My Ascent Out of Debt

My decision to climb and ascend out of debt forever was one of the best resolutions I have made in my life. My last debt was paid off in March of 2009. And now that my wife has joined the debt free club I have spent some time recently reflecting about those days when I was working my debt snowball.

At its peak my debt stood right at $24,000 that was spread across three notes through student loans. I had two credit cards: one was for everyday use (I did not live on a budget) and was paid in full every month and the other I let a jewelry store talk me into opening when buying my wife’s engagement ring.

My Early debt kill

Before latching onto the ways of Dave Ramsey I was killing debt before I even knew that it was necessary to build wealth. The early debt kill was the largest note of my three student loans, which peaked at $15,700. For the first two years of entering the workforce I paid above and beyond the minimum payment. At this time point in time I used a credit card for every day purchases and did not live on a budget. When fall kicked in during 2008 my wife gave me a brilliant idea. I had roughly $15,000 in a savings account in California that my grandmother had left me when she had passed and this student loan balance stood at around $5,000. My wife proposed that I pay down and close this student loan as it was generating accrued interest on top of the principal, and the remaining 2 notes would still be months away from beginning to accrue.

So I sucked it up and paid down the student loan note that stood at $15,700 at its peak and set the remaining $10,000 aside to buy the love of my life an engagement ring.

My First Step

It would not be until January 2009 when I would first read Dave Ramsey’s “The Total Money Makeover” and my personal finances would never be the same. Since paying off the big note I had two remaining student loan notes which stood at $5,700 and $2,600 and had begun paying minimum payments on these and accrued interest had begun to set in.

So with a game plan I set out to destroy my debt while never fully realizing that I was taking baby steps towards wealth building. So with my first paychecks of the new year in 2009 I had two goals: (1) save $1,000 in a liquid baby emergency fund and (2) pay off all remaining debt with the debt snowball. I had also created and followed a monthly budget where I spent every dollar I made before the month began. Every extra dollar I made and could squeeze out of my budget I applied first to the baby emergency fund then to the smallest debt owed.

Within the month of January I was able to get the $1k baby emergency fund crossed off my list and paid off my credit card that I used for everyday purchases. It was fairly easy to pay this guy off as I typically paid it off in full every month and never ran a balance month to month. So cash envelopes replaced my previous non-plan for groceries, entertainment and clothing.

Getting Pushed Around

Unfortunately though in November of 2008 I had taken the $10,000 previously mentioned to a jeweler in Indiana to buy my wife her engagement ring. No it was not unfortunate that I was planning to get married, the unfortunate part is that I let my personal finances get dictated by a company with an agenda. With the cash sitting in my checking account and my debit card ready to go, I let the salesperson talk me into opening a credit card to, “build my credit,” which meant the jeweler could sell the book of payments and make even more off me in addition to the cost of the ring. So before any interest could accrue I paid the remaining balance and closed the account in early February of 2009. So with $15,000 that was left to me from my grandmother I paid off one student loan note and promised my heart and soul to my best friend.

The Last Debts

The last 2 debts that stood in my way were the student loan notes that stood at $2,600 and $5,700 at their peaks. Armed with my $1,000 baby emergency fund, one student loan knocked out and two credit cards TKO’D I used all remaining and available disposable income to payoff these last two debts in March of 2009.

So to recap:

September 2008

·         Paid off $15,700 student loan

January 2009

·         Read Dave Ramsey’s “The Total Money Makeover”

·         Drafted my first budget before paychecks started rolling in

·         Saved $1,000 baby emergency fund

·         Paid off and closed 1^st credit card

February 2009

·         Paid off and closed 2^nd credit card

March 2009

·         Paid off and closed $2,600 student loan

·         Paid off and closed $5,700 student loan

·         Did the happy dance

It’s funny. Off my credit report I can see the original term agreements from my student loans. For 3 loans that totaled $24,000 if I was to pay monthly minimums on each it would have taken me 257 months, or 21 years. Instead I focused and prioritized and had the debts paid off in 27 months from my graduation date. Or, as I like to put it, 7 months when I finally got serious about it. I’ll leave you with one of my favorite unattributed quotes:

“Those who understand interest earn it: those who don’t, pay it.”

My Conquering of Stupid Tax

This is the start of what will be a monumental week for our household. On the social calendar our group of friends are getting together for monthly book club, and for the FPU class we are facilitating we are on the home stretch with the last 4 lessons, which honestly are some of the best in bunch J! My nerd side is also tingling as it is almost time for my tri-annual credit report check, so you can be on the lookout for a “how to” piece in the near future regarding your credit report. And we are coming up on the end of June and it’s almost time for another entry in the series that is, “My Quarter End.”

But perhaps what takes the cake in the middle of my personal finance bonanza of events is that on Friday my wife’s student loan will be paid off. This is the last of our debt and for the first time in our marriage we will be debt free together. So in a taking a brief walk down memory lane I wanted to spend today’s post reminiscing about the stupid taxes that I’ve paid in life.

Credit Cards

Truth be told I had previously only carried one card and paid off the balance every month. But having and using a card helped me get on the fast track to overspending. Before I sliced my one and only card I established a $1,000 emergency fund that sat in a basic bank savings account. This 1k put some pad in between myself and life and allowed me to cut up the credit card and close the account with relative ease. It was a great first step in saying no to relying on credit, and yes to relying on myself.

Car Note

Ok, you got me. I have never carried a car note my entire life. I just saw an opportunity to say that I have lived the last 9 years without a car and have used public transportation to get around during my day to day life. No auto insurance, no sensitivity to the rise in gas prices, no monthly parking rates, no registration fees, no maintenance cost, only piece of mind.

Student Loans

Lastly the big bad beast known as student loans. In short I’ll frame it like this: I took out more than I needed in student loans to pay for a self-imposed higher standard of living that had nothing to do with the classroom. At its peak my student loan debt bill stood at $24,000 and my wife’s was $58,000. Now when I had graduated from college and began working my monthly minimum payments were somewhere around $200 and if I recall correctly in my Pre-Ramsey days I was sending in about $500 a month.

Now once I resolved to rid all debt from my life, after covering my cost of living for the month, I launched all remaining disposable income at my student loan every month until the dragon was slay. During the time between starting to build my baby $1k emergency fund and paying off my student loan I gave focused intensity towards the debt. I grabbed every ounce of overtime I could get, cut expenses to the bone and even unplugged my monthly retirement contributions for the short time to payoff the debt.

Once my loan was done we hit a long stretch gearing up to payoff my wife’s student loan. We knew it would take us a while to work that debt down to 0  so we rose our emergency fund to a full six months worth of expenses and picked up retirement contributions (my wife 12% and I 15% towards 401ks and Roth IRAs).

So this week our debt journey ends and our debt free adventure begins. It feels great to be at this point which is literally days away. We’ve paid our fair share of stupid tax in life, but we’ve also been able to turn it around by having an emergency fund, executing a debt snowball and consistently saving for retirement once the smaller debts were paid off. In three and a half years since we started our gazelle intense trek to financial fitness we have paid off over $80,000 of debt and have saved around $120,000, a $200,000 change in financial position in three and a half years. I’d say that’s a pretty good reason to be excited this week!