Beyond Credit Card Debt
I made my last credit card payment this week! That final payment ends more than ten years and $20,000 of credit card debt.
Getting out of credit card debt is a familiar story to readers of Get Rich Slowly. You wake up to the fact that your finances are a sinking ship, so you learn to track your spending, and that helps you figure out where your money goes. From there, you scale back your expenses and spending. You look for ways to boost your income. You start a debt snowball. Pretty soon, you’re paying off debt like it’s going out of style.
And then one day you make the last payment. What next?
Beyond credit card debt
For me — and probably for a lot of people — that answer is simple: keep that debt snowball rolling. Many perpetual debtors have managed to pick up loans as well as credit cards. I’ve paid off my credit cards, but I still have a car loan, student loans and a family loan to repay.
Even though I’m still in debt, this is a milestone for me. It represents a huge emotional step, and freedom from high, variable interest rates. I’m delighted. Paying off that last credit card has loosened a lot of emotional energy. I’m making progress in areas of my life where I’d been stalled. I’m going running almost daily, cleaning my house and tending my garden. Kissing that credit card balance goodbye didn’t free up any time or money, but the weight it lifted has energized me.
“Keep the debt snowball going” seems so straightforward I almost expected this moment to pass by unnoticed, with simply a change of address to where I was sending my money each month.
In fact, it needed a little more deliberation. Which debt do I pay off now? How quickly? The standard approach is pay off the debt with the highest interest first, or the debt with the smallest balance. In my case, I put the student loans last because the interest on those is tax deductible.
Using the debt snowball spreadsheet available through this site, I’ve ordered my remaining debts in a custom priority that works for me. Applying the money I was using to pay off credit cards to extra payments on my loans will get me clear of debt in another two years. I have a confidence I never had before that I will do this. I’ll be facing a debt-free life.
Then what? This is the real “beyond debt” question. The answer is as simple and complicated as my questions about what to do next with my debt payments.
A debt-free future
Roughly, following Dave Ramsey‘s roadmap for financial success, my debt-free future looks like this:
Build up an Emergency Fund
You should have the beginnings of an emergency fund already, wherever you are in your financial journey. Emergencies will always happen, and having a cushion to help you deal with them can get you off the hamster wheel of debt. Once those debts are paid, it’s time to bulk up the emergency fund. I have my starter emergency fund sitting in an ING account, but almost any high interest savings account will do. Ramsey suggests saving $1,000 before mercilessly attacking your debts. I’ve put by about $5,000 because I’m freelancing for most of my income these days. I want a bigger cushion since I have less job security. Ultimately, every household should have three to six months of living expenses in savings, available to help you weather any financial storm.
Save for Retirement
We all need retirement savings, and the sooner we begin saving for our retirements, the harder those dollars saved can work at building wealth for us. Depending on how long it’s taken you to get to this stage, you may have some catching up to do. Figuring out what to save for retirement is complex. There are plenty of good retirement calculators that will tell you how much to save given the particulars of your situation. It’s an important and confusing enough issue, though, that it’s probably also worth seeking the advice of a seasoned professional financial advisor.
Save for College
If you have kids, your next priority will be their education. Saving for college is like saving for retirement: the sooner you do it, the more bang you’ll get from your saved bucks. Most parents won’t be able to save all the money they’ll need for their kid’s tuition. Try to save a third of the cost before they start, expect to pay a third out of pocket while they’re in school, and let your children pick up a third of the tab through their own work, scholarships or loans.
Save for Fun
Now comes the fun part. You’re an expert saver, and you’re financially secure. Save for that vacation you’ve always wanted to take. Save for the custom-built road bike of your dreams. Save for a vacation home. This might be a long way off for those of us, like me, still swimming upstream against debt, but it’s the light at the end of the tunnel. On days when living on a tight budget feels like a burden, it’s nice to remember that way off on the horizon is not only freedom, but a whole lot of fun.
I’m speaking here of things I’ve read about but never lived. I’d love to hear from readers on this topic, since a lot of you are doing these steps, or have done them already. How has moving beyond debt changed your life? What do you do with the money that used to go to interest payments?
J.D.’s note: I gave up my coveted Monday spot in order to publish Sierra’s article today instead. Why? Because I think today’s discussion will be a natural lead-in to the post I was going to share. Tomorrow, I’ll reveal my answer to Sierra’s questions. I’ll share what I call “the rewards of frugality and thrift”, the reasons I’ve been scrimping and saving. I’ll show what I’ve been doing with my money since I became debt-free.
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There are 54 comments to "Beyond Credit Card Debt".
Congratulations!
I’ve been free of all credit card debt since 2007 though from 2003-2007 I played the transfer game and never had interest accrue. Sadly the days of the 0% card are pretty much gone.
I also faced the same dilemma once past that as to what to do. We did the following:
1) Built and emergency fund
2)Contributing more to retirement
2) Alternated between paying down student loans, HELOC, and ARM mortgage
It’s kinda tough to know exactly which debt to pay off because they were all tax deductible and low interest (4.5 and lower) but eventually we focused on the HELOC as it had the greatest volatility and that was paid off mid-last year from savings.
We are now going to focus on student loans as it looks like we can knock one or two out pretty quickly from savings and still have ~2 months in an emergency fund.
I think the best thing to do in this situation is to make a decision. So often we get caught up in analysis paralysis and do nothing.
Once you have all that extra money free, its easy to start going out and buying stuff… What i did on my spreadsheet was make a “Fake Car Bill” and force myself to pay it… The moment i paid off my car, that $400 bill was going to beer, eating out, random crap purchase…
When i figured out i had a problem, i immediately returned to paying the car note, but to myself…
So i suggest the same thing, create “fake bills” so that youre not just wasting it on crap like beer and eating out lol
Andy (#3) — I did the exact same thing. As soon as my credit card was paid off, I ended up making a few big purchases that put me right back where I was. Hard lessons, eh?
Congrats to Sierra, and I look forward to hear what you’re doing with your money, JD! So many blogs/sites focus on how to save but relatively little on what people do next, so I’m very interested in this.
Isn’t it funny how you distinctly remember paying off debt, but you hardly remember what you bought with the debt sometimes? (You is being used generically here…)
It is wonderful when you have your ‘commitments’ taken care of in terms of savings and you can start to focus on fun and dreams. It takes a lot of hard work, but having that freedom is so liberating.
We became credit card debt free about 2 years into our marriage (around the age of 25). I had charged some grad school expenses because I had no choice. When those cards and my student loans were paid off, it was fantastic. We swore we would never pay interest again, outside of our mortgage. We have kept to that too, as we have either paid cash for cars or had interest-free deals. Once you have that freedom, it is very hard to go back to ever paying interest.
Now, we make sure we automatically save the max allowed for retirement. We also invest in my husband’s employer’s stock purchase plan as the stock is a sweet deal. We hold it a year and sell it so we aren’t too invested in the company. We save for college, but I know we will never fully fund their college tuition ahead of time, so I don’t stress about that. I just do the best I can.
For me, it is a balance of responsibility and fun. We have no debt, but I know I could put more money away. However, I only have my kids at home for so many years, so vacations have been a big priority of ours. Of course, we wouldn’t go if we were in a hardship, but I am sure that we would have a much bigger bank account if I wasn’t always up for some fun! (Not drinking fun, but going to the beach fun.)
Congratulations to you. Enjoy your credit-card-debt-free day!!!!
I managed to pay off our credit card debt in two years when we got married as well. over 11K in debt paid off in 2006.
now its to 2010 and we have 13K again.
*bangs head on wall*
Congrats on getting rid of the credit card debt! I hope it didn’t take you 10 years to get rid of only $20k? I got rid of mine 10 years ago and it was a huge monkey off my back. Dave Ramsey wasn’t around (to my knowledge) when I got out of debt and I’m not familiar with his work so can’t comment on that.
I first built up an emergency fund of $10k which is my lower comfort threshold. When my income started really taking off was when I maxed out my retirement accounts as it made more sense from a tax perspective (one of the benefits/burdens of being an accountant is that you tend to be weird like that).
After I had the $10k emergency fund which took only a few months to accumulate, I started simultaneously paying down the mortgage and saving for retirement. But I always knew from the time I decided that I’d retire young that I wanted a paid off house and to only semi-retire because I enjoy working too much, there were just a lot of other things I wanted to do.
I don’t see savings in “pots” – x amount for kids education, x amount for retirement, x amount for fun. It’s all in one pot and if I decide to help my kids out more with education, I’ll go back to work consulting for a month a year or something or cut back in some way.
I definitely haven’t deferred having fun. I’ve had too many people die young in my family to want to defer my life that much. So I bought my RV before I maxed out my accounts. It was likely a stupid move financially, but it’s provided us with lots of fun and will do so much more in the future.
This was just my experience, but you might find that saving money and seeing it grow is actually much more motivating and happens much faster than paying off debts.
I spent the boom years of the late 90’s paying off debt. It was tough to stay on track as everyone was making “Millions!” on the net but I wanted the debt gone.
Since paying off my debt I now save the extra money for an early retirement. I have kept banking increases in pay into savings, house.
So I will be able to retire in 4 1/2 years at age 49 1/2.
Debt sucks. Having money does not make one happy, it just makes it easier to deal with one’s life.
This is really great to hear! I just started my first full time job (I graduated in May), and I just got back from a 3 week trip to Europe (JD, you’re going to love France!) which I paid for totally with cash (I used credit cards to pay just out of convenience and security but I paid them all off as soon as I was home).
Now I’ve got $25,000 in student loans to pay off. Luckily I’m still in the same apartment that I was in during college so I’m going to keep living like a student and pay off these loans in about 27 months. I’ve got almost 6 months expenses in my emergency fund so I feel safe throwing lots of money at this large loan.
Since I’m young and I love cars, I’ve decided once I pay off my loans I’m going to start saving up for a Certified Pre-Owned BMW, and I want to pay 90% with cash. I’ll get a small loan just to help build credit.
Reading this site everyday is giving me the motivation that I need, I never though I’d be able to afford a BMW, but now I see that if I make a plan and follow it, I can live happily and even get some really nice things!
Since we paid off our consumer debt, it’s been hard to decide what to prioritize. We try to split money between student loan payments, long term savings, and short term savings. I find that it “feels” better to pay down the loan even though I think it would be smarter to focus more on saving, simply because the student loans are so large it’s not like I’m going to have them paid off and then be able to save better.
congrats. I’m nowhere near paying off my debt (it’s actually going up. I hate being unemployed. sigh…), but I like envisioning having no debt. Depending what job I get, I might be selling my car. I have always been so attached to my car, but I love the idea of not having that $400 payment even more.
I’m with andyg8180 (#3). I think everyone should have a ‘fake car bill’ or a ‘fake vacation bill’ or whatever.
In other words, it’s a challenge to pay off your debts, and it’s understandable to want to celebrate in some way. That’s a good thing. But without having that debt payoff to anchor your spending, you (or at least I) might just feel that empty credit card burning a hole in your pocket. Your mind might say, ‘Well, I can afford X now’ where X is random junk that you don’t really need. Your money management focus was keen when you were pounding down that mountain of debt, but your vision fuzzes a bit when you don’t have a clear objective.
So set one. Decide to buy a new car – with cash. How much money do you need, how long will it take to save? Decide to go on that dream vacation – paid in cash (well, maybe not literally cash, but you know). Once you’ve got a shiny (and fun!) new financial objective, your post-debt spending will be more purposeful and enjoyable.
“How has moving beyond debt changed your life?”
We are still digging out of our debt , but I’ll share with how this has changed our life already. At the start of the debt reduction journey we had something like $70K of debt — mostly cars and student loans. At this point we have about $25K left to go — a student loan that stubbornly takes away $253 a month. Retiring the amount of other debt and budgeting has meant the following:
– My wife being laid off was something of a blessing. She hated her job, but with the combination of severance package and unemployment benefits, she’s had time off to be with our small children. She didn’t have to immediately rush out and try and find a job just to cover debt repayment.
– We reap the benefits of someone at home. Our evenings used to pretty much consist of getting ready for tomorrow. Now we have more time with the kids and there is less stress overall.
– We no longer have to try and juggle child care and work when one of the kids gets sick. They are also getting sick less often, too.
– We were able to refinance our house to a lower interest rate on my income alone. If we still had $70K in debt this likely would not have happened.
– My wife will begin taking classes to begin a career change in the fall. These classes will be paid for with cash.
We are also following Dave Ramsey’s basic outline, as well, although we have made some tweaks to it that fit our place in life in a more appropriate manner. And it’s not all stress free, debt free living. We have had to make some sacrifices along the way and are now facing a challenge as to how to get by without unemployment coming in, as her benefits have expired. However, we do have savings to get by on, and we need to cover only a few hundred dollars a month to “make it”.
So the biggest thing that getting rid of debt gives us is freedom to live our lives — even through tough times. Of course it would be nice to go back and do things differently in the past — but there’s nothing you can really do moving forward.
We also have let credit cards re-enter our life, but are very disciplined about paying them off every month. We use the rewards points to pay for gifts and video-on-demand, since we have cut cable as part of our economization due to less income.
For us, paying off the credit card debt was a huge milestone. Like others in the comments we were credit card debt free for a few years and then, ran up another 25k. Doh! Now that it is back to zero, we’re tackling the student loan with a serious snowball. Once that is done, at the end of this year, we’ll spend about 3.5 years paying off the house. And then we’ll be able to call Dave Ramsey’s radio show and scream “We’re debt free!”
Congratulations!
Wow, congrats! We had our debt snowball going pretty well until nearly 2 years of unemployment hit us right between the eyes. We’re still living about 30% below what we need, but one day…
Went to college on scholarships- graduated and were employed
!. Pay off debt year after marriage-rented for the next 16 years
Decided that one parent would always stay home with the children- through high school. Part time work was fine- but the children came first.
2. Made a decision to buy land to build on- taking on debt
3. Emergency fund- we spent about $7,000 reimbursable out of pocket for each Army move in the old days. We got the money back- but had to have it to move to begin with.
4. Had two children and saved nothing extra- had a Volkswagen vanogan and public transportation- spent every extra penny on lessons and schools.
5. Saved like son of a guns in overseas postings- living well below our means. No cars.
6. Sold land (for the price we paid+ interest- but it was paid off- so forced 0% savings).
7. Bought house/ small mortgage- bought inexpensive cars that lasted ten years each- sold to college students (still running- we get reports:>)
8. Began saving for retirement (I don’t recommend starting this late)
9. back to two salaries- lived on one- saved the other.
10. Helped with STATE college for one and Academy for the other
11. sold house- moved- bought house with cash (God bless the housing bubble!)
12. Worked five more years
13. bought two cars and a Harley with cash (Harley is from mother in law’s estate- she always wanted him to have one- so the license plate says, “with love from Mom”)
13 Retired last month- modest military pension and investments funds our low cost lifestyle (although we continue to spend more on travel than anything else!)
We never made six figures in all of our work history.
Siblings who did the opposite are in line to inherit a ton of $$ because mom feels bad that they don’t have enough to fulfill their retirement. So, I work and save- they make a ton and spend. That is how the ball bounces!
That is the only down side I see.
Keep your eye on the ball. Is the eating out worth not traveling when you have time? It is possible if you put your needs in front of your wants.
Every time we eliminated a payment from our lives (mortgage, car loan) we redirected most of it into a savings vehicle, but left some in our regular chequing account for ‘extra’ spending money. ( our mortgage payment was $1200/mos…now we save an extra $1000 and spend an extra $200) We get to enjoy our progress (concert tickets, dinners out, etc.) with some controlled lifestyle inflation and increase our savings at the same time.
When I paid off my student loans, I started using that money to save up for a car. After I bought a car (for cash), I used part of the money for car expenses and to save for my next car and part of the money to save for a house. (More debt!) Then I used some of the money to save repairs and some to save for retirement.
When I pay off my house, part of that extra money will go toward remodeling and part toward retirement. A little remodeling will make it easier to stay in my well-located but small house (I’d like a dishwasher and covered parking and a walk-in closet.) I will also like not having to work for money.
Each time I get a raise, some of it goes toward each of my different spending categories, so I’ve also been able to afford more expensive fun things.
@Kingcrowing (#9) — BMW’s are not cheap to maintain, so make sure you’re budgeting for that, too.
Congrats! I know how great it feels to get rid of debt at 20% interest. You feel like a huge weight has been lifted off of your shoulders. Also, not having such high interest payments has freed up a little bit more money in my budget for other things.
Now that the cc debt is gone, I’ve been working on paying off a student line of credit. It’s gonna be a long haul… prob 2 years to get it all paid off, but I’m plowing through it. 🙂
I also want to start putting away $100-$200 a month for long-term savings.
I think the best thing you can do is get the debt paid off as quickly as possible because once it’s gone, you will realize how much money you have to save for the future! (and have a little spending money)
Congrats on paying off the CC debt!
We paid off all debt but the mortgage in July 2009, and in the past year we’ve:
1. Built up a six month emergency fund.
2. Saved and paid cash for our wedding/honeymoon this September.
3. Saved a separate pot for extra expenses (in case we go over our wedding budget, but hopefully this will go towards retirement before the end of the year!)
4. Our next goal, after the wedding, is to create a concrete plan to pay off the mortgage. We’ve got a little home that we plan on staying in for a long time.
The great thing is knowing how much we have to spend on things without feeling the guilt that always accompanied purchases in the past. Want to go out for dinner? Just take a look in the food envelope. Need new clothes? Open the clothing envelope. The budget can be tweaked at any time, its ours. Decide if its worth it. Prioritize. Yes, we’ve changed our lifestyle, but I like it better now. We appreciate the things we have much more.
And JD, I can’t wait to see your article tomorrow!
Congrats! I was never any good at getting rid of my cc debt in dribs and drabs (the way I got into it!) so I waited for a large tax return or a bonus at work and then paid it all off at once.
But I am very good at saving in dribs and drabs, definitely having the ING account separate from my spending accounts helps a lot! I am up to $1000/month to my savings after putting the max allowed in my Roth equivalent per year and 20.5% gross income into my 401k equivalent. I live on the rest!
But this month I took a break from my Long Term $1000/month savings to splurge on a trip to Australia in the fall (I bought a great seat sale ticket!)
Whoa… this sums up my reader story but with much fewer words 🙂 I need to get out the red ink!
Yea! Celebrate the milestone. Good going on looking at what’s next. That is so important.
Forward!
First, congratulations on being debt-free!! 🙂
I’m debt-free sort of… I’m technically out of debt, but I have other expenses that are like debt (Real Estate taxes, Utility bills, food costs, etc).
Having kids, I also have money requirements that are looming on the horizon, such as College tuition costs for my kids, Cars for my kids, dental work for my kids, …geez, kids are expensive!
After paying off all my basic debt, I kept funneling the money into the items I described above for future kids costs.
Oh, I also would like to have some sort of Vacation fund (eventually).
As for education, don’t forget that if you don’t have children, you can save for your own, too (and even if you do have kids)!
Not necessarily college, but various courses you might want to take for your job, to switch careers, or because you’ve always wanted to be able to do this and that.
Even if you have nothing in mind right now, it’s nice to be able to register to classes you’re interested in rather than think to yourself “oh, I wish I had the money to take these cooking/dance/massage/piano lessons!”
What a timely post, Sierra!
First and foremost, congratulations! The road to freedom-from-debt is not an easy one to travel, but certainly well worth it.
Coincidentally, last week also marks my 2.5 years (30 months) of consecutive payment, ending my left-over tuition debt, credit card debt, and all but the student loans paid off. (That’s $21,000 gone and only $4000 remaining!)
BUT HERE’S MY DILEMMA (PERHAPS AN IDEA FOR FUTURE ARTICLE OR DISCUSSION:
Right now, due to personal reasons much of my family is unemployed and mired in debt(mother and brother) so I have NOT shared my financial success with anyone except my best friend.
I know I should be celebrating this victory, but it’s tough to do when all those around you are suffering financially. Then again, those around me never really tried to attack their debt EVER; the amounts they owe are horrendous! But I feel that right now is not the time to share my victory.
So a good question remains: When IS the right time to share financial success???
Couldn’t agree more with the “fake car bill” recommendation. We have no debt aside from credit cards, we don’t have kids so we don’t need a college fund, and we already have a decent emergency fund, so when the CC debt is all gone not only will we have a rather enormous amount of excess income, but no hard target to save for.
So, I’ll be setting up that ‘fake car payment’ so we can pay cash for a next-to-new car fairly soon (we haven’t bought a new car since 1998, my 1995 Accord is getting lousy mpg, I’ve got my eye on a late-model Fit) and a ‘fake mortgage payment’ for our retirement residence so we can put a truckload down when we find the right place.
Congratulations Sierra!
In my household, the freedom from consumer debt has allowed us to happily tackle several goals at once. Our six month emergency fund is already in place and we’ve decided to put $3000 per year into our one year old son’s 529 account. Additionally, we’ve paid an extra $45,000 toward our mortgage principal in 2010 alone. I think the best part is that when my husband receives a raise this year, we’ll be able to bank it and max out his 401k contributions.
The combination of frugality and debt-free living has put us in an great position. Once we pay off another $20,000 on our mortgage, we’re going to start saving for a vacation. My husband and I haven’t been on a vacation since our honeymoon and it will be our first consumer debt free vacation!
Great tips! For ideas on how you can take charge of your own health care costs, check out Whatstherealcost.org.
Congrats, Sierra. Definitely a big step. My answer to the “what now?” is that you’ve got a long way to go. I am in a similar position as you, and my answer to your question is to save, save, save, and pay down the rest of your debt in a decent amount of time.
@Adrian (#27) – that’s a good question. We paid off our mortgage in May and are now completely debt free. But we haven’t shared that information with anyone. So many people are in difficult circumstances we don’t want to appear to be boastful.
Not having any debt is still a new feeling. It’s a good feeling. I’m a money worrier and don’t feel as worried any more. The plan is that the principal and interest portion of the mortgage payment will be invested for the future.
Well, I’ve been free of credit card debt since I was born and that was a long time ago.
The current economic crisis will result in much tighter consumer credit and changing spending habits, such as promoted by Dave Ramsey, may make being credit card debt free the new normal.
See: http://www.capital-flow-watch.net/2010/06/25/can-you-survive-without-a-credit-card/
What do you do after you’re out of debt? That’s a pretty broad question. It’s like asking what you’re going to do after you graduate, or (more analogous) what you’re going to do after you get out of prison.
The thing I find funny is that the answers to these questions don’t necessarily revolve around education or incarceration, but the answers we’re seeing in the comments almost all revolve around money. Getting out of debt is certainly not the be-all and end-all of personal finance, but you have in a sense, “beaten the game” and you’re free to go try your hand at something else.
What have I done since getting out of debt? I took sailing lessons. I went to Costa Rica. I took up photography. I moved back to the beach. I got married. I’m planning a trip to sail the Greek Islands (all paid in cash, of course (yes, even the wedding)).
I also saved some money, but that’s the easy part once you’ve got your finances under control. The hard (and fun) part is thinking of interesting and worthwhile things to do with that money. Personal finance is something that’s no longer a challenge for me, even though it once was. Now I’ve found newer and more exciting challenges to pursue. The point of getting my finances in order was never to be really good at personal finance, or the best minimalist, or the most frugal, or have the highest net worth. It was to allow me the freedom to pursue the things I *really* wanted to do. Like wake up early to go surfing before work, or sail the Aegean Sea.
Personal finance is a skill that I’ve gotten pretty good at, but it’s never been a hobby, and it’s not something I’m going to do for fun in and of itself.
@Adrian — What do you think would happen if you did share your success? Do you think that you would become the family bank, or do you think that your family would look for you for help and guidance only? Each family is different, and I guess it depends on your relationships with them. Perhaps if/when they really need some help you can share your story with them.
I’m definitely more of an “actions speak louder than words” type of person, though, so I might just keep on living the dream and wait for them to notice.
Congratulations Sierra! And thank you for that reminder on the spreadsheet. Just pulled it up and transferred my makeshift one over. This is much better!
@Adrian- I personally wouldn’t really share financial success stories with people who are close to me. Money does weird things to people. To me it goes in line with the advice people give Lotto winners– don’t say a word. Scream it from the blog rooftops but yeah I’d say mum’s the word from families and friends unless they come seeking advice, not a handout.
As some of the others have mentioned having “fake” bills is a great idea. If you are a YNAB user I would just make an extra category that you put money into each month but not spend it. Then two or three years down the road you have enough cash for a new car.
My wife and I are not there yet as we are still paying on our two car loans, student loans, and mortgage. The credit cards have been paid off for almost a year and one care will be paid off within a year, hopefully less.
I also liked what PMT had to say at the end of his comment. At some point you just need to make a decision and do it! A lot of time can be wasted by thinking about it too much.
Well congrats for getting out of credit card debt, that’s awesome. Woohoo! =) After my debt is paid off, I’m going to save for college full-time, I went to college part-time this year, but I’d rather go full-time.
I’m almost done with my debt, cc debt is now $200 left to pay then I have to pay back my bf $150 and then I’ll be debt free.
It hurts to give half of my paycheck to my cc company and my bf, because I’m paying for past mistakes in the present with debt, but you know at the same time it feels good because I’m paying them back.
I don’t like Dave Ramsey, I just really don’t, he comes off like a sleazy car salesman, “buy this finance book, now buy this one”-sure he has good advice but its nothing that no one couldn’t figure out themselves.
Lets just say that I like other finance advisors much better than DR. Anyway, I want to go to college full-time, I want to save for retirement, take a vacation since I haven’t gone on vacation in years.
I don’t have kids, my goal in life is to save and invest as much as possible, and retire ASAP. I want to do other things with my life that are more fun than work, I’ve never had a job that I like.
@ Jason: Congratulations! What a great feeling it must be to be completely debt-free! (Even the mortgage! Wow! 🙂 I’m glad that you too can relate to my scenario.
@ Madeline: I always figured that modesty was one of life’s greatest virtues.
My honest feeling is that I too do not want to come across as boastful, and that I would be “entitled” to assist the family moreso than I already am. (I must confess since my transition from “who cares about debt” to “the desire to live a debt-free, stress-free life” I have shared many many countless tips, hacks and tactics, but few ever catch on with peers & family alike.)
While I completely believe in assisting others when it is reasonable and feasible, I do not believe that you can “fix” others, or their situations.
I believe that change has to come from within them, so I guess I’ll keep it quiet and focus on me and my journey while doing the bit I can to modestly assist my family. Thanks for the advice and have a pleasant day 🙂
My vote–pay back the family loan ASAP. The relationship could suffer if you don’t (no matter what they say, they want their money back). If your family sees you spending on something else, in the back of their mind, they’re thinking why isn’t she paying us instead?
I second #40’s suggestion…try your hardest to send a monthly debt repayment to the family member(s) that has lent to you.
My DH and I borrowed $3800 from my father and his wife (they offered, I did not ask) to help us w/an unforeseen expense that would have prevented us from closing on our first home purchase. Even though times were tough, we never failed to send him $200 each month until we had paid it in full.
Once the debt was repaid, he commented on how diligent we were about paying it back.
Congrats Sierra, on that last cc payment! We’re digging our way out of $30K due to unemployment and investment property issues (see yesterday’s blog 🙂 The fact that we are both in sales and never know how much we’ll have from month to month has required some creative accounting and some dipping into our savings, but we feel that it’s important to make some dent in paying off the debt in spite of our financial instability. Once the debt is paid off, we’ll beef up our emergency savings to at least 6 months, and then start putting away money for a college education for my husband’s second child. We talk about our future financial plans all the time and can feel the excitement of knowing that we’re on our way to being debt free!
Also: How has moving beyond debt changed your life?
I’m coming from the perspective of the end result of retirement here, but… When you get to the point that you can afford to live a few years without working, you will never look at your job in the same way. You start to have absolutely no tolerance for b.s., politics, slackers or playing games. I started becoming even more helpful at work because I wasn’t looking out for my own career anymore. I started doing more aspects of the job that I enjoyed and less of what I didn’t. You stop sacrificing your life for the job because you know that you’ll be gone in a few years and nothing is really a big deal in the big scheme of things.
With retirement itself though, it can be a scary place for some people who are more career oriented because you suddenly have a blank canvas where you can paint anything on it and you no longer have the excuse of not enough time or not enough money anymore. It’s remarkably freeing but sort of alarming at the same time. The beauty of it is though that any type of thing that you’re interested in you can do because you don’t care if you succeed with it in a monetary sense or not.
I make a list of my debts by balance and by interest rate, but I also make a list of them by cash flow, as in what is the payment divided by the balance? For financial flexibility I like to keep my payments as low as possible, so if I can pay $5000 to get rid of a $500 payment I have additional cash flow of $100 per $1k. Versus if I put $5000 toward my mortgage and recast it I drop my monthly payment by $30, or $6 per $1k.
@Single Mom Rich Mom: I love your point in how much better people perform at their jobs when they have a lot of money in the bank. That also comes with having the proper education, experience, and skill sets for your position as well.
In the article it talked about setting aside money for chidren’s college tuition before having fun. I believe in saving for braces and helping out with that first car before having fun, but it seems the investment in time researching scholarships, programs, schools, etc. has a much higher payback in terms of tuition savings than contributions to a 529 (article idea JD??). My LTP has three kids from a previous marriage. (I would also love to see an article about extended families and financial management) He spends a lot of time researching programs and talking with other parents to make sure everyone gets the best value out of the higher education system; both parents and children. We want to help out when they need it, but we need to balance our retirements, bills, have a little fun with the kids first.
I found it easier to focus on spending, saving and debt reduction when I had debt. I paid off $7000 in CC debt, $21,000 car debt and focused the leftovers on my mortgage. I’ve since sold my house (renting now – different but better story) and have remained paying my car loan into a savings account so I’m ready for the next car with cash. I’ve hit a 7-month emergency fund with 1 year as the goal.
Overall, once the required discipline to pay off debt was gone, I felt lost. I still saved the difference, but like debt reduction, it took some time to devise a plan. Now I contribute to a Vanguard account, 401K is maxed each year, I have an IRA, a whole life policy I’ll dump soon and I save in advance for my car, my next house, the holidays, vacations, an engagement ring and honeymoon.
No debt feels good. I’m getting rich slowly.
My husband and I are debt free – apart from our mortgage. We reached the debt free milestone earlier this year when we paid off the last of his college debt. At the end of this year we will have a comfortable 6 months living expenses banked away.
Our lifestyle, for the most part, has not changed. We can’t afford for it to change because our goals are long term, and therefore our savings need to be long term too.
I still maintain a strict grocery budget. All my clothes and the kids clothes come from second hand sources (it was one of my challenges for the year – BEST thing I have done in a long time! I am better dressed for way less!), we are slowly remodeling as we save for specific projects, etc.
That being said, being debt free and having savings certainly is enabling us to, on a small scale, live the life we want to have-
Which for us is serving and traveling.
My two boys and myself will be going to West Africa this fall for 5 weeks because the opportunity arose and we have the money for it.
We paid off our mortgage two years ago and are completely debt-free. Since then, we have been funding the kids’ college funds and trying to save enough money to have true financial freedom — enough passive income to live on without working, or at least working only part time.
Way to go!
One beautiful aspect of your post – the emotional high you are feeling about eliminating the CC debt – tells me that Dave Ramsey is right: pay off the remaining debts smallest to largest.
With that kind of traction, nothing will stop you.
Don’t forget to reward yourself too.
The climb out of that hole certainly deserves a little celebration.
I would treat myself to a little something before continuing on the new road to financial success!
My husband and I are dbet-free except for the mortgage. When he found a job after 2 months after being laid off we made a concious decision to pay off the house as soon as possible. God willing, we have 10 more months to go.
Some might say that we should do the retirement first. The way we see it, since interest rates are at the basement level, the stock market is so volitile, we must as well get rid of the 5% mortgage rate every month. Nothing in the market can beat it now.
By getting rid of the mortage, it’ll free us up to contribute more into the retirement and the college funds in less than a year.
Debtfree makes you lighter, that’s for sure!
I find that Dave Ramsey’s “attack one thing at a time with gazelle intensity” seems to work best with a series of debts, but I just can’t bring myself to do that for the savings end of it — I think part of it is that most of them are not like debts where you pay it off, and it’s gone — you will be putting money away for retirement and college for practically forever (if you are young and have young kids, like we do).
Each month we put a bit of money into each of the pots we’d like to be saving for: car, retirement, college, and extra principal toward our mortgage.
Since retirement and extra principal payments in particular are strongly affected by starting early, it just feels wrong to not put at least /something/ toward each of them. However, we know that we also will need to replace our car sometime in the near future, and we have two very young kids who we hope will attend college. So none of those pots receive quite as much as we’d like to put in it, but we feel better not neglecting any of them entirely.
The other thing we are working on, of course, is to increase the income, and try to be more frugal so that we have more to put in those pots.
I don’t think the author knows what tax deductible means. The author writes:
“In my case, I put the student loans last because the interest on those is tax deductible.”
Tax deductible does not mean that if you owe $100 in taxes and you paid $50 in student loan interest you only owe $50.
Tax deductible means that the amount is taken off your pre-tax earnings in determining the taxes you owe. For example, let’s say I made $1000 and taxes were 10% (so I owe $100). $50 in tax deductible interest would be subtracted from my initial salary, so now I pay taxes on $950 of income and owe $95 instead of $100. I am still paying 90% of my interest out of my pocket.
When calculating the “real” interest rate you’ll pay on a student loan use the following formula:
(1 — marginal tax rate) x interest rate of the loan
And this does not even take into account compound interest…
Congratulations Sierra! Well Done!
All the best to you and your family as you continue to become debt-free.
Meadow