Last night I pulled in the driveway, drug Dan out from under a sleeping Ina, and told him we were going to make our last debt payment together. I opened my computer, logged into my car loan website, and Dan and I both clicked the “Pay-off Loan” Button together.
Then I had to click it again by myself, because when two people click on a Mac touch pad it thinks you are right clicking. So, a few more steps later, we were officially (non-mortgage) debt free!
Dan and I high-fived and I asked him how it felt to be debt free. He answered, “a lot like it did to be in debt.”
Poor guy, I think he was under the illusion that once we didn’t have any debt, we could throw money in the air like crazy people. A few weeks ago I reminded him that becoming debt free is just the beginning of our financial plan for our life. But, I am getting ahead of myself. Before I go into what’s next, let me explain how we got here.
Going into Debt
Growing up, my dad reminded me over and over again that debt was bad. I listened, but in my head I was hearing only credit card debt, and assumed that all other kinds of debt (car, home, student loans) were a necessary evil. Dan was raised in a similar way, financially speaking. So, when we joined our finances (soon after we were engaged), we had a similar plan for our financial future. However, that didn’t stop us from getting and doing what we wanted when we wanted to, as long as we could make the payment that came with it.
In the 12 years that we have been together, we have borrowed money to pay for the following things:
- Dan’s second car (a Honda civic)
- Our first house (half a duplex we still own and still owe money on and rent out)
- My student loans to get through pharmacy school
- My engagement ring (I didn’t know this at the time, but would likely have thought it was a great idea)
- Our first couch in our living room (I am embarrassed just typing that, as the couch now sits dusty and stained in our basement)
- Dan’s third car (a Buick)
- Dan’s fourth car (an Explorer)
- A boat (we sold it last summer)
- A timeshare (very fun for vacation but not a very smart financial decision)
- Our current house (the principal+interest, PMI, home owners insurance, and property tax combined are about 25% of our current income)
- My current car (a GMC Terrain)
I should also say that twice in the early years before we were married Dan applied for a loan and was denied (thank God!) for a motorcycle and a hot tub. I look at this list and I laugh and how silly we used to be and the things that we thought we needed to borrow money for. I can literally see our immaturity and lack of patience in those words.
But, like most kids do, we grew up. We always paid off our loans early and never missed a payment. So, when we signed up for Financial Peace University when I was pregnant with Ina, I thought we were sitting pretty...
Getting out of Debt
If you want to get out of debt, I cannot recommend Dave Ramsey’s Financial Peace University class enough. (Click here for my full review of the class.) Although Dan and I don’t follow Dave's guidelines exactly, the class made us think and talk about our finances in a way that we never had before. It made us realize the evil that is debt and put us on the fast track to becoming debt free. When we started FPU, we were about $60K in (non-mortgage) debt and the road to paying it off was windy and complicated. A few things that helped us in our success:
-Following a budget. With the exception of a few wild months here and there, we have followed a monthly budget and assigned every earned dollar a job. When we did this, I swear money starting popping up out of thin air. We tried the cash/envelope system which is what Dave Ramsey recommends, and although that taught us how to budget, it didn’t work for us long term. We kept on losing the cash. After trying a few different systems, I now have one that works great for us and plan to share a post focused only on this soon.
-Tithing. I have to be honest and say at first I resisted this hard. How did it make sense to give 10% of our money away when we were trying to pay off debt? My original plan was to start tithing after we were debt free. However, thankfully, Dan intervened and pretty much told me to get over it, we were tithing. Later I learned that really I am not giving away 10% of my money, I am getting to keep 90% of God’s money. God says to test Him in this, and He came through. Literally a week after we made our first “10%” cut to the church, I found out I got a huge bonus at work. I have example after example of this. As one of my friends so lovingly puts it, “you really can’t afford not to tithe."
-Not letting a a set-back bring us down. In the last two and a half years we have had many set-backs, both large and small. We actually make less money now than we did when we started FPU. Dan had his hip replaced, had to take a lighter load at work which translated to a lower income, and then was fired. Thankfully he was able to quickly find a new job that is so much better for him and our family. I can’t say that those set-backs didn’t come with freak-outs and arguments, but we didn’t veer too far off track. We sat down together and looked at the budget and made the necessary adjustments and survived.
Our Next Step
Dan and I have agreed to follow Dave Ramsey’s 7 Baby steps which are:
- Save $1000 for an emergency fund (done before we started)
- Become debt free (CHECK!)
- Save 3 to 6 months of expenses for emergencies (we have a good start at this already because I wanted an extra padded emergency fund just in case when Baby#2 comes)
- Invest 15% of household income in an IRA and pre-tax retirement (401K) (we already invest what our employers match, about 6%)
- College funding for children
- Pay-off home early
- Build wealth and give
So, our next step is to save, save, save. I hope to have a fully funded emergency fund by the end of the year, and then we can max out our IRAs. However, I must admit, our vacation fund is going to start getting a little more love.
If you are still reading (bless you!), I would love to hear your story. Reading about others’ plans, successes, failures, etc. always helps to motivate me.