100% Debt-Free And Ready To Save

Sunday, December 23, 2007


Background: Washington is a graduate of Howard University and works as a concierge, helping new apartment residents settle in. She lives in the District with her mother. Washington earns about $36,500 a year.

Her 2007 New Year's resolution: Washington wanted to pay off all her debts and begin saving for a home. She had a $1,284 Bally's account, which was in collection, and a Macy's account, also in collection, on which she owed $425. (She was able to settle this debt for $319.) Her largest debt was $4,800 on a Visa credit card, which had been closed by the lender and was also in collection.

Struggles: Initially it was hard for Washington to understand that even if she was paying for something in cash, she was overspending. For example, she had planned a trip to Las Vegas.

"But I'm paying with cash," she said after I told her to cancel the trip.

I also got a little pushback when I told her to get rid of an expensive Internet service on her cellphone.

Setbacks: Four months into the challenge, Washington learned that she owed a total of $1,780 in overdue taxes, $1,400 of it to the Internal Revenue Service. A former employer did not withhold enough from her pay, which became evident when she filled out her W-4 form. But she managed to pay off the IRS debt by using state refunds and by reducing the amount of money used to pay down the credit card debt.

Despite the tax situation, Washington got right back on track and still paid off the debts ahead of time. She did that by taking on a bartending job to supplement her income.

Successes: Washington was the only challenger to pay off all her debts over the year. In all, she paid off $6,402 in 10 months.

"I just feel relieved," she said.

To be sure, Washington's expenses were not as high as the other challengers because she lives at home and doesn't pay rent. With few expenses, she had more disposable income to attack her debt. Nonetheless, she did everything I asked of her.

Washington kept a spending journal to discover how she wasted money. She developed a budget and stuck to it. The part-time job helped. In fact, many of Washington's friends began watching what they spent because of her participation.

"When they saw my spending journal, it influenced them," she said.

New Year's resolution for 2008: Washington has put off buying a home. Instead, she's set her sights on studying to become a nurse anesthetist. It's a costly life decision. The programs she's interested in cost more than $100,000.

To aid her savings, Carlesa will continue to live at home. Because her monthly expenses are so low, I recommended that she significantly boost her savings to help reduce the amount of student-loan debt she expects to take on. It's possible for her to save as much as $1,000 a month.

Final thoughts on her performance in the challenge:

Like other participants, Washington said she finally saw the value in having a financial plan and goals. The plan keeps you on track. The goals help keep you focused.

"I didn't like budgeting," she said. "But I like it now. It really helps show you where your money is going. This whole thing was an eye-opener. I realized I spent money on useless stuff."

Now, Washington says, she questions every purchase.

"I got a lot more out of this than I thought I would. A lot of my habits changed. This gave me the boost I needed."

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