Going debt-free
I will admit that during my unemployment one of the most stressful aspects was our car loan and insurance. If had had more debt to deal with the stress would have been even greater. Unlike all of our other bills, there is no way to get rid of the loan without paying it off (everything else is attached to our apartment, and if needed, we could have moved in with parents or something). During my unemployment I came to realize how paralyzing debt can make life. Debt seems to be an anchor, we cannot just up and leave if we wanted (or needed) to and not have a care in the world if we have bills that would need to be paid.
About 2 years ago when our car loan was new and I had student loans and credit cards to pay off, my total debt was just shy of $25,000. Fast forward those 2 years and all of my creadit card and student loan debt is paid off and all I have left is he car loan. I was laid off when I was about to start doubling up on car payments every month so that plan had to be put on hold for a few months.
Given that I am starting a new job 2 WEEKS FROM TODAY!!! I am getting ready to get my debt reduction back in motion. At the time of writing this I have just shy of $12,800 left on the principal of the car to pay. When I look at it this way I realize that I paid off almost half of my debt is just two years.. $12,5000! But I also step back and think of all of the other things we could have used that money for if we had not have put our selves in the position of having debt to begin with. So, once our debt is paid off in full I am making a lifetime resolution to ever go into debt again.
So far I had been using David Ramsey’s 7-Baby Steps to achieve my financial goals (I found him about a year and a half ago on Wise Bread) and they have been working out really well for me. Granted, I did do a couple of them out of order. I completed Step 1 back in August 2008 and since then we have never had less than $1000 in our savings. Step 2 is to pay off all debt using the debt snowball. I did this by paying off my smallest debt first and then taking the extra money that I would have used towards that payment to the next largest debt and so on. And that is how the credit cards and student loans got paid off.
Then, in December of 2008, right before the holidays, my husband was laid off. And we realized that our $1000 emergency fund was just not going to cut it, considering I still had last mintute shopping to do. So, gifts went somewhat incomplete and we had to reevaluate. Thankfully, after a couple of weeks the company he worked for did some shuffling and he was hired back but to a different store that would be closing mid-2009. So we put paying our debt off on hold and worked on Step 3 instead: saving 3 to 6 months worth of living expenses. [Given the state of our economy I think EVERYONE should first get at least 6 months worth of living expenses into their savings and then pay off all of their debt.]
It was a good thing we did this because 7 months later he was back to working his old job and I was laid off from a job I thought I would always have. Though we did not have the size of savings we were aiming for it was a lot better than just $1000. Fast forward to now, we were able to put my severance into the savings as well as about $100 a month while I was unemployed. YES, we actually were able to save money. I am very happy with our savings account for now so once my paychecks start coming in we are going to get the car paid off. Our entire tax return ill be going towards the principal of the loan and on top of that every month we are going to pay at least twice what is owed (our responsibility is $300.89 each month, I would like to pay at least $601.78 each month). After we are paid off in full I do intend to start savings as much as I can for retirement (I will be 24 this year) and hopefully traveling .
