Alan & Dawn at the 2-Year Mark

It’s been two years, one month since Alan and Dawn decided a change was in order for their financial situation. They were living paycheck to paycheck despite having a nice income and they were tired of it. Tired enough to get motivated to make some tough changes. Tired enough to do what neighbors, friends, and co-workers were unwilling to do despite facing similar difficulties. Alan and Dawn changed their behaviors towards money and the results are amazing.

In May of 2007, Alan and Dawn had $131,000 in consumer debt  including a BMW ($22,200),  mini-van ($12,100), one credit card ($10,500), two student loans ($17,500 & $37,000), a personal loan ($28,000), and a handful of miscellaneous smaller debts ($3,700). In addition to the consumer debt they had $259,000 on a negative amortizing home-loan. Combined, Alan and Dawn had a pile of debt adding up to around $390,000. To tackle this debt they had a take-home pay of $5,200 when they started…..and then they got to work!

They “downsized” their expenses by selling their two vehicles for two much cheaper ones, cut the budget (and the credit card!) in every possible way, and stretched every penny as far as it could possibly go. Doing this dropped $17,000 off their total debt, and saved them thousands of dollars worth of interest. About six months into the process they decided to take the big step of selling their home and renting until they became debt free. Not only did they knock $259,000 worth of debt out, but it reduced their total financial risk and dealt with the terrible loan situation they were in. They ended up with monthly expenses (including minimums payments on debt) around $5,000, leaving about $100.00 each month to throw at the remaining debt.

Two years later Alan and Dawn are doing great. The once $390,000 pile of debt has been reduced down to $69,537 without having received any significant pay increase or bonus. Taking any extra money they could find from garage sales, gifts, or the odd job resulted in taking a nice size hit out of the debt. Only the two student loans (now $16,500 & $33,687) and the personal loan ($19,350) remain to be paid off, and at this rate they will meet their goal of  being debt free in less than 5-years!

What Alan and Dawn have accomplished in such a short amount of time is amazing to say the least, but it’s not impossible. It has taken them hard work and caused them to be intentional to the penny every month for two years. I’ve sat with them when it was tough and tears were rolling, and I’ve witnessed the multiple little victories along their journey. Most people living paycheck to paycheck would like to be free from the stress and limitations that situation creates, but few are actually willing to do what it takes to change the situation. It’s tough! Anything worth anything typically is. But it’s completely worth it if you will commit to it! I know Alan and Dawn are going to make their goal and I’m excited to see how their life flourishes in the future because of the decisions they are making today. Great job guys, keep up the great work! I’m so proud of you!!!

Checking in with Alan & Dawn

(This post is part of a series that you can find in the Alan & Dawn category bar on the home page of this blog.)

It has been a while since we have checked in on Alan and Dawn, a family going through a major financial transformation. To recap, Alan and Dawn began their financial transformation in May of 2007. Alan works in the medical sales industry and Dawn is a full-time mom. Their goal was to get a handle on their finances, become debt-free, and be able to start saving for their future. Starting with $131,000.00 in consumer debt and another $259,000.00 on a home mortgage, even a good paying job wasn’t allowing them to live beyond a paycheck-to-paycheck life. So where are they at 6 months later? Let’s take a look.

Alan and Dawn got focused. First, they got on a written budget and named where each dollar of income was going to go before the check was deposited. They also began using the envelope system for all of their purchases (one for food, gas, misc., etc) and kept a record of their spending using the receipts. Within the first 6 weeks they saved a $1,000 emergency fund for the rainy days ahead that are sure to visit us all from time to time. They traded in two vehicles that they couldn’t afford to begin with in exchange for less auto debt and a little more monthly cash-flow. Miscellaneous items were sold to pay down debt and all in all, Alan and Dawn paid off $16,800 of debt, lowering their total owing to $114,200.00 + their home! Their financial risk/liability was also reduced because of the debt reduction. The $16,800 of consumer debt equals 12.8%, which would put them on pace to be debt-free except for their home within the next 5 years.

It’s important to note that the changes that Alan and Dawn have made to this point required behavior and mentality changes more than anything. Neither Alan or Dawn started another job, begged friends for money, or tugged on uncle Sam’s beard for help. It was tightening the financial belt (aka using a budget) and getting focused on paying off debt. There was also one more major change that they decide to make: sell their home.

The home loan they were sold was terrible to say the least. It essentially required less than an interest only payment each month and “used” the homes equity to make up the difference, about $700 per month. Numbers like that speak for themselves, the home was more than they could afford. Even refinancing the loan to a standard 15 or 30-year fixed would have pushed the monthly payment too high to afford. The good news is that they would still have $30,000 to $35,000 in equity if their home sells for their asking price. That would be a large chunk towards their debt reduction plan.  As of the date of this post, they have a full-price offer on the table and they are scheduled to close within a week or so.

To summarize Alan and Dawn’s progress, they have made huge strides towards reaching their goal. They have made more progress than the average family in their situation simply because they got focused and starting running in the right direction. Few people get past “thinking” about starting a financial makeover. So I have to take my hat off and say congratulations to a great start on a difficult journey. You’re going to get their, you’re doing a great job!