21 Feb 2018

What I Learned From Paying Off Our Debt

OUR GETTING OUT OF DEBT STORY

Table of Contents

I am so excited to share with you…

WE HAVE PAID OFF ALL OF OUR DEBT!!!

{This post may contain affiliate links, which means that I may receive a commission if you make a purchase using these links. Full disclosure policy.}

(not including our mortgages, but that’s next)

Our tax return came just in time for Valentine’s Day and we had enough money to pay the last of our credit card debt off AND start our emergency fund.

*HAPPY DANCE*

In a little over 2 years we paid off $11,239 credit card debt, a $12,000 car loan, $6,800 in special assessment fees from our condo association, and $10,444.85 oil tank removal fees from when we sold our previous home.

Yes, that’s right, we paid off over $33,000 of debt. This doesn’t even take into account what we had been paying towards our mortgages.

Paying off our debt did not come without heartache or headaches, but I’d like to go over what I learned from paying off our debt so that you can better attack your own debt.

#1 LACK OF A BUDGET

Budgeting. I’ve tried multiple times to get my husband to do one with me, but he feels it’s confining and too much work.

Don’t let this stop you.

Instead of budgeting we had weekly/biweekly meetings to review our finances and see where we were spending too much money and where we could cut back.

This doesn’t have to be time consuming or formal. A quick run through is all it takes.

We looked at our expense sheet and started cutting back on things we wanted, but didn’t need.

In retrospect I should have pushed harder for us to create a budget to stick to, but I didn’t really want to do one either. What I learned from paying off our debt is that you can still get out of debt without a budget.

Budgeting isn’t fun, but neither is being in debt.

When our grocery bill started creeping upwards we started using the cash envelope system and this helped us reduce our bill by $200.

#2 LIMIT CREDIT CARD USEAGE

I looked through our bank and credit card statements from the last 2 years and boy have they changed.

Our food and entertainment spending was outrageous.

Once we decided we needed to sort our debt out we tried having designated credit cards for specific expenses. What we should have done was cut up some credit cards and pay cash whenever possible.

Now what works best for us is having one credit card for our fixed expenses (TV, cell phone, heating, security system, etc.), another credit card as backup, and cash for everything else.

We are using cash more frequently, which helps curb our spending. Some time soon I would like to implement the envelope system to see if we can start saving even more.

#3 BALANCE TRANSFER

Doing a balance transfer with one of our credit cards saved us thousands of dollars in interest and was one of the things that helped us get out of debt.

My husband was the one who recommended we do it since we started getting backed up each month. I was dead set against it, but after doing the math it was a no brainer. We paid a 3% transfer fee and would pay 0% interest for 18 months.

I figured out how much we would have to pay each month before the 18 months was up and here we are several months ahead of schedule.

I don’t recommend people do a balance transfer.

Huh? Yes that’s what I said. I know it worked for us, but balance transfers are a tricky thing. You have to seriously commit to paying off the balance transfer in the 0% interest time frame or it defeats the whole purpose. You could end up worse off than before you did the transfer.

If you do the math and only if it’s something that you can realistically pay each month including all of your other bills would I consider doing a balance transfer.

#4 NO EMERGENCY FUND

Right before we had our son we were in a good place financially speaking.

We had a mortgage we could afford, my student loans were paid off, and no credit card debt.

Moving to a bigger home further away from work meant a higher mortgage, more wear and tear on our cars, increased gas expenses, tolls. It wasn’t anything we couldn’t handle until one unexpected expense after another came.

The person in charge of our condo association hadn’t been paying the building’s expenses and ran off with everyone’s money. We were hit with multiple special assessment fees to avoid bankruptcy.

When selling our previous home we found out there was an underground oil tank that would need to be removed. This cost us over $10,000!

This was a big low for us. Having two babies, a new home, and suddenly living paycheck to paycheck was scary and frustrating.

If we had even a small emergency fund saved we would have been able to recover a lot more quickly. This time around we are working on saving a minimum of 3 months worth of expenses.

#5 INVESTING

I could just kick myself over this.

When we weren’t in debt I only saved money, never invested. The interest we made in our savings was measly.

Looking at infographics that show just how much money a person can have saved with the power of compound interest is mind blowing.

I am currently contributing to a deferred compensation plan and am educating myself as much as possible on investing.

I hope to give you guys more information after I get started.

UPDATE: We have now maxed out a Roth IRA for the last 3 years! I learned a lot about investing and managing our money since writing this post to a point where almost everything is automated thanks to these money books.

#6 LIVING BELOW OUR MEANS

It took a long time to understand what this meant. When people would say this my husband thought it meant not being able to do anything.

It’s the opposite. Being out of debt means we can do fun things more often and not have to worry about money when we plan and save properly.

When we had trouble making our credit card payments we cut the cable completely. At first not being able to watch our favorite shows was sad. Then we started doing other fun things that were free/cheaper and didn’t even miss having cable.

After I received a promotion at work, we were making a lot more money. This led us to buy a house over $100k more than our previous house. Just because the bank says you can afford a house doesn’t mean you should buy it.

#7 POWER OF SIDE HUSTLING

As new parents we didn’t have much time for side hustling, but selling things on the side, working overtime, and doing surveys at home are all ways to increase your income.

Once we learned how to multitask better we increased our side hustling and used our profits to pay our monthly credit card bill and debts off faster.

When you’re in debt, take the money you make from side hustling and put it straight to your debt. The only other thing you should use it for is your emergency fund.

When I earn Amazon gift codes I use them to pay for gifts. I then take that amount from our bank account and transfer the cash to a separate savings account.

#8 GOALS

What I learned from paying off our debt is to have a specific goal in mind.

Bills were something we paid each month because we had to. Now when we pay our bills our goals are to lower them as much as possible and use the extra money to invest, do fun things with, and maybe retire early.

Having more money now means we can give more. This week we started cleaning our closets. We had 3 bags of clothes to donate, 1 bag to give to someone who could use them, and 1/4 of a bag of clothes to sell.

Your goal might be to achieve financial freedom, save enough to travel the world, or pay for your kids to go to college. Here is a list of financial goals anyone who wants to improve their life should accomplish.

Revisit your goals often, especially when you’re feeling down.

I learned that paying off debt can be exhausting and that you need to celebrate your wins to keep your spirits up.

On Valentine’s Day we went out to eat..at White Castle. With 2 kids this was the best bet.

#9 SAVINGS

I have always been a saver. A few years ago I bought a newish car. I put $10,000 cash towards it and it was paid in full in less than a month.

I had a general savings account. Nothing designated for anything in particular so when I needed a new car I just took the cash out.

After paying off our debt I learned it’s best to have multiple savings accounts that are labeled.

Have one designated for emergencies, entertainment, investing, and for whatever else you want.

At the time of our debt I had some money in savings and a separate account just for our kids. I debated long and hard about taking that money and just wiping our debts off and starting a new slate.

I couldn’t bring myself to take money we were given and saving for our kids even though I knew we would put it back.