In a nutshell it took us 7 years to pay off 21 000$ in credit card debt and to save 55% of the cost of our home as a down payment. With the new year just beginning and so many people making financial matters like paying off debt and saving money a goal/resolution I figured I’d share our story and method with you all. It’s not the only “way” out there but this is what worked best for us and got us to our goal.
I’m going to talk true blue numbers. Why? During the early days of our debt repayment journey I’d scour the internet looking for success stories to motivate us to keep on keeping on and more often than not I’d find stories explaining how debt was paid off without really talking about how much inflow of cash was involved. Taking home a six figure salary and repaying a 20k debt is far different than bringing home a 50k salary and paying back the same amount know what I mean?
For transparency reasons I’ll tell you straight that while Mer was working a full-time job and I had part time work we were netting ~ $36 000 yearly. That means that we were bringing home roughly 3000 per month or 1500 bi-weekly. We’re incredibly grateful that we both had paid stable work since there are people who unfortunately are unable to secure a stable income. The stability of our income is what really helped us create a plan and make our debt free lifestyle a reality.
For what it’s worth and because I’m a numbers nerd I checked what the average salary is in our area. Apparently as per google the average salary in this area is roughly 50 000$ after taxes which puts Mer and I at 14k below the average. In other words we were earning approximately 28% less than the average worker in this area combined.
How we found ourselves drowning in debt in the first place
Mer and I both brought debt into our marriage. We got married when I’d just finished my first undergraduate degree and hadn’t really entered the work force yet. I had roughly 5000$ of debt that was accumulated from tuition balances, text books and living expenses related to being a student without full-time work. He had roughly 6000$ of credit card debt and a hefty monthly car payment something around 650$ per month for another 2 years. In hindsight we should have communicated our debt repayment plans better and came up with an aggressive plan to annihilate this debt but we were young and thought we’d be able to figure it out once we got married.
After being married for 2 years, our debt spiraled out of control. I wish I could tell you that we accumulated that much debt by travelling or buying fancy things but that’s just not the case. I broke a tooth (2000$ that we didn’t have for a crown), the cat got sick (700$ emergency vet visit), winter tires blew out (900$ for new winters), an MRI (1500$ at a private clinic to avoid waiting 2 years), sleep apnea diagnosis and treatment for Mer (2000$ to avoid the 3+ year wait time in the public sector). On and on and on.
Every year was the same. Tax season would roll around and we’d vow to apply our refund to debt repayment and something would happen. The fridge went bust one year, another year the car broke down and yet another I had to have a cancerous growth removed that we had to pay for out of pocket.
We had no savings and no emergency fund which put us in a situation where we had to turn to using money we didn’t have to pay for the unexpected. Shit happens but we didn’t have the money to deal with it and the credit card debt spiral just continued to consume our lives.
The OLD Numbers
Way back in 2008 when we first started on our journey our numbers looked a little like this on a monthly basis (Scary hunh?)
At the time we really started to take our finances seriously- Mer’s truck was paid for and I was still a fulltime student pursuing graduate studies so I worked only part time.
*note: our car and renters insurance was paid yearly on credit because we were never able to save enough to pay it cash.
*note #2: My graduate school tuition was covered nearly 100% by scholarships and bursaries. Without this there was no way I would have been able to pursue my masters.
|Credit Card #1 Minimum Payment||150.00|
|Credit Card #2 Minimum Payment||75.00|
|Credit Card #3 Minimum Payment||175.00|
|Miscellaneous expenses (shopping, education, pet food, household cleaners, cash purchases we
Approximate Net income: (Mer’s + Mine)
Scary as hell. We were basically racking up an extra 3200$ of debt every year we didn’t pay it down. Our finances were out of control and we knew we needed to do something but honestly had no idea where to start. Debt is so draining that you feel so consumed by the weight of its burden – we stalled and stalled until we got to the point where we knew something had to be done and we set up a plan we were comfortable with and stuck to it.
In theory, getting out of debt is easy – you pay back what you owe and you don’t spend money you don’t have on stuff you don’t need. So much easier said than done though right?
What we did and why it worked
1. Owned it. We avoided truly accepting our financial situation for years. Bills would come and we’d look at what we needed to pay without even pulling it out of the envelope. Why? We didn’t want to face the reality that we were digging ourselves deeper and deeper into debt. When we were finally ready and willing to take this on (a lot of this had to do with being in the right frame of mind to take on the challenge of paying off our debt) we sat down together with a pen, paper and calculator and basically went through our last 3 months of bank and credit card statements making a spread sheet of how much we spent on credit card repayment, food, utilities, insurance, miscellaneous and gas. What we discovered was terrifying – we were living way outside our means.
2. Consolidating our Debt: Some debt repayment plans encourage you to start paying off the smallest debt first while continuing to make the minimum payments on the others and then eventually snowball payments as you pay off each debt off. Although this makes total sense and probably works really well for some we decided to consolidate our debt and attack it as one payment instead of three. Mer called the credit card company and requested a credit card increase which was approved (not sure why considering the situation – maybe because we paid everything on time but never really made a dent in it) and so we piled all our debt onto one credit card.
3. Fixed vs Flexible Expenses. Our fixed expenses included rent and credit card payments. Essentially the only things that we couldn’t attack with our frugality plan were these two categories. Flexible expenses including gas, food and miscellaneous are the categories that we worked with which helped us get to our goal. We immediately stopped eating out (a post about how we broke that habit coming soon), we slashed our grocery bills to 75$ per week and stopped buying things unless we really needed to. Most of the time if we really needed something we’d buy it used because the amount of money you can save is really astronomical. Beyond this we actually assumed a new car payment on a used car. Crazy right? Well, the truck was starting to show its age with a number of costly repairs on the horizon and with rising gas prices we realized that it was costing us over 400$ per month to fuel our one vehicle (beyond crappy fuel mileage). We traded it in against a fuel efficient car which cost us 300$ per month and we were able to fuel it and pay for it for less money than what it had cost us to keep the truck driving.
4. Slashing Spending. We slashed everything we could. Like I mentioned above we stopped eating out, we slashed our grocery budget and started buying in bulk and using coupons. No more sodas or expensive snacks. I started cooking more and making things that we were able to make at home for a fraction of the cost. In the summer I would grow my own produce and freeze it to sustain us through the winter.We contacted our phone, internet, electric and insurance providers to try and score a better deal (in most cases we were able to lower our costs). We cut our cable and used only Netflix. We had to keep our internet because Mer needs it to work from home from time to time.
5. Rainy day fund. Some debt repayment plans encourage you to put everything you’ve got toward your debt. Although this probably eradicates debt quicker we opted to save a little extra for a rainy day fund. In my mind, it made no sense to aggressively repay debt without saving a little extra just in case. Part of the reason we were in so much debt in the first place was because we had no rainy day fund so we started to build up our savings. In the first year I think we managed to save a little under 3500$. It wasn’t a ton but coming from a place of zero savings we felt like we’d made a world of progress.
6. Sticking to it. This was the hardest part. There were times that we both felt like just throwing in the towel and saying efff it – let’s just live with the debt. Thankfully, we’d encourage and remind each other why we were doing this. Our goal was to start a family and buy our own property one day. It was hard – especially when it meant explaining why we were skipping a dinner out or not attending a party. We affectionately became labeled as “the cheapos”. Not kidding. Nonetheless, we stuck to our plan and never veered off path. Every month we paid our credit card company 1000$ to bring down our whopping 21 000$ debt – we treated that 1000$ like a minimum payment and made sure to pay our rent, debt and car payment above everything else.
The new numbers
This is what our budget looked like for nearly 3 years of our life.
* Our car and renters insurance was paid with the little savings we were able to accumulate.
|Credit Card (17% annual interest, 2.5% minimum payment)||1000.00|
|Miscellaneous (gas, medication, pet food, education, household products)||200.00|
Approximate Net income: (Mer’s + Mine)
It took us just over 2 years to pay off our credit card debt and to build up a little savings.
Today, we’re 100% credit card debt free. We’ve purchased a home by putting down a 55% down payment (more on how we accumulated that money in a future post) and continue to live frugally. Sometimes excessively so.
So there you have it. This is what worked for us. There are a ton of methods out there that are just as effective. We simply found a plan that worked for us and went with it. Paying off large amounts of debt is possible – in our experience it takes a huge reality check, planning and dedication. Some days it seems like you’ll never get to the end of the debt repayment journey but eventually the day will come- one penny at a time.
Have you repaid debt? If so, what method is working/worked for you?