been over the years,” says Valerie.
The Robinsons even added wealth building to the equation. They began putting 10% of their monthly income into savings. “One of the things that was hard for me to conceptualize at first was getting out of debt and building wealth at the same time,” says Ken. But over the past three years the couple has remained relatively debt free and has learned the value of putting their money into appreciating assets such as money market accounts, mutual funds, and retirement accounts.
Staying out of debt and managing credit is something you must do over your lifetime. “It can be deceiving to think that once you pay off your debt that’s it, end of story,” says Ken. “You have to continue to monitor your spending, live within a budget, and pay yourself first.”
The Robinsons managed to chip away at their debt and build up their assets by using the following strategies:
- Negotiate with creditors. The first major step the Robinsons took was to stop using credit cards. “We had about seven, including Visa, MasterCard, retail stores, gas — all of which were maxed out,” says Ken. The next step was to contact their creditors and make payment arrangements. For instance, says Ken, “I called company XYZ and said my monthly payment is $50. I am trying to balance my budget and make all of my payments on time. Is it possible that I can pay $25?” He is quick to point out that creditors were willing to adjust monthly payments since “they were trying to catch up with us by then. They just wanted to be assured that they were going to get paid.”
- Cut back on unnecessary spending. “Though it was painful at first, we changed our behavior and spending habits,” says Ken. “We got on a tight budget which meant no more eating out. We started to prepare healthy meals at home, which resulted in significant savings.”
- Build a cash reserve. The Robinsons currently have six months of living expenses saved in a money market account. But they are still building more. “Most financial planners are now recommending saving eight months to a year[of living expenses], because it is taking longer to find employment if you are laid off,” Ken notes.