Wednesday, February 25, 2015

Our Debt Reduction (condensed)

From the time we moved to our new town until our previous home sold, money was very tight. I still don't know what would have happened if it took another month or two to sell our house, or if we hadn't been able to sell at all before the bottom fell out from beneath housing prices (Just for curiosity I checked out the house on Zillow and even now nearly 10 years later the estimated value for the home is still less than we bought/sold it for by $25,000).

As I look back, the strangest part of this situation is that I feel that I knew better than to have gotten myself into a financial quagmire. I had a degree in Finance, and had even had excellent personal finance courses included in my studies that taught how to avoid this precise dilemma. What I have since realized is that acquiring financial knowledge is easy, but acting on it is something that not everyone does.

In early April, we sold our house and buckled down to pay down the rest of our debts as quickly as possible. Just a few short months later I was planning to start grad school and we didn't want to have to take out any student loans to do so. We also wanted to get out of our dungeon apartment and into a house. By our math at the time, both of these things were possible, but not without serious focus and planning.

After selling the house, we were left with three debts and some very large upcoming expenses.

Our first plan was to sell off one of our cars and to go back to being a one car household. Although our new hometown didn't have good public transportation, my wife's new job wasn't very far from mine and our work schedules allowed for us to commute together. We were able to sell Car 1 for $3,000 more than we owed, which immediately had to be used towards my first semester of tuition, which cost $8,170. Although we really wanted to be aggressive in paying down our debts, we had also committed to have $14,000 as a down payment for a house we were building that would be done in just a few more months.

Paying off Car 2 and the student loans became our top priorities after we moved into the new home, but had to be balanced against the need to pay another semesters tuition. Even though my employer was reimbursing a portion of my tuition, I had to pay for and pass the classes before getting reimbursed, and the next semesters tuition was generally due before I received the reimbursement for the previous semester. Once we were able to begin attacking our debt aggressively, we were putting between 21 and 71% of our take home pay towards debt. 13 months after getting serious about paying off debt, we had paid off the last of our non-mortgage debts.

There are so many things I could write about our debt repayment, but I'll keep it concise and simple. While there are many details I have not mentioned, it is worth pointing out some of the lifestyle changes and sacrifices we made during this time to make it all possible. Some of these highlights include:

  1. Living in an apartment where I didn't always feel safe, in order to save money.

  2. Living without owning a TV (our old one didn't make the cross country move).

  3. Carpooling with my wife even before we sold the second vehicle to save gas.

  4. Playing cards with my wife at home instead of going out for entertainment.

  5. Enduring the teasing of co-workers for eating peanut butter and jelly sandwiches for dinner every night at my office to avoid eating out when I was away from home for 16 hour days.

  6. Never eating out for lunch with co-workers while paying down debt.

  7. Not buying any clothes for almost an entire year.

  8. The feeling of driving my car after it had been paid off. I swear that it seemed to drive smoother when I no longer owed anything on it.

  9. The sense of achievement each time I was able to write large checks for tuition and not have to borrow money.

I know that there are others out there who may have dug themselves into deeper financial holes than I was in, but the steps I took to get out of debt are no different than the steps that anyone can take to get out of debt. It's been said that those who understand interest earn it and those who don't understand interest pay it. Avoiding debt is critical to be able to build wealth and achieve financial success.

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