April 14, 2012 marks the day we've been waiting for for over three years: WE'RE DEBT-FREE!!!!
To celebrate, I wanted to outline our story statistics as a testimony that living without consumer debt is possible. Husband has been asking about these numbers, and I figured I would immortalize them here.
My parents gave us Dave Ramsey's book, Total Money Makeover, and told us that they wished they'd read it and followed his plan back when they were our age. Unfortunately, we had just closed on our first house a few months earlier and were in the process of finishing it: blinds, furniture, electronics, and landscaping were just some of the things we were starting to finance. I read TMM and was pretty impressed with it, but I certainly wasn't adamant, and Husband wasn't ready to give up our rewards credits cards and go strictly to cash. We also hadn't been good about being on a budget and were just kind of lazy about making ourselves start one.
It makes me soooooooooooo sad that it took us so long to get serious
about getting our finances under control. I can't imagine where we
could be today had we not... well, I can actually imagine. Husband has started running the numbers, but I've stopped him. It makes me sick to consider it.
I don't remember what finally prompted us to make the decision, but we did a lot of discussing as we drove to and from Missouri/Colorado for Christmas 2008. We were sick of being slave to our creditors and knew that there was no excuse, especially on a healthy combined income, for being nearly $63,000 in debt. By the time we'd spent around 30 hours in
the car, we had a plan.
The beginning of our Total Money Makeover!
We immediately paid off our three smallest debts, which totaled $2617.
We stopped using our credit cards (yes, I know, you pay them off immediately and never carry a balance -- us, too... believe me, no matter how great your rewards program is, borrowing money still doesn't make sense) and went exclusively to cash starting with January's first paycheck. Our first month of budgeting was tricky (as Dave says it will be), but by February, we knew more certainly what our needs were and made the adjustments.
We paid enough down on the balance of our car loan to refinance it at a lower rate, resulting in a significantly lower monthly payment ($160 less per month). But this was the last snowball we could accomplish for now. We had made the decision to move back to Missouri as soon as possible, pending job offers... so, as Dave advises, we started putting every spare dollar into our savings account. I talk more about that here.
It was very difficult, especially for me, to stop our debt snowball that
seemed to be gaining such momentum. But over the following 22 months, it proved to be necessary and infinitely wise. Pausing our debt snowball and piling up cash kept us afloat until our situation stabilized.
Meanwhile, we job hunted and eventually both ended up with the same job offer: teaching SharePoint classes through a small consulting firm. The fact that neither of us held a full-time, permanent position further enforced our decision to build a healthy savings account.
December 2009-April 2011
This time period saw a move, two job changes (plus my becoming a SAHM), a tenant turnover in our Colorado home, and a baby (self-paid, as we did not have maternity insurance). Twice, we weathered periods of earth-shaking financial uncertainty. We had to dip into our (thankfully healthy) savings account at least half a dozen times just to get the bills paid.
This was one period of serious financial uncertainty. Husband's consulting work had dwindled, and there were increasingly fewer opportunities to teach classes for his client. We were coming to terms with having an anti-sleep, high-needs baby, and for a while, it was a blessing that we were double-teaming the baby. But my wonderful husband was ever more aware of his smaller paychecks, and he began pounding the pavement to try to find more work.
Dave often talks about people who are intense about getting out of debt finding better incomes and job situations. For us, when it rained, it poured -- in the best way. Husband's hard work resulted in more job offers than he could handle. He had his choice of firms and was eventually working jobs for three clients, plus a few other contracts scattered here and there.
By summer, things were looking up! Baby was healthy, and Husband was about to start a long-term contract with promise of an extension. Calculating from the time that we were both working full-time jobs in Colorado, our household income had increased by 40% on a single salary. Making just the minimum payments, our debt had gone down by about $11,000. And now, it was time to start the snowball again!
We paid off my car! We also filled our emergency fund out to three months of expenses. (Since Husband is a contractor, Dave advises having an emergency fund of 3-6 months.) We were feeling so much more secure, and that car just drives better now that it's no longer dragging a loan behind it. I talk about this step in detail (and photos!) here.
We paid off our vacation ownership! I have to say that I love our program, but it was NOT worth going into debt over. We used our points to have a lovely, relaxing week in Branson with my in-laws over New Year's, and we enjoyed that quite a bit more than we'd enjoyed the previous vacations we'd taken with our club. It's a liberating feeling to come back from a vacation and not have to make any payments on the great time you had.
Now, just Husband's student loans (from his Master's degree) remained. We were looking at over $20,000 in debt by this point, and I can't tell you how eager I was for the end of each month when I could apply a large chunk of money to that loan.
My car was due for some serious work. We had put off some of the routine maintenance while we were struggling to stay above water, and we couldn't ignore it any longer. I can't tell you what a great feeling it was to pay our auto guys for $1100 worth of work that was only half in the budget. Did I hate spending that much on something so mundane? Sure. Would I have hated it all the more if I'd had to think about it again when I got a credit card statement in the mail weeks later? Ohhhhhhhhh yes. As it was, though, I forked it over without having to worry about what other area of our finances might suffer as a result.
Taxes, right? I know everyone hates tax time (except for those who have given the government a nice, interest-free loan over the previous year and now get it back), but it's especially trying for non-standard wage earners. Being self-employed means........ well, it's just complicated. Taxes take us forever to figure out, and I'm always on pins and needles, hoping we've done our quarterly estimated payments properly and set aside enough for April's return. We have to figure out whether to itemize, and we hope that we've calculated our charitable contributions correctly so they cancel out our state taxes and BLAH BLAH BLAH. This year, we made judicious use of IRA tax laws and sheltered a good bit of money that way.
And THAT made all the difference. On Saturday, April 14, Husband double-checked our return and sent it in. Minutes later, I made the last payment on the student loans. We are DEBT-FREE!
Yes, we still have a mortgage. But Dave is okay with that, and for the time being, so are we. We also have a tenant in that house for another two years, at which time we should be able to sell (the market didn't allow us to do so when we moved in 2009). Husband has been offered a full-time position with his consulting firm, and our emergency fund is healthy.
It took us three years and four months to get out of debt. Over that period, only 16 months were actively dedicated to paying off debt. (The rest of the time, we were either piling up cash or having to dip into that piled up cash for living expenses.) During those gazelle-intense 16 months alone, we paid off $52,000.
We sacrificed. We seriously budgeted. We got weird looks and were occasionally judged for our strict adherence to cash and our budget. We lived like no one else.
Proverbs 22:7 says, "the borrower is slave to the lender." We're finished borrowing, and we're free.