“The best laid plans of mice and men often go awry…”
– Robert Burns, To A Mouse, 1785 (adapted)
This summer we took on a remodel of the entire front half of our house. We had been planning it for years and started assembling materials six months in advance. We thought we had a nice, cushioned budget for the project, too. We allowed for 50% more over what we initially estimated, knowing that remodels almost ALWAYS go over budget!
Well, guess what? We blew through our entire budget (including the overage) before our house was even remotely put back together. When my husband and his crew tore up our kitchen sub-flooring, they discovered that some parts of our foundation were badly in need of repair. Also most of our electrical wiring was downright dangerous. Yikes.
There was no question – we had to fix what was wrong with the house. But we were going to have to get creative with how we were going to pay for it! In total we went about $5,000 over budget, which really isn’t as bad as it could have been considering we rebuilt about half of our house. We used as much of our home equity line of credit as we were comfortable with, dipped into savings, and then had to put the rest on credit cards. I have a policy of not carrying a balance on my cards, but in this situation we really didn’t have much of a choice.
So after we were moved back in and life has settled down, we had to deal with the financial consequences of the remodel. Since I know I am not the only person to ever go WAY over budget in some aspect of life, I thought I would share our five-step course of action. Hopefully this will helps others see that this isn’t as much of a catastrophe as it might feel like at first.
Look Honestly at the Debt
Our first step was to take a good honest look at how much we had actually spent. This was painful, but necessary. It would have been easier to not do the math, and just pretend the newly acquired debt wasn’t there (aka the hiding-my-head-in-the-sand-like-an-ostrich approach).
Instead, I added up exactly how much we had gone over budget and found where that debt was hanging out, since we had used a few sources to pay for materials. Since I’m a spreadsheet kind of gal, I recorded the amounts owed there. Writing it down on paper and pencil works, too.
Make a Timeline for Repayment
Next we figured out how much we could afford to pay each month on this new debt. I added it as a line in our monthly budget spreadsheet (“remodel payoff”) and we had a new total bottom line until the debt was paid off. We are trying to pay the debt down by $300 each month, which will take us roughly 17 months.
There will likely be months when we can put more towards the debt and some where we can’t pay that amount due to other pressing needs. But we felt that $300 was a reasonable goal for us to work towards each month.
Just assessing the damage and making a plan really did help us feel better about the situation. When we looks at the situation honestly it became not as terrifying, and we started to relax just a bit!
Research Your Options for Not Paying Interest
If you are like us and resorted to putting some debt on a credit card, the next step is to research how to avoid paying interest on the balance. To me, paying interest on credit card debt is akin to throwing money down the drain. At times I have needed to carry a balance for a short while – like when I had to shell out $5,000 on a dental implant for my front tooth – gotta have a front tooth, friends. However I found a good balance transfer option and moved that balance to an account with 0% interest promotional financing.
This often doesn’t take opening another credit card. First, I suggest checking for available balance-transfer options on any cards you already have. When I checked both my Chase and Discover cards, I found balance transfer options by navigating within the main menu in my online account.
Then I suggest really comparing any offers that you have. The standard balance transfer fee is 3%, so anything less than that is worthy of consideration. When I did a balance transfer for the above-mentioned tooth debt, I took advantage of an excellent 1% transfer fee + 0% interest for 18 months offer from Barclaycard.
The transfer fee is paid upfront when you transfer a balance, so it needs to be figured into what you will end up paying. If you don’t have any cards with decent options, you can open a card that is targeted for balance transfers, such as the Chase Slate card. You may want to use this balance transfer calculator to figure out what offer works out best for your situation.
BUT BE WARNED: If you do not pay off the total amount of your balance transfer before the end of the promotional period, you will be charged the cumulative regular percentage interest from the entire period! This is what the credit card companies are hoping for – that you will slip up, forget about paying the full balance off, then they will collect their interest at sky-high rates. For this reason, making sure that the balance is paid off completely should be your number one priority. Mark it in your planner, put an alarm on your phone, etc.
If you need more time to completely pay the amount off by the end of your promotional period and you can’t find the money anywhere else, you can do another balance transfer on the remaining amount to buy yourself a little more time. I don’t recommend this, since it can lead to just shuffling debt around instead of paying it off, but if you are in a bind it is a MUCH better option that paying all of that interest!!
Find Ways to Earn Extra Money
When I am trying to pay down short-term debt I look for ways to earn some extra money to pay down the balance faster. Anything I can put towards the pay-off amount helps, even if it is only $10. I try to always accept any way to earn extra money that won’t put undue stress on my family.
One way I earn extra money is by selling any stuff we aren’t using on Craigslist or eBay. Recently I sold a nice backpack child carrier that our little one has outgrown on Craigslist for $80 and a SodaStream that was collecting dust on eBay for $40. That $120 went towards paying off the debt and our home was a little neater!
I’ve freed up a bunch of money in our monthly budget is by meal planning (check out my frugal dinner plans here) and buying a lot of our grocery staples at Costco. I estimate that this has saved us around $200/month over the course of the last year, and that can really help pay down that debt quickly!
I also like to earn a little extra money on Swagbucks. I redeem my Swagbucks for Amazon gift cards which I put towards our monthly Subscribe & Save order (or the Christmas budget this time of year). This frees up money for other things such as paying down debt.
Celebrate Any Progress and Stay Positive
It can be discouraging to go way over budget and try to work your way out. I find it helpful to celebrate any progress, even if it is small. I keep track of the debt in a spreadsheet and update the amount still owed every month. I get so excited to see the number shrink, even if it is by less than expected! The “snowball” method of debt payoff can help give a psychological boost and keep you committed to paying down your balance.
I’ve paid off debt completely before so I know how great it feels when the balance finally reaches zero!
Have you ever been in this situation before? If so, what was helpful for you? Please leave a comment below to share some encouragement for me and other readers!