If you have not set your New Year financial goals yet, you still have time to do it. My husband and I set to continue the same goals we set back in early 2017 which were to decrease our spending, and pay off our debts as quickly as possible.
At the end of December 2017, my husband and I reviewed how much we have left to pay in debts. At the same time we took a look at how much debts we started with. It was a good exercise to see how many poor decisions we have made in the past in order to make better financial judgments going forward.
My husband was able to recapture his credit cards debts from 2010 and I did mine from 2013 since it was the years we maxed out our credit cards. Although we both started accumulating debts since end of 2009. Our total credit card debts were about $ 26,000 in 2010 and about $30,000 by 2013. In 2011 we leased a car that we finally purchased with a loan after the lease period ended. The total cost of the car back in 2011 was about $22,000. Around the same time, my husband had about $15,000 left in tuition loan which totaled our debts to about $67,000 from 2010 to 2013. Our income at the time was a little over 30,000 a year. We could read more about it in my post here.
We used to pay minimum on our debts and kept paying the same amount even after the minimum decreased. We wanted to get out debts but were not fully committed. We contributed to our employers 401K to the maximum they would match and we paid ourselves first which we invested in our Roth IRAs where we traded stocks.
Saving for our future at the same time as paying off debts didn’t allow us to pay more toward debts. To make matters worse, we continued to use our credit cards for purchases we didn’t pay in full. Besides applying the same amount toward credit cards payments, we moved about $1,000 to a credit card that offered 0% on balance transfer for 12 months and paid it off before the promotion was over. In 2016, we made the commitments to stop charging our credit cards unless we can pay it in full. We also decided to stop funding our Roth IRA and apply that amount toward credit card payments. In the meantime we were able to double our income when I found another job in 2014. In 2017, we tightened our budget even more and tracked our expenses every month in order to stay within budget especially our food budget which used to go over each time there was a sale or I decided to buy from farmers. It didn’t go over the budget in 2017. Check how I manage our food Budget.
At the end of 2017, we have a little less than $800 left to pay in credit card debts and about $4,900 in car loan and less than $11,000 in tuition loan. In total we have about $16,200 to pay. We paid from 2010 to 2017 more than $51,000. In 2017 alone we paid over $15,200 in credit cards debts.
We were able to pay so much debts in a short amount of time for the following reasons:
1- We stopped using credit cards unless we saved up for the item. Then we used the card to make the purchase to benefit from the cash back which we used toward the card payment and we paid off the purchase right away.
2- We stopped paying ourselves first and applied that toward the credit card debts payment.
3- We kept the other debts to the minimum payment and focus on credit cards first. We paid the lowest balance first and rolled all the amount to the next lower balance.
4- We used envelopes methods every month for our food expenses and kept the checking account just for fixed expenses like mortgage, electricity, gas, cable and internet, cell phone, credit cards, car loan, and tuition. We have an envelope for car gas as well. I suggested we cancelled cable but my husband disagreed.
5- We stopped eating out. We went to a restaurant once in 2017 before we decided it was not necessary.
6- I stopped buying toys and clothes for the kids since they already have too many that require some decluttering.
7- Birthdays and holidays celebrations were included in my food budget and I have to be more creative with my food budget during the month we have birthdays and holidays.
8- In 2017, we decided to live on one income and use the other income to pay off debts.
If you have debts and would wish to be debt free, you can do it. The key is to stop adding more debts and decrease your expenses to free more cash.
It is necessary to point out, that we didn’t save up for emergency like it is usually suggested before we tackled our debts. We just decided that in case of emergency, we would pay the minimum on each debt and use the remaining funds to cover the emergency or if necessary charge it to a credit card for the time being.
Thank God we didn’t run into a lot of emergency. All the unexpected expenses were paid by cash and we didn’t have to rely on credit cards. In the meantime, I decided to progressively stock up in food in order to have one year food supply. This would decrease how much money to set aside for emergency. I didn’t increase our food budget. I just chopped extra when there was a sale on an item we use. Check how I build my food pantry.
We are at the beginning of the New Year. If you have not set your financial goals yet, it is still time to set where you want to be at the end of 2018 when it comes to your finances. I am glad my husband and I did it early in 2017 and reached this far in our debts payments. You can do it too.
You have to ask yourself few questions though. Which of the following category are you in?
Category one: People in this category like to be debt free.
Category 2: Those people don’t mind debts and tend invest more of their money. They don’t mind being 1 million in debts if they can have 1 million in their bank account. They would still feel millionaire even though their net worth is 0.
One question that can help you decide as well, is this:
If you know you will be forced to retire in 5 years because your company would fire most of its staff due to financial hardship, what would you start doing today?
Would you continue to pay the minimum on your debts and starch as much as money in your investment account?
Would you prefer to pay off all your debts before the 5- year period is over so that the amount you would need to live on when you retire is not a lot?
Personally, I asked myself these questions a lot and often as at the beginning, I didn’t feel comfortable spending all our money to pay off our debts even though the interest rates they charges us were higher than what we earned in our investment account. I felt like I teach my future for not saving up for it and missing the compound interest effect on my money. As we are paying off our debt, mortgage payment is on our list as well. Usually when you pay your mortgage for 30 years, you buy one house for yourself and 2 houses for the bank because you ended up paying almost 3 times the original price of the house to the bank. Why not paying it off quickly to save 2 houses worth of money for yourself? Also when your house is paid off, that even decreases what much you need to live on. You only need food and utilities bills to cover. Anything else is extra. I have to keep reminding myself that in order to stay in track with our goals. I hate not be able to pay ourselves-first each time we get paid and invest that money in our Roth IRAs. But I think paying off all our debts is the way to go. It feels good not to have to worry about debts or losing the roof over your family.