Sunday, May 22, 2011

Our Debt Free Adventure: Part 2

So here we are sitting in our unfurnished house and unpaid for cars thinking we had it all. Then the payments for the college loans started kicking in and I realized we made way too much money to be saving so little at the end of each month. I remembered seeing a Dave Ramsey video online sometime in 2009 and kept thinking it was pretty neat. It talked about car loans and if you pay yourself a car loan you can get free cars for life. Check it out here. So, at the end of 2009 I decided to do some research on this guy and found that he had a pretty cool radio show, and that he helped people get out of debt. Nice. I also found that he had a very simple process for getting people out of debt. Even better. It was so simple in fact, that it was broken down into his "baby steps." Ok, now I felt my intelligence was being questioned, but he's the millionaire, and I'm in debt so I'd thought I'd hear him out. Here are the baby steps I'm talking about:

  1. Get $1,000 in the bank as a starter Emergency Fund

  2. Pay off all debt using the Debt Snowball

  3. 3 to 6 months of living expenses in savings

  4. Invest 15% of household income into retirement

  5. Fund children's college

  6. Pay off the house early

  7. Build wealth and give

They sounded pretty good to me, so I brought them up to Christine, who also liked the idea. To top it off Dave was a Christian whose ultimate goal was for people to use their wealth to help other people. He used taglines like "live like no one else so that later you can live like no one else", "sell so much stuff that the kids think they're next", and talked about doing crazy things like getting part time jobs to help get out of debt faster. I remember driving to St. Louis in the winter of 2009 and randomly asking Christine what she would think if I got a second job on the nights and weekends to help us get out of debt a bit faster. She was completely against the idea, but just because she didn't want me to not be with her during those times. I shelved the thought of a second job.

At the start of 2010, we were looking at:

  1. $2,000 to Texas Teachers - $400/month payment

  2. $4,000 for the Mazda 3 - $350/month payment

  3. $10,000 for the Ford Fusion - $275/month payment

  4. $60,000 to Sallie Mae, AES, Nelnet, among others - $650/month payment

For a grand total of $76,000 and $1,675 monthly payments! We decided to start working the baby steps. We had over $1,000 in the bank, so we started at baby step #2. We had some money sitting around in the bank, so we decided to just pay off Texas Teachers. Paying off that loan really helped teach me the importance of the debt snowball. Dave's debt snowball tells you to ignore interest rate, but to pay off your smallest loans first, so you can free up the monthly payment to add it to the next biggest loan etc. Texas Teachers was technically 0% interest, but it had such a short payback schedule we were paying $400 a month. By paying off that loan, we essentially took home $400 extra that we could allocate elsewhere. I sold some AMD stock that I bought before we got married taking a slight loss on it, which allowed us to pay off the Mazda. We took our first time homebuyer's credit and added $2,000 to it to pay off the Ford. We were lucky that we had saved money a bit earlier because I don't know how long we could have kept up $1,675/month payments.

That left us with $60,000 in loans with nothing in the bank, no savings (other than our $1,000 starter emergency fund), and no other tricks. So we went to work on our budget. We had kept a budget in google documents ever since we got married, but hadn't been super strict about it. We sat down and looked at the fixed monthly expenditures such as insurance, mortgage, tithe and looked at ways to save money on them. One of the easiest decisions to make was to cancel cable, which saved us $60 right there. We ended up picking up the $10 Netflix plan, so the net savings was really only $50, but still good. I also switched car insurance companies saving a few hundred dollars a year.

1 comment:

  1. I am following along intently. I also read yesterdays, but had no time to leave a comment. This is very interesting.