There was a time when I believed debt was normal. “You will always have a car payment” “If you can afford the payment, you can afford the car (or furniture, clothes, restaurants etc)”.
As an adult, I was always in debt. As soon as I turned eighteen I applied for credit cards. My first debt limit was $300. That was a perfect amount I thought to purchase shiny new clothes and shoes. It didn’t take long before they increased my credit limit and inevitably increased my debt. I could afford the payment after all.
There are two types of debt. Installment debt with a payment plan and a set pay-off date, and revolving debt like a credit card that you could potentially have forever. One isn’t necessarily better than the other. It just depends on what it is and how much it is compared to your income. A house payment, when done well, is a beautiful thing compared to renting. I had both. My Installment debt at the time was a house payment and a car payment. My revolving debt involved a few credit cards. Pretty normal stuff.
My debt increased slow enough that I didn’t realize it was going up. I just kept making payments and getting on with life. There were a few times I was pinching pennies to pay everything. After a divorce I became a single mom, my expenses increased a little due to childcare and I no longer benefitted from a dual-income household. I still managed to hold everything together but it wasn’t easy. I ate a lot of. rice and beans.
After re-marrying and having a dual-income household, I still didn’t pay off the debts. Making minimal payments was a habit I always had, after all debt is normal. It wasn’t until a friend handed me a book called Total Money Makeover by Dave Ramsey that I realized debt sucks.
At about the same time that I read Dave Ramsey’s book, I watched a documentary called No Impact Man. It’s a true story of a guilt-ridden liberal who attempts to save the planet. The audience witnesses the discoveries he makes about himself and our way of life in the process. The story starts out following a stressed out, anxious NYC family of three and chronicles their experiences along a journey of little and no-impact. In the end, the family transforms into a mindful, relaxed, happy family that enjoys life in the moment before ‘mindfulness’ became a hot marketing term.
It was really the combination of the book and the movie that sparked my ‘aha’ moment. It was exhilarating. Although No Impact Man really didn’t delve into how to pay off debt, it did illustrate how ridiculous America’s love affair is with over-consumption, plastic and packaging. I could relate to the movie and the book was my instruction manual.
My debt snowball wasn’t super exciting. I can’t tell you we paid off 200K in 4 months. I can’t even say we were particularly ‘gazelle intense’, even if it felt like we did. We did however pay off $42K in less than 2 1/2 years making 70K-80K per year. My view on ‘stuff’ has forever been changed and money has a different feel. Life is more about experiences and relationships now and ‘stuff’ feels more like clutter than anything beautiful or utilitarian.
I will admit, putting this all out there for the inter-webs feels weird to me. Talking about our personal finances is a taboo subject in our culture. By talking about money and our own personal finances, maybe we can change the ‘norm’ and give ourselves permission to not “keep up with the Jones’s”. In fact, let’s kick the Jones’s off the freaking island. Are you with me?
This is a story about my debt snowball so here are the deets.
- Student Loan – 17K
- Mortgage – 23K
- 2 Credit Cards – 2K
We were on the tail end of a 15 year mortgage (which I highly recommend, forget the 30 year mortgage) and we were never large balance credit card people but debt is debt and the bondage is broken. I actually paid for my college with the G.I. Bill. I took out the student loans to cover the gap in living expenses as a single mom/college student. Day care costs are real. I worked my entire time in college but there were some gaps in expenses I couldn’t make. Looking back, I should have held onto my eight year car a few more years.
A debt snowball is where you list your debt smallest balance to largest balance independent of their respective interest rates. After your housing expenses and food, anything left over goes toward the debt. You pay the minimum on the remaining debt. The smallest debt balance gets everything left over so that you pay it off faster. This goes against a lot of economic strategists suggestions of paying off the higher interest rate debt first but the debt snowball has a psychological advantage. Paying off something quickly starts the momentum and gets you really fired up. It makes it easier to say no to things and some people end up getting a second job because of that feeling of accomplishment. After that first debt is paid off, the chunk of money that went toward that bill goes toward the next debt balance. The snowball starts.
If I remember correctly we started with an extra $ 1200 to put toward the top of the debt snowball. We paid that credit card off in two months and tackled the student loan. After the student loan, we put the debt snowball money into savings before paying off the house. By that time we had a small mortgage and I felt more comfortable having a fully funded emergency fund than paying off the mortgage. One day though, I realized our savings balance was the same as our mortgage balance. We got so excited we just paid it off. It was really weird. We weren’t even sure that was allowed, we have never been put in that position. Were there penalties? I don’t know. So we called the bank. They gave us a number to write the check out with. We had a PAID OFF HOUSE.
Our mortgage was $900 per month and our debt snowball money was $1500 per month. Now we were able to put $2,400 toward our emergency fund every month. We got that baby funded in no-time. We didn’t stop with 3 months of living expenses, we kept putting money into it. That’s when it got real. Down the road I bought a new car, in cash. We felt weird, it’s good to feel weird.
Post Debt Living
Debt free living tastes differently and we feel very fortunate to have turned around
my our spending habits and stop buying stuff. I no longer go shopping in order to fill some pseudo happiness void but I will run to the store when we run out of toothpaste. I rarely find myself in the usual retail stores. You may run into me however at a thrift store or up in the mountains.
What is your debt story? Let’s have a conversation.