Category Archive: Debt Story

Get Out Of Debt – The Emergency Fund

I recently wrote about our debt reduction process – a simple one-page guide to getting out of debt.

Over the next few days, I plan to elaborate on each of the steps mentioned in the article, starting today with a few notes about step 1 – and the emergency fund.

My wife and I have our primary checking account with our local bank.  This allows us to deposit our paychecks locally – and is a great place for my son to find coins for his collection.  The account is interest bearing and is free.

Our saving account is online – and that’s where we keep our emergency fund.  Withdrawals from our checking account and deposits into our savings account take place each week, easily initiated from our online bank account.  We can easily track our account balances via our online bank’s phone app.

emergency fundWhen getting out of debt – before we started aggressively paying off our debt – we worked hard to fund our beginner’s emergency fund.  Our goal was to keep a minimum of $1000 in the account, at all times.  We managed to keep between $800 and $2000 throughout our process.

The emergency fund helped us cover unplanned-for expenses – and helped us avoid adding to our credit card balances.  We dipped into the emergency fund, if memory serves, twice during our debt reduction process.

Both times, we paused our debt reduction (while still making minimum payments, obviously) and rebuilt our emergency fund.  Cash reserves were (and are) that important to us!

After getting out of debt – and prior to the purchase of our first home – we worked to save six-month’s worth of salary in our emergency fund.  We used the same “method” for savings as we did for debt reduction – but this time – the “extra payments” were going into our savings account.

When we purchased our home, we used a small portion of our emergency fund to help with our down payment.  We did this to avoid PMI.  After purchasing our home, we rebuilt our emergency fund.

Over time, as we have gotten better at living on a budget and understanding our month-to-month financial needs, we have moved away from a strict “emergency fund” – and more towards categorized “cash reserves”.  In other words, our cash is allocated, on paper, for future purchases and long-term goals, plus emergencies.

Our emergency fund provided a lot of comfort during our debt reduction process – and continues to help us as we work towards total financial independence.  Thanks for reading – and have a blessed day!

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Get Out Of Debt – One-Page Summary Of Our Process

It’s been a minutes since I last wrote about debt reduction – so I thought I would write out a simple, one-page summary of the steps that my wife and I have taken to eliminate our debt.

1. We established a small emergency fund. We started with $1000 in cash – and our fund fluctuated between $800 and $2000 during our debt reduction process.

2. We created a (and followed) a zero-based budget. We “spent” our paychecks, on paper, at the beginning of each month, so that we would know where our money was going to go.

3. We listed our creditors and associated debts, by amount, smallest to largest. (Another option, used by many, is to list debts by interest rates, largest to smallest. Whatever works, works. We liked the idea of paying off smaller debts first, to see some progress, and this worked for us.)

4. We paid minimum payments to all of our creditors – and any extra money went towards paying off the debt at the top of our list. Once a debt was eliminated (paid off), that creditor was removed – and replaced at the top by our next debt.

5. We continued this process – the classic debt snowball – until we paid off all of our creditors and eliminated all of our debt.


Throughout the process –

1. We learned to make payments as soon as possible – thus reducing the time for interest to accrue.

2. We used a single balance transfer to reduce the interest rate on one of our credit cards. This was back when credit card companies routinely offered no-fee balance transfers.

3. We took several opportunities to earn extra income – by selling things we didn’t need and taking on odd jobs. I also started this blog, which did (and does) earn a small amount of income.

4. We looked for – and capitalized on – ways to save money – including eating at home, reducing miscellaneous spending, and requesting discounts. To be honest – we could have done a much better job at these things, but did choose, from time to time, convenience over cost.

5. We remained dedicated to our process and worked really, really hard. We were successful – and able to pay off our non-mortgage debt.

Our current goal is to eliminate our 15-year mortgage. We are currently in year 6 – and we have already reduced our expected payoff date by more than a year.

It has been several months since I last wrote, but I am happy to be back to my regular schedule with regular posts. Blessings. Please use the buttons below to share.

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Put That First Debt Balance In The Rear-View

After establishing an emergency fund, my wife and I began to eliminate our debt.  Here’s what we did.

We made minimum payments to all of our creditors.  We never missed a payment and all payments were made on-time.

We listed our creditors in order, by balance owed, smallest to largest.

We attacked the first balance on our list, by sending principal-only payments to our creditor.  Click to read about our success in paying off that first balance.  Eight years later, this post still makes me smile!

We then attacked the next balance on our list.  Since we no longer had to deal with the first balance, we had more money to attack the second balance.

We then attacked the next balance on our list.  Wash. Rinse. Repeat.

In less than a year, we were debt free.

This method, commonly referred to as the debt snowball,  really worked for us.  We fed off of the momentum that came from small successes.

The interest rates on all of our accounts were pretty similar.  We needed the psychological boost that came from seeing entire balances eliminated.  Situations vary, but this is the system that worked for us.  (Many others have succeeded using a similar method, but arranging balances based on interest rates, highest to lowest.)

It felt great to pay off that first debt.  It took focus, sacrifice, learning how to budget, and teamwork, but we managed to pay it off – and we never looked back.  That debt is now in our rear-view and we never have to deal with it again.

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