hate our apartment (did I mention it was cheap?), and one of our mid-term goals is to be able to move elsewhere.  Right now we’re opting to stay put to continue to benefit from the controlled rent.

We also have two kids and two cats.

Coronavirus made its debut in the United States around the beginning of March—that is, just when we made the decision to get serious about our debt recovery.

Our cars are paid off, so we have no car payments, but I do keep full coverage on my car because apparently people don’t see me on the road.  Being a stealth ninja is a good side hobby until you’re driving. I’ve had three accidents without fault on my part since I moved to Los Angeles six years ago and have had to repair my car many times.  So the full coverage insurance is worth it.

Kyle’s car is much older than mine (1995!), but still runs quite well.

We take the car insurance out of our tax return each year and set the money aside to pay when those bills come up each six months.  Right now we’re paid until August, and the August – March bill has its money already set aside.

A small portion of our tax refund went toward things we’d been holding off on getting until it came in (I needed new bras, we bought a component to fix my son’s laptop, and we got new school clothes for the kids since they were outgrowing many of their uniform pieces).  The rest of the tax refund—the bulk of it—went into a special savings account, where it will sit until next year.  Next year we plan to do the same thing, at which point we’ll have enough set aside to buy a new-to-us used car with cash, but only if one of our cars is in poor mechanical condition or if one of them goes over 200,000 miles.  If not we’ll just let it sit until the next year.

If you’re thinking to yourself that we should follow the Dave Ramsey path to financial independence, we’re a step ahead of you.  I already keep an emergency fund with $3,000 socked away.  If I lost my job, this could keep me afloat for a couple of months with the addition of unemployment income.  It could also pay out a car insurance deductible or pay for a major car repair if need be.

Here Are Our Total Bills Each Month

Phone (3 Lines)$140
Gas Line$20
Groceries$1,000 (yikes!)
Life Insurance$100
Adventure Fund$150
Gas for Cars$200
Total Monthly Bills$3,140

And then here are the balances for each line of credit as of March 07, 2020

Kristin Personal Card$750Minimum$20
Kyle Personal Card 1$4,904Minimum$150
Kyle Personal Card 2$195Minimum$10
Kyle Personal Loan$5,601Minimum$268
Kyle PayPal$4,622Minimum$125
Joint Card 1$4,316Minimum$100
Joint Card 2$5,576Minimum$125

Our goal is to maintain a minimum payment on each card of at least $150 per month.  Each of us plans to focus on one line of credit until it is paid off.  We are using the debt snowball method, where we hit the lowest balance line of credit first, then do the next, and so on.  This isn’t actually the best method, financially speaking.  The best method would be to attack the line of credit with the highest interest rate first, so you end up paying less in interest over time.  But, we have decided that the best method for us is to work with our psychology by feeling like we’re making more progress—this means paying off a single line of credit quickly to encourage us to continue.

Up to this point, I have been responsible for my own credit card and the first joint card.  Kyle handles all his own lines of credit and the second joint card.  This is unfortunate because Kyle makes quite a bit less than I do; however, I have opted not to pick up another line of credit yet because I can knock out one card faster if I focus on it.  Kyle has agreed to continue working his many lines of credit plus paying the minimum each month on joint card #2 until I can finish joint card #1.  Once I do that I can take joint card #2 off his plate, and so on.

We’re Flexible

We may change this over time, but for now this is our plan of attack.  I can commit to $840/month (includes my new raise!) in payments, and Kyle is managing his minimums at about $600 plus throwing another $60-100 each month at a line of his choice.  This works because I pick up the biggest bills (rent, groceries, phone), while Kyle picks up the smaller ones due to his smaller income.  The life insurance policy is Kyle’s whole life policy, and he hopes to contribute more once the debt is gone.

If we get into a tight spot, the first on our list of things to go would be our adventure fund.  This is a savings account I have set aside for us to go do things as a family every few months.  We are an adventurous bunch, and this keeps us from getting into a rut in addition to giving us something to look forward to.  But if we had to cut it or couldn’t pay off debt fast enough, I would forego it for a time.

We could absolutely pay down our debt faster if we wanted to cut back more, but the truth is, we don’t want to live ascetic lives.  We still want to have fun occasionally or shop for something other than the “bare essentials.”

So this is where we’re starting today.  I have a lot of tricks I use to help me save more and spend less, like overpaying some bills.  The way we manage our finances is quite unique.  I use a hodgepodge of money management techniques to get us to a system that works for us.  Everyone will need to use the things that work for their strengths, weaknesses, and unique situation, but this works for us, as long as we stay on top of it and stay vigilant about spending.

See our first debt recovery report for March 2020.

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