PITTSBURGH - From the food bank to a new home, we found out one family’s secrets to getting out of debt. Target 11 Consumer Investigator Robin Taylor uncovered five ways to get your finances in order.
Seven years ago, the Barans were facing a mountain of debt. Their credit cards were maxed out and they didn't even have enough money for food.
“We were to the point where we were going to the food bank, the local food bank. They were helping with the kids’ lunches," said Jill Baran.
But they found a way out, and the simple steps they took could help you, too.
The McCandless family realized they needed help when Dan's salary was cut in half and Jill found out she was pregnant with their third child.
"Three children, one income, we needed to change things. Our credit card debt was up to $17,000," said Jill Baran.
That's when they discovered the Dave Ramsey plan. The motivational author and radio and TV host encourages people to get out of debt.
Thousand Dollar Emergency Fund
The first step was to save a $1,000 emergency fund.
Make a Budget
The next step was to make a budget.
"You put each thing on paper and then you start realizing, wow I'm spending a lot of money in that area," said Dan Baran.
What they discovered was eye-opening. It wasn't the big-ticket items blowing their budget. It was the little ones, like all those trips through the drive-through.
"I was just using the debit card, you kind of lose track of what you're using it on, how much you're spending," said Dan Baran.
They started setting aside cash in envelopes, one for groceries, another for gas. Using only the cash that was set aside put a serious limit on what they could spend. And then they began tackling their debt.
Pay Off Debt
"We had the list of our debts hanging in our kitchen cabinet and it was just really fun to cross another one off when we'd pay one off," said Jill Baran.
It took two and a half years to pay off their credit cards, but they did it by sticking to their plan.
Financial experts recommend tracking your spending with a free service such as mint.com.
"Take a look at those day-to-day expenses first of all. And then also those monthly expenses and see what you can do to pare those things back," said Trae Bodge, a retail spending expert with RetailMeNot.com.
Pay Down Mortgage
Once the little things are under control, you can focus on the big ones, like paying down your mortgage. By splitting your payments in two, you can do it sooner, without paying any more money.
"You can actually cut a couple years off your loan simply by paying twice in that same month," said Bodge.
You can do the same thing with credit cards.
Jill saves hundreds of dollars a month on groceries by checking the sales, making a menu, and sticking to her list. Her kids' clothes come from consignment sales, and Dan earns extra money picking up odd jobs as a mechanic.
"For me, the biggest lesson would be to live within your means," said Jill Baran.
Add to Savings
Once they paid off their debt, the Barans saved that extra money to invest in their family.
They moved from a three-bedroom to a five-bedroom home. Dan bought a new pick-up truck, and they now have a $10,000 emergency fund.
"Now, any extra money, I feel like we're rich," said Jill Baran.
Their credit rating also went from fair to excellent. I asked them what the hardest part was and they said it was really just getting started. Once they had a plan, it was a lot easier.