Strict spending diet frees family from debt

They were living paycheck-to-paycheck, using most of two decent incomes to keep up with debt payments. They never talked about money and had no idea how much they owed.

Then in 2009 their son Robbie was diagnosed with Type 1 diabetes. Determined to help find a cure, Jennifer found a clinical trial for Robbie in Denver. But they had no money or credit for a plane ticket.

“It’s like we just woke up,” said Jennifer, 41.

That’s where Dave Ramsey came in. The once-bankrupt real-estate-investor-turned-financial educator has a course called Financial Peace University, and the McDonoughs’ church was offering to reimburse the $99 course fee to congregation members who completed the online program.

The couple was reluctant. “I certainly didn’t want someone telling me what to do with my money,” Jennifer said. But after the first lesson, Jennifer was hooked, going through a course that was supposed to take 13 weeks in 10 days.

It took Bob, 47, a little longer to get on board, finding Ramsey to be “abrasive.”

First they tallied up their debt. They’d maxed out a credit card with a $14,000 limit, taken out $46,000 in a 401(k) loan, owed $3,000 on a line of credit, $5,000 on a boat, $25,000 on a van and $68,000 on a second mortgage.

Every month they were spending $1,000 more than they made. They crafted a bare-bones budget for a lifestyle nothing like the one they’d known.

They took their credit card statement, drew a red line through it and wrote “Last McDonough Visa bill,” then stuck it to the fridge. Jennifer came up with the idea so the family would “remember where we had crawled out from and where we were going.”

It was hard to adjust. The first week of the program, Bob went out for lunch every day. “I was so mad,” Jennifer said. The couple who never fought about money had their first fight.

But after the first bill was paid off, Bob was hooked. “It’s empowering,” he said.

They sold an extra fridge, a composter, the boat and other items on Craigslist. They sold the van and bought a $600 Buick to replace it.

They instituted a gift moratorium, turning down invitations to weddings and parties with gifts. They stopped buying clothes. They pulled the kids out of hockey. Family restaurant nights were history. “(The kids) understand the concept of money now,” Bob said. “They kind of celebrate in our victories and kind of know the long-term goals that we have.”

The couple also worked. All the time.

Both Jennifer and Bob work at 3M. Then at night, Bob would clean offices. Jennifer worked for the YMCA and the Census on weekends. They’ve participated in several research studies. Jennifer wore a heart monitor (“they’re itchy”). One test paid $150 but required Bob to get his chest shaved. The couple still delivers pizzas. In 2010, they had 10 W-2s between them. “Once you start getting that momentum of paying it off, you’d do anything,” Bob said.

Every penny of that extra income went toward debt pay-down. “Those little snowflakes hitting that snowball,” Jennifer said.

Snowball? Jennifer is referring to Ramsey’s debt snowball plan. List your debts from smallest to largest, no matter the interest rate. Pay the smallest debt first, then use the money freed up from that debt payment and put it toward the next bill.

Today, the 401(k) loan is repaid, they have $1,000 in emergency savings, are working aggressively to pay off their second mortgage and donate 10 percent of their income. “Our kids have become awesome givers,” Jennifer said.

A German documentary crew followed them around for a 2012 TV show. Jennifer blogs at FieldOfDebt.com and is writing a book about their financial journey. She travels with several used copies of Ramsey’s “Total Money Makeover” book with her, just in case she gets into a conversation with someone about debt.

And in three years, “we’re going to take a helluva vacation,” Bob said.

TIPS FOR PAYING DOWN DEBT

Ready to live debt-free? Get started with these tips from the McDonoughs; many are influenced by Dave Ramsey:

-Know you’re not alone. Other families are looking at a mountain of debt, and there are resources to help.

-Be intentional with your money. Tell your money where to go instead of getting to the end of the month and wondering where it went.

-Pick a plan and follow it. Whether it’s creating a budget using free money-tracking tools such as Mint.com or mapping it out on paper, you need a plan to pay off your debt.

-Put necessities first. Keep the mortgage paid, lights on and food on the table. If there’s nothing left for entertainment or gifts, there’s nothing left.

-Stuff is stuff. The McDonoughs sold thousands of dollars’ worth of possessions on Craigslist to jump-start their debt payoff. They don’t regret it.

-Value your money in hours. The McDonoughs started equating purchases in terms of the number of work hours it would take to afford it. That curbed the desire for a lot of needless spending.

-Look for side jobs. They are out there. Look for an extra job that’s on the way home from your current job, Bob suggests. “Ask, ask, ask,” Jennifer said. They take vacation days from their day job and go to work.

-Life happens. Car repairs can be expected. So can broken hot water heaters and doctor’s appointments. Plan and save for these expenses.

WHAT IS FINANCIAL PEACE UNIVERSITY?

Created by best-selling author and radio show host Dave Ramsey, Financial Peace University is a 13-week program offered mostly by churches to help congregation members pay off debt, create a budget, save for emergencies and build toward tithing 10 percent.

More than 1.5 million families have attended Financial Peace University since 1994. The average family pays off $5,300 in debt and saves $2,700 in the first three months.

Some, including Bob McDonough, see Ramsey as abrasive, and his preachy style takes some getting used to. But Ramsey’s speaking from experience. He lost it all as a real estate investor and reinvented himself as a debt-averse financial educator and radio show host.

-By Kara McGuire

ABOUT THE WRITER

Kara McGuire is a columnist for the Star Tribune in Minneapolis. Readers may send her email at [email protected] or follow her on Twitter @kablog.

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