13 April 2011

Debt Free Month! Or not...

Note: This is the story of why April 2011 is no longer our debt payoff month.  It's a bit long, but I tried to make it flow for easy reading.  I hope you get something worthwhile out of it... please feel free to comment on your own experience!

About 3 years or so ago, we got serious about getting rid of our debt.  At that time, we had some substantial credit card debt (thanks to financial classes that were not a timely investment) and a lot of student loan debt (thanks to a private college that kept hiking rates).  We did have a financial game plan before we got married, something that I highly recommend for committed couples of all types, and we paid everything on time with extra when we could afford it.  But it becomes very easy to slip off the debt payoff wagon when things don't go quite like you expect.  For instance, it took a lot longer than we had planned for me to start my first career job.  We also discovered that there are some peripheral expenses to being a military officer (and really, just having a career... lunches out, anyone?) that we hadn't accounted for.

So, when I did get that job in April 2007, we recommitted to paying off our debt faster.  Much faster.  Because I have graduate loans, some of our debt had a 20 year payoff period.  Crazy!  I did not want to be one of those parents who writes the last check for their own student debt just to turn around the next month and start paying tuition for my own kids!  We crunched the numbers and decided that we could live off my husband's income for bills and groceries and in turn use ALL of my paycheck towards debt payoff.  As an engineer, I brought in just over half our take home pay, despite also taking a bigger tax hit.  By moving from a retail job at $10.75/hr to a career position, I had effectively doubled our total income.

This system was tough at times, but it had a huge effect.  Both of us kept lunches out to twice a month.  Dinners out were also twice a month and we tried to do one as a date night and one night out with friends.  We carefully budgeted for everything, especially household items and groceries.  It was hard sometimes, especially when friends bought new cars (mine was 15 years old) or went out to dinner constantly; but seeing those numbers go down was worth it!  At some point in our debt payoff scheme, I calculated how long it would be till we had canceled out all of our credit card and student loan debt.  The answer?  Fall of 2010!  Much better than December 2026!

Fast forward 18 months, to August 2009.  My husband got orders to PCS, which is military-speak for "relocate your life".  We only got about 8 weeks' notice, so we immediately changed our plan; no extra moving debt for us!  We kept paying debt minimums (of course), but everything else went into a savings account, just in case.  Moving is expensive, even when it's reimbursed, and it means finding a new job for me; there are no guarantees.

After lots of moving fun (read: annoyances), I wound up unpacking the house about three months later (the military is also fond of sending people to training, heedless of timing).  We planned for me to be out of work for about 9 months.  At the time, most people in my industry who were looking found new jobs in about 6 months, but they could go anywhere.  I recalculated that debt payoff date using our new lower cost of living (city to small town move): if I had a comparable job/income by July of 2010, we would be debt free by April 2011.  Still awesome!

You probably know, or can guess, most of the rest of the story.  The economy is still down; the local economy is non-existent for highly-skilled/educated jobs.  Our experience living on one income has been a lifesaver; my husband has been promoted and gotten the commensurate raises since then, meaning that his income now roughly equals our starting income from four years ago: his career plus my retail job.  We can and do live on one income comfortably, but April 2011 is no longer our debt payoff month and it's hard to say what it is now.

Some good things we did:
  • Savings build up.  We rarely touched this, but it has given us tremendous peace of mind and stopped us from running up credit card bills (if we're not willing to sacrifice savings for something, why would we pay interest for it?).  We recently reduced the disproportionate amount we had to pay off a couple of low balance, high payment loans, which has been great for our cash flow while still leaving us plenty for emergencies.
  • Early debt payoff.  The credit cards and loans that were paid off before we moved (plus the two paid off since then) meant that our minimum payments were much lower.  Our original minimum payments would leave no wiggle room on a single income, so this has made a huge difference.  We are also continuing extra debt payments, albeit at a slower pace.
  • Rented out our property.  It doesn't cover the mortgage, but the extra money that this brings in is being split between debt payoff and a baby fund that will likely purchase our next (family-sized) vehicle.  This income is only guaranteed for the length of the lease, however, so we don't count on it past a certain point.
  • Living on one income.  This move would have been an insane adjustment with no prior experience; instead, it was just a question of juggling some numbers.  I cannot overemphasize how little stress this has caused us and how horrible it could have been.
Now you know the story of my not-quite-debt-payoff month.  What about you... have you set financial goals that you've needed to re-evaluate?  What steps have you taken that turned out to be great in the long run?

1 comment:

  1. oooo, inspiring post. i would love to take the time to describe our experiences (not too dissimilar) but alas... the life of a new mom is one of not enough time, not enough hands, and not enough sleep!