- Approximate monthly income (estimate if job would change, as in Meri and Tony's case...as Meri is just graduating with her Master's before we move, and Tony is currently self-employed and probably won't restart his business in another city...too much involved and not enough space or time. I asked everyone to underestimate their income.
- List of all debts owed, from smallest to largest, with minimum monthly payment for each
- List of monthly ongoing bills (i.e. car insurance, cell phone bill, etc)
Although I am now disabled, my background is in consolidation of debt lending, and banking management. I have lots of experience creating budgets, debt management plans, and have also gone through Financial Peace by Dave Ramsay. Once I received everyone's info, I simply combined each item.
First, I added up all the income, to come up with a total monthly income for our household.
Then, I listed every debt, from smallest to largest, in one big list. It did not matter whose debt was whose...this was an all-encompassing list.
Next, I created a budget. My first priority was that each person tithes 10% off the top of their income. I believe that this is God's plan, and want to show Him our dedication to His Word, so that was the first monthly debt. I then listed each person's regular monthly bills, and added to that the minimum monthly payment total from the total debt list. That night, I had a long phone conversation with Mom discussing what the average monthly bills were for the household utilities, including the mortgage, electric, water, gas, and cable. I more than doubled the amounts for each, as we'll have 8 people living there instead of 3. I finished the monthly outgo by estimating food, gas, and monthly spending money. Again, I estimated all of these high, as I didn't want to think our plan was better than it was. Then, I added all of that together for a total monthly household expense.
Before moving on, I want to explain that the beauty of this type of plan is that you can adjust it based on what makes sense for YOUR FAMILY. For instance, in our family, my sister Jill has almost no debt, however she needs a new vehicle and currently isn't making much income. What I did was worked in saving the cash during months 8-11 so that we can pay cash for her to get a new vehicle. This was part of the personal benefit for her, and made sense since she didn't have the debt that the other family members did.
After figuring all of this, you simply subtract your monthly expense total from your monthly income total. From there, you can figure approximately how long it will take you to payoff all debts. The key is to start with the smallest balance, and work your way up. As you payoff each debt, you eliminate that monthly payment, and add it to your LEFT OVER amount to help pay down more debt quicker.
In our case, during months 1-7, all credit card debt is paid off. Months 8-11 pay for Jill's new vehicle. Months 12-35 pay off our 2 financed vehicles and over $100,000 in student loan debt!! Our plan is to reevaluate after 3 years to see if all want to continue the plan. Both of my sisters are single and realistically, we don't know what plan God has for them over the next few years as far as marriage etc, so this makes sense for our family. If we all continued during years 4 and 5, we could pay down the mortgage by 50%!!! This would put my parents in a situation to downsize and retire very comfortably, which is a goal for all of us. =)
Tony and I have always had a dream to purchase land outside of Nashville, and build a small, simple dream home. That is still our plan, God-willing. This journey will help us get there. In 5 years, we hope to move back to TN, debt-free, and begin that process.
Obviously, we quickly realized THIS WILL WORK INCREDIBLY!!! Our family will be debt free (not including the mortgage) in 3 years by working together. We made our plan official and started getting really excited! Meri and my family will be moving from TN to Roselle at the end of May 2016!!
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