Mar 31 2008

No, we’re not debt-free

Paula has a question for me, but before I get to that, I want to emphasize that this is about our personal finance. Our situation is based on the decisions we’ve made and the blessings we’ve received. What works (or doesn’t work) for us might be entirely different from you.

I am curious. In all my reading of your blog, I have never read of you being in debt. Are you debt free? If not, I am curious why you would put so much into savings. I am also curious if you put anything towards you or hubby’s Roth IRA. I know Dave [Ramsey] says to accumulate [an emergency] fund before investing, but I also know on one of the blogs you read, he mentioned how they build up ER fund AND invest at the same time (which is what we are doing as soon as we pay off the rest of this debt).

Our debt situation

We are not debt-free. We have a $277/month car payment. If we don’t pay extra on it, then we’ll be making payments on it until the end of 2011, as we took out a four-year loan on the car.

Other than that, we don’t have credit card debt, student loans, personal loans, or a mortgage.

However, we have had credit card debt in the past. I’ve mentioned some of the dumber things we’ve done (including charging our honeymoon on credit cards!). Because of the decisions we made, we didn’t have much money in savings right after our wedding, when we moved to Pittsburgh and started new jobs last June.

My husband gets paid monthly, so for that month before his first check, we were living off our credit cards–charging groceries and gas and more.

My husband’s employer reimbursed us for relocation expenses and our apartment-finding trip, but, the key word was “reimbursement.” We had no choice but to charge those expenses at first, since we didn’t have money in savings. Now, Shane has a company credit card that he uses on business trips, so we don’t have to worry about reimbursement checks anymore.

Last summer, we were looking at a few thousand worth of credit card debt. It was ridiculous. We hadn’t yet discovered Dave Ramsey or his debt snowball concept, but we were doing a version of our own–making minimum payments on most cards, and getting rid of the one with the highest interest first.

We paid it all off last December, or about six months after getting serious about paying those cards off.

We don’t want to have credit card debt ever again, if at all possible. In fact, we’ve stopped using our cards altogether, and are opting to use our debit cards instead.

Now, we’re building up a savings cushion, with the goal of having six months of expenses in savings. I understand that Dave Ramsey would advise that we pay off our car first, but with the economy down and us being a one-income family, I’m going to sleep a lot better at night knowing we have a full emergency fund.

Our retirement situation

My husband and I believe that if your employer is going to give you free money in the form of a company match on your retirement account, it’s a good idea to get that money. That’s one of the ways we disagree with Dave Ramsey’s philosophies–we’re getting the full company match now, even though we do have that car debt.

My husband’s company will match 100 percent of his contributions to his Roth 401k, up to six percent of his annual salary. Right now, we’re putting about nine percent of his salary into that retirement account.

Our future

It’s likely that we’ll be moving this summer. When my husband took his job, we understood that it would be around a one-year position, then he would transfer and take a different job within the company. We don’t know when or where we’ll be moving, but hopefully within a month or two, we’ll know.

Hopefully, it’ll be a place that has a low cost of living, like here.

With that new position, he’s also expecting a pay raise. Pay raise or not, we hope to maintain or decrease our standard of living. That way, the pay raise will just mean more money for saving and investing.

We’ll increase our retirement contributions, and speed up our car payments.

I doubt we’ll focus all of our money toward the vehicle, though. Instead, we’ll likely pay $100-150 per month extra, and the rest we’ll squirrel away for saving for a down payment on a house.

Then, we can work on our plan to own our home outright by our early 30s.

Of course, life happens, and sometimes, God looks at our plans and laughs, as He has other ideas. So, we’re trying to be as smart as we can be, while remaining flexible.

4 Responses to “No, we’re not debt-free”

  1. At your age, it makes a lot of sense. The car debt isn’t big and with the employer match and the amount of time you have left to compound the interest, it can make a phenomenal difference in your retirement savings.

  2. Hi, first of all, excuse my english since I am spanish. I`ve been reading your post and it seems very interesting for me (being a recently seperated parent) and Spanish law is pro female, witch is perfectly normal in some cases. Not being mine though. I worked with my wife in a mobile chat as administrators where it actually was her who is contracted by this company and for x or y I seem to have a better feeling for it. She is being paid 2000€/month and I have a couple of blogs and websites with an monthly income of 800€ (yeah, I know) Anyway, she is not declaring so before the judge she has no income and now I am obligated to pay her 200€ a month of maintenence. Bottomline I need to save so I can give my daughter enough money so they don`t take away my visitinghours evry wed and second weekend a month. I would apriciate some tips (ah I pay 500€ rent a month for a studio apartment.(yes living in la costa del sol Marbella with 25€ a week…….) thanks in advance ..What would Freud say,right?

  3. This was a great post! I agree that there are some things that I don’t really do from Dave Ramseys idea’s. Depending on the car, and the interest and amount, I think it is ok to have that kind of “debt”. Just the fact alone that you guys have made the plan to only have one car, and one that is not a huge payment of 400-500 a month is wise enough. Sometimes it is just a little easier to make a small payment instead of saving the same amount and waiting the four years for a car.

    I also love that you guys realize that God may have anouther plan, this is something my husband and I didn’t get for sometime. We thought we made great plans, were good stewards and then I job loss came.

    Again, Great post!

  4. Freud…that really sucks. I hate that the court system (not just in America apparently) is so anti-male. Your ex is being dishonest and it will come back to her one way or another.

    I’ve never heard of Dave Ramsey…I’ll have to do a search. I’ve been reading your blog with a lot of interest. I can’t be as frugal as I’d like to be because hubby has a say in it too. *sigh* And he’s nowhere NEAR as frugal as I am. It’s hard when you aren’t both on the same page.

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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