Jul 09 2013

Update from Courtney: Part 10 DEBT-FREE!

See part 1part 2part 3part 4, part 5part 6 , part 7, part 8 and part 9

In March 2010, my friend Courtney started guest posting here updating her progress on getting out of debt. When she set out, she had several credit cards, two car loans, a student loan and a personal loan. And now, look at her! Here’s Courtney:

It’s been nearly three and a half years since we began the journey to end our debt! In many ways we feel like we have failed repeatedly, but the numbers don’t lie.

  • Kohl’s credit card: $395.20
  • Discover card: $537.15
  • Capital One: $725.45
  • Menard’s: $2,100
  • Visa: $2,530
  • Signature loan: $2,729
  • Discover #2: $5,400
  • Dodge: $3,295
  • Toyota: $11,503
  • Sallie Mae: $27,379

Total debt in March 2010: $56,595

Total debt in July 2013: $0!!!!

A LOT has changed since my last update in February of 2012! At that time we had a fully funded emergency fund and owed almost $20,000 on Sallie Mae. Shortly after that post, we decided to take $10,000 from our $12,000 emergency fund and pay down Sallie Mae. Then a couple months later we decided to move!

We moved from a 2 bedroom house to a 4 bedroom house. We weren’t able to put a full 20% down on the new house, so we do have the pesky PMI. We went for an adjustable rate mortgage (don’t faint, Kacie) because the rate is very low and because we plan to refinance in 3 years into the name of a trust for security reasons.

Then, we bought a boat (cash, no loan). I am recently pregnant and we have plenty of space for our family to grow (we plan on this being our forever home). Currently we have a $2,000 emergency fund and owe only on our mortgage as we made our last Sallie Mae payment this month.

We sold the boat for $500 more than what we paid for it, which enabled us to make one large, final payment towards Sallie Mae!

Our plan beginning next month is to contribute a portion of our money towards our emergency fund and a smaller portion towards the principal of our mortgage. We need to pay down the mortgage to be certain we can refinance in the name of a trust 2 years from now (you cannot have PMI if your mortgage is in the name of a trust). It will probably take close to three years before we have a fully funded emergency fund.

Hopefully it will go faster and we can put some of our ‘extra’ money towards the emergency fund.

We do not plan on funding college or retirement until we have our emergency fund complete; once that happens, retirement and college will become regular monthly items in our budget. For now, my husband is only maxing out his IRA ($5,000) each year with money from his second job.

I’ll be honest… if we had done this the true Dave Ramsey way, we never would have moved, bought a boat, taken a vacation or done a dozen other things.

But, we also probably would have been miserable. I am a firm believer that you have to do what works for you. Dave Ramsey was a great starting point for us, but we didn’t feel like it fit us to a T.

Through all this we have learned that it is all a balance–you want to enjoy your life, but it is not worth going into debt to do it! We know we could have paid the debt off faster if we had made different choices, but we made informed choices and are happy with the end result.

If I had any nugget of advice to give, it would be don’t give up! Know that you will fail. You will make progress and then life will happen and you will feel frustrated. Don’t. Give. Up. Just don’t, okay?

Here’s a very recent example where we felt hopeless, frustrated, and like giving up: February of this year our washing machine broke. While I wanted a matching and pretty washer and dryer, our dryer still worked so we only bought the washer. Guess what? We dried one load in the dryer and it broke. So, $2,000+ of unexpected home appliance costs came.

Then in March we had a free energy inspection from our electricity provider. Guess what they found? Almost $5,000 worth of mold! In two months we had $7,000 worth of unexpected expenses. Thankfully we put the washer/dryer on Menard’s with 6 months free interest and didn’t have to blow our emergency fund. Part of our emergency fund went towards the mold remediation and the rest went on our Discover card.

We still managed to pay it all off before we were charged $0.01 in interest thanks to some careful planning and my husband’s second job being lucrative. You will always have setbacks! That’s just part of the journey. But, if you stick to your guns and are able to avoid going into more debt, you will be able to do amazing things (even if they don’t happen a quickly as you want them to).

For our future, we hope to fund our emergency fund, retirement, and children’s college. It will be slow going, but we feel like we have a plan and a handle on our future! We’re so thankful that we have learned how not to live in a debt cycle and want to teach our children the same thing!

* * *

Kacie’s comments:

Wow. Seriously, amazing! I am so inspired by what Courtney and her husband have accomplished. They’ve paid off a lot of debt in a short amount of time, plus they didn’t completely give up the fun things of life in the process. I mean really, they had a boat for a year and enjoyed it, and then sold it at a profit!

In her intro post, she shared that she hoped to be out of consumer debt in five year’s time. Well, it didn’t take that long!

 

I’m confident they’ll have a hefty emergency fund soon, and a paid-down mortgage as well.

I can’t remember if Courtney’s husband is eligible for a retirement match, and if so I’d say forego the IRA and get that match instead…but it sounds like that isn’t available. Either way, he’s still contributing to retirement which is great.

Being Indiana residents, they are going to love getting to the point of contributing to their baby’s 529, since Indiana gives an amazing 20% tax credit off of state income tax. And — yay for her baby! What a wonderful financial situation to be in as they start out as parents.

Courtney, it has been so fun sharing your story here. Feel free to pop back in anytime for a guest post if you have something you’d like to share.

Readers — give her some comment love!


Apr 10 2012

Part 4: How Dorothy can save $1k and pay off $5,600 in credit cards in a year

[This post is a follow-up to yesterday’s post, and is a part of Dorothy’s series]

Alrighty, Dorothy. Let’s do this.

If you want to build up $1k in savings and pay off $5,600 in credit card debt by March 1, 2013, it is going to take discipline. It’s going to take sacrifice. What are you willing to do to meet these goals? Are you willing to sell things you don’t want? Cut expenses for awhile? Take on some side projects (freelance writing or editing, perhaps?) to boost your income? Limit spending money when going out with friends? Go cash-only for non-bills?

The reality is, to meet these goals in this time frame, you’re going to have to be really serious about it. Each purchase will need to be deliberate.

And if you’re not willing to make certain changes, I invite you to explore why not.

Your goals are doable. Here’s how to make it work:

  • You get paid at the end of the month. Pay all of your upcoming bills at that time, or as soon as you get the bill. Also, make your debt payments at this time, and be certain that your extra payments are going to credit card principal instead of being counted as a future payment.
  • Call Chase and ask for a lower rate. They’re making less money if they agree to this, so they’ll probably play hardball.
  • Go cash-only for your day-to-day spending: Groceries, gas, restaurants/entertainment and miscellaneous shopping. At payday, go to the ATM and withdraw your spending money for the month. Once it’s gone, it’s gone. YES it sucks to do it this way. But, you can’t blow your budget. Try it for a few months and be amazed at your progress.
  • Sell whatever you can. Old iPods, pretty dresses, books, household items — anything you don’t really need, sell it and put the money in your emergency fund.
  • $80/month is expensive for a gym membership when you have this much debt. If you’re not in a contract, can you go a la carte for the days you do go to the gym? Can you find a cheaper gym that will get the job done until you can afford a fancier gym? Or do some lower-cost exercise altogether? If cutting the gym expense is not possible, be it by contract or choice, then you’ll have to find other areas of spending to cut.
  • I do hope you get a raise in a few months, but please put that money toward savings or credit cards.

I’m assuming you’re still at $300 in the bank. So, for the next 7 months on payday, put $100 in your savings account. Automate it and forget it. Target $1k-in-bank date: end of October 2012 at the latest. At that time, put that $100/month into your debt snowball.

Pay the minimum on your car and student loans. The credit cards are at a much higher interest rate and your debt pay-off efforts will be more effective if you concentrate your extra payments on one debt.

Pay the minimum on your 0% credit card. When it resets to 16% in March, you won’t have much of a balance remaining (it should be just a few hundred dollars, if it’s even still around). If the terms state that you’ll have to pay 16% on the entire $2989 starting balance compounded monthly, then whoa that would be a problem.

For your Chase card, ignore whatever the “minimum monthly payment” is. Consider it a $400/month minimum (or more) until it’s gone. At that pace, it’ll take you until November to pay off.

Fast-forward to November. You now have a paid-off Chase card and $1k in the bank. You’ve paid the minimum on your Citi (roughly $50/month) and the November balance is something like $2,500. Your debt snowball is now $500 ($100 from what you were putting in savings, $400 from Chase) plus $50 for Citi, so roughly $550/month now available to throw at Citi.

The Citi card should be paid off by March, or get you within spitting distance, if my assumptions are correct.

You’ll have a little more than $200/month to do what you want with (this is not counting gas or groceries), and I’m assuming $200/month utilities. Hopefully utilities will be less since you’re sharing them with a roommate. Check my math here, because you might find you’ll have $3-400+ available.

Combine that spending money with gift cards earned via Swagbucks and Mypoints, using Groupon or just finding cheaper ways to go out with friends and you’ll still get to meet your goals and spend at least $50/week on fun stuff.

Put these credit cards in a safe place in your home. Do not take them with you when you’re out shopping.

If having a credit card with you is important (what if you get a flat tire and need a tow? Then yeah, justifiable credit card use there), then I suggest making your card really difficult to access. Get a few envelopes. Put the card in an envelope. Seal it. Tape around it. Write some phrases or something motivational on each envelope so you’ll see it as you peel back each layer. Put that bundle in another one and repeat a few times. The card can stay in your purse, but you’ll have to do some work to unwrap the card to use it — it won’t be available for impulse purchases.

The next year or so will be living semi-lean perhaps, but perhaps not. Some people are living so tight, they only get $20/month of fun money. Or nothing at all. It’s all relative.

The truth is, since you have credit card debt, you were living beyond your means for a time. Not a value judgement there — just basic math. To undo that, you’ll have to live far below your means.

In a year’s time, if you follow these ideas, you’ll have no more credit card debt. You’ll then have an extra $550/month that you weren’t using in your monthly spending, and you can boost your savings account even more. You can apply that money to your student loans or car. Since you were paying the minimums on those fixed-term loans all this time, those balances will go down considerably anyway in the next year.

Lastly — automate all of these payments to protect yourself from yourself.

What do you think, Dorothy? Doable? Do you wanna do it? And readers, do you have any additional thoughts for her?



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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