"We Got Out of Debt"

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Family of four on their way to being debt-free

We've paid off $20,000 -- but we're not done yet

Rhiann McDonald, 29, is currently finishing her associate's degree and working part-time as an office manager. Ryan, 30, works in the restaurant business. The McDonalds have two daughters, Paige, 8, and Peyton, 6. The family's combined income is about $40,000.

Spending Frenzy

"There's something almost schizophrenic about sinking into debt: Part of you worries about what you owe but the other part of you doesn't believe it, so you keep shopping. In less than 10 years my husband and I went from having $15,000 in student loans to owing over $50,000.

"Here's an example of the kind of stuff we did: We were living in Alaska and had to fly down to Washington for my brother's wedding. There weren't many places to shop where we lived, so when we got to Seattle we went crazy. We bought tons of stuff for our kids and for ourselves. That shopping trip probably cost us at least $5,000. While we were there we also decided that our car was too small so we took out a loan to buy a new one, which cost us $25,000."

The Bills Add Up

"In those three short weeks we added $30,000 to what we owed. Over the next couple of years we took vacations we couldn't afford: Once we spent two weeks in Hawaii; a few years later we went to Disney World for a week.

"We relocated to Washington three years ago because we wanted to be closer to our families. We moved in with my parents, thinking we'd just get the girls settled and then find our own place. Ryan and I both got jobs right away, so we had plenty of money. But instead of saving or paying down debt we kept shopping. When I finally sat down in 2008 and realized how much we owed, I thought I was going to die. It was $51,000."

Learning the Basics

"I finally decided to take action. I began by reading everything I could about getting out of debt. I particularly liked The Total Money Makeover, by Dave Ramsey. That book taught me some basic techniques, such as 'snowballing,' which worked well for us: You pay off the smallest balances first, then take what you were paying toward those cards and put it toward your higher balances. It really gives you a sense of accomplishment. Another method we tried was the 'envelope system': You put set amounts of cash into separate envelopes -- for gas, groceries, and so on -- and use only the amount inside. That didn't work for us because if we spent what was in one envelope, we'd just go into another. What helped me the most was using the financial software that was already on my computer, because I could download all of my credit card and checking account transactions and look for areas where we could cut back."

Budget Savvy

"I'm constantly finding ways to economize. I use coupons and discount codes I find on retailmenot.com. I take the girls' old clothes to a consignment shop for credit, which saves us a bundle. We recently moved to a new apartment where we're saving $250 a month on rent and we can walk the kids to school. We still love to travel -- but it's not Disney World these days. We use frequent-flyer miles or visit family or friends so we don't need to pay for hotels.

"When Ryan lost his job last August I was sure our bills would skyrocket again. But these new habits really worked. He was out of work for eight months before he landed another job, and we didn't add any more debt. In fact, I'm proud that we've been able to pay off $20,000 in the last three years. I only wish we didn't have another $31,000 to go. But luckily I've found other women in my area who are in the same boat. We meet once a month for breakfast -- a sort of anti-debt club -- to swap budgeting ideas and give one another encouragement."

Continued on page 3:  Couple who Paid Off Entire Mortgage


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