This post is from April Dykman, a new GRS Staff Writer. April was a typical GRS reader who used the things we talk about to improve her financial situation. Now that she’ll be writing for the site, she wanted to start by sharing some background on her financial history.

In April 2008, I got married. My in-laws graciously gifted my husband, Luis, and me with an adventurous honeymoon in Mexico, complete with scuba diving, climbing Mayan pyramids, and navigating local markets.

Once we unpacked and settled into married life, we knew it was time to get our finances in order.


Photo by Amelia Tarbet.

We had some consumer debt, and then a few months before our wedding my husband’s company was bought out. He was unemployed for two months. We didn’t have an emergency fund, so money saved for the wedding (paid for mostly by my parents, but we wanted to cover some expenses) paid bills instead, and with balances from wedding vendors due, we relied on credit cards.

We were anxious to be debt-free, and we accomplished that, and more, within one year. This is our story of how we used some basic principles to accomplish our goals.

Getting real
The first step on the road to recovery was to gather balance statements for every credit account to our names. That number included:

  • Credit cards ($11,200)
  • Auto loan for my vehicle ($10,000)
  • Motorcycle loan ($6,000)

Grand total: $27,200. Gulp.

I think for many people, this simple first step is scary. Maybe, like me, you piddle around, paying a little extra, cutting back here and there, and you avoid The Scary Number. Maybe you’re terrified because you think you’ll never manage to pay it off. Maybe you’re worried that you’ll have to change your lifestyle, and your friends will think you’re a loser and you’ll turn into a crazy cat lady and when you die no one will find your body for weeks. Whatever the fear, I suspect most people need the wake-up call. I know I did.

Getting a plan
I don’t think it matters whether you pay off the lowest balance first for a psychological boost or pay off debt with the highest interest rate to satiate your logical side. What matters is having a plan. We decided to apply money toward the credit cards first, lowest to highest balance, then the vehicle loans.

I also started to track our spending in a spiral notebook.

Identify big gains
Next, we looked for ways to put big dents in our debt. The motorcycle loan was obvious. My husband rarely rode it because it made me a basket case, and it wasn’t a viable work vehicle. He placed an ad on Craigslist and sold the bike, eliminating a $200 payment.

Then, in May, his truck was totaled. Thankfully, he was okay. We received an $8,000 settlement and contemplated not replacing the vehicle. More than a few people thought having only one car was asking for marital strife, but GRS readers encouraged us to give it a go. We put $4,000 toward the credit cards and saved $4,000 just in case the one-car scenario didn’t work out. Today we still have one car and buying another is a low priority. It was one of the best decisions we’ve ever made.

By July 2008, we were down to $11,600 of debt and had $4,000 in savings.

Identify small gains
After a few months of tracking our pennies, I was able to get an idea of where our money went, and we made smaller changes such as:

  • Cutting back on eating out at lunch.
  • Downsizing my cell phone plan (I hardly use it).
  • Reducing the grocery bill—expensive specialty foods could be cut for now.

In August 2008 we made the final credit card payment.

Using windfalls wisely
In September, I received a $500 bonus and $300 from freelance work. The $800 went toward the car loan. I remember thinking that soon windfalls would go toward saving for the future, not paying for the past.

Establish an emergency fund
Our $4,000 savings was a pseudo emergency fund, but it was really money earmarked for a second vehicle should our one-car plan prove to be a disaster. But life without a second car was going well, and we were anxious to wipe out the last of the debt. We used some of the money in savings to pay off the auto loan, leaving $1,200 to establish an emergency fund. We were officially debt-free.

We immediately reallocated debt-repayment money to our emergency fund. By March 2009, we had saved three months of expenses. We were then free to save for more exciting dreams, such as building our house, travel, and retirement. We opened a targeted account for each goal, and every month we see our savings grow as we pore over floor plans or dream up our next adventure.

Lessons learned
I’m proud of how far we’ve come, but looking back, there are two things I’d have done differently.

  1. Live (a little). I tend to go at something full-force. After a couple of months of miserly behavior (mostly on my part), we eased up and allotted money for frivolities, creating a bit of life balance in the budget.
  2. Start with the emergency fund. First, it mitigates future risk. Maybe a tire will blow out. Maybe the A/C will break down when it’s 100 degrees outside. We were simply lucky that neither happened. Second, there’s a psychological component. Dan and Chip Heath, authors of Made to Stick: Why Some Ideas Survive and Others Die, make a case for the whisker goal, “a target that [is] a hairsbreadth away from the status quo.” While “stretch” goals (pay off $27,000 of debt) are great if you feel empowered, whisker goals (save $1000) are better if you feel overwhelmed. They can get you past the fear that holds you back.

It wasn’t easy. While we had the benefit of a middle-class income and the luck to have no major setbacks, we also made big lifestyle changes. We were highly motivated from the day we calculated our total debt.

I think taking that first step was key for us, but what about you? If you’ve paid off debt or are currently doing so, what do you think are the most important actions you’ve taken to become debt-free?

J.D.’s note: EVERYONE wants to skip the emergency fund. I did too. We listen to people on the other side say “start with the emergency fund” and we think “meh — why do I need to?” Well, now that I’m on the other side, I wish I’d started with the emergency fund too!