4 ways to climb out of debt and build a financial foundation: 'It feels impossible to catch up'

When Jaime Drummond and her husband Jimmy moved from Los Angeles to Texas to live with his parents, they thought it would be a temporary thing. The cost of living in Texas was cheaper, so it seemed like the perfect next step to building a strong financial foundation and getting out of debt.

“I didn't feel any shame really about it, because it felt like it was just going to be this quick stop along the way in life,” Jaime tells Yahoo Life.

But while looking for new employment, the pair lived off of credit cards and quickly began to accumulate debt.

Six years later, they’re still living with Jimmy’s parents. And now with two children to support — a 2-year-old and a 9-month-old — Jaime and Jimmy are desperate to get their finances in order and build a strong financial foundation for their family.

While Jamie and her husband chose “emotionally rewarding” careers, she says they “aren't necessarily the most financially rewarding jobs.” Jimmy’s income as a childcare regulator employed by the state of Texas is consistent and covers the family’s “basic needs,” including car payments, cable and phone bills.

The couple still uses credit cards to charge things like groceries and diapers, and currently has about $12,000 in credit card debt. They also have $14,000 in savings, but are hesitant to deplete their emergency cash reserve to pay off the credit card balance. “It is important to us to have at least six months of savings saved up, because you never know what's gonna happen,” Jaime says.

Jaime’s income as a recently self-employed pediatric sleep consultant fluctuates month to month, and any money she earns goes towards paying off their credit card debt; but she says they’re not paying off enough to “make a reasonable dent.”

“I have great months and I have not-so-great months,” Jaime says of her income. “You just don't know what you're going to get. So at this point it is not something that we can rely upon.”

But the couple’s finances weigh heavily on Jaime and her husband. She says she constantly worries about their debt and whether they’re making good use of their savings.

“It feels impossible to catch up. It feels like you're in this hole and you take two steps forward and three steps back constantly,” she says. “It just feels exhausting. Like you're running as fast as you can, but you're on a hamster wheel.”

Financial coordinator Angela Matthews says that’s a feeling that’s all too familiar for many American families.

“As a financial educator, it's not uncommon to hear a story like Jaime’s whose family is struggling because it has one primary source of income, as well as her contractor income,” Matthews tells Yahoo Life. “Jamie is starting to understand that something needs to give for her to have her own dream home and stop living with her in-laws.”

Jaime says the couple has big aspirations for the future and their family. They want to own their own home with a yard that the children can play in; they want their children’s financial future to be secure, with ample savings in the bank; they want to be able to do fun things as a family without stressing about money. But Jaime isn’t sure how to make that happen.

“I have fears that I won't be able to give my children the life that I really desire to give them,” she says. “I really want … that financial foundation for us. I just don’t know where to begin.”

Matthews says there are basic steps that Jaime and her husband — and anyone — can take to build a solid financial foundation. Here are some of the top tips Matthews shared with Jaime and Yahoo Life.

Sit down and ‘get comfortable with your numbers’

Jaime says they’ve thought about a budget, but that it often feels like they’re “in such a hole that the budget goes out the window.” But Matthews says a solid understanding of the dollar numbers you’re working with — like your debt, income, monthly expenses and the costs of your financial goals — is crucial.

“One thing I really recommend you both do is sit down with your numbers,” Matthews says. “I think there's a lot of fear in the unknown and getting comfortable with your numbers sometimes can give you anxiety, but you really won't understand what your real situation is until you understand what the numbers are.”

Looking at the numbers — like how much a house in your area costs and what percentage of that is required for a down payment — can sometimes lead to some pleasant surprises.

“You might think that you need, say, a hundred thousand dollars to have a down payment, when the reality is maybe you could only have five to 10,000 to get your dream home,” Matthews says. “So get comfortable with your numbers.”

And Matthews says a better understanding of your finances may lead to other revelations, too.

“Maybe all you actually need is $5K in real [emergency] savings,” Matthews says. And with what’s left over, you “can start chipping down on that debt.”

For savings, use ‘the envelope method’ and a high-interest savings account

Matthews says a good way to organize money for different goals is to sort them into different categories, or “envelopes,” within the same account.

“Some accounts and some banks will allow you to have many folders or envelopes within a savings account, and that's called ‘the envelope method,’” Matthews explains.

In Jaime and Jimmy’s case, Matthews recommends having one envelope for a down payment on a home, one for emergencies, one for the kids, one for fun stuff, etc.

If your bank doesn’t offer envelope options, Matthews says you can do it yourself by tracking and organizing your savings in a simple Excel or Google sheet.

She also recommends taking advantage of high interest rates by switching to a high-interest savings account.

“Interest rates are high, but the thing is, now so is the interest that you're getting on your savings account. But many of us aren't transferring it over to a better bank that gives us a better rate,” Matthews says. “We just think that we have to take crumbs, but we don't.”

Track down your 401(k)s

Jaime and her husband have multiple 401(k)s floating around from past jobs, but she says they’ve lost track of them and “have absolutely no idea how much money is in any of them.”

Matthews says that isn’t so unusual; lots of people leave a trail of forgotten 401(k)s in their past, “literally like old boyfriends and girlfriends,” she quips.

Matthews says there’s a lot more power in a 401(k) than people might realize. Because chances are, if you've had one for some time and it was being invested passively, it's been growing.

“I think people's secret weapon happens to be those retirement accounts,” Matthews says.

“So the first thing I want you to do is find where those accounts are. Call your old HR people, track them down, call the 1-800 number. Say, ‘I lost touch with this account. Can you please tell me how much is in it? What was the starting balance? And what is the balance now?’”

Matthews says that while you don’t want to cash in your 401(k), which would incur a lot of taxes, you can still benefit in the short term by keeping it as a retirement account.

“What you can do is take that money from your old retirement [account] and then transfer it into what's called an IRA, which is an individual retirement account,” Matthews says. “And now, you can do whatever you want with it. You just can't pull it out, but you can borrow against it. If you're looking for a down payment for your home, you can work it out where you can still use this money. You may have to pay a fee, but it's there for you.

Open an investment account for the kids

Jaime says when it comes to their children, she and her husband are concerned about saving — for everything from college to school field trip fees. So despite their financial difficulties, she says they’ve put away some money for the kids.

“If you told me that you didn't have anything for the kids yet, I would personally tell you don't start it right now, because we can't save our kids until we save ourselves,” Matthews says.

But since they’ve already started, Matthews suggests the couple could put a portion of that money into an investment account, which has more growth potential than a basic savings account — “because [the kids] are not going to need that money right away,” Matthews points out.

A 529 savings plan can help prep for educational expenses, and Matthews says a regular brokerage account is another option; while a brokerage account doesn’t have as many tax benefits, it also doesn’t have as many restrictions on what you can put the money towards.

“It doesn't have to be for retirement. It doesn't have to be for school. It can be for anything that you need to use for them in their lives,” Matthews says brokerage account funds.

And while there are concrete steps Jaime can take towards a strong financial foundation, Matthews says it will take some time to “heal that relationship” with money. Even when all the debts are paid, Matthews says Jaime will need to solidify her values around credit and debt before jumping into more financial goals.

“It's kind of like when you break your leg and it comes out of a cast, you just don't go and run a marathon,” Matthews says.

Jaime says taking a step back with Matthews and looking at ways she can build a financial foundation brick by brick has given her hope for her family’s future.

“I really feel like there's like a light at the end of the tunnel,” Jaime says. “I feel like I can start on a path of stepping off the hamster wheel and actually moving forward in my life.”

— Video produced by Olivia Schneider