It’s possible to methodically attack outstanding debt while budgeting for reasonable vacations.
This really wasn’t that expensive (honestly). “Last hurrah” before kids.
So, now we owned a house. Well, 20% of a house. It was fun. We had a place of our own.
We hit up scores of garage and estate sales for our new house necessities: practical things like tools, furniture, and appliances, and fun things like books and games. With a little effort, we found some great deals and began the process of furnishing our house with little expense. In the meantime, we were ready to continue with the rest of the plan.
We already had an emergency fund ready to cover three months of expenses. I had intentionally kept the mortgage payment under 25% of my gross income (not including hers). Since she was currently still working and we had her (teacher’s) income in the game, we were ready to attack our other debt with a vengeance.
I grabbed a free Debt Snowball worksheet (still the best one around) to organize the $40,000 of student loans and vehicle debt that we owed. I modified it to pay off our highest interest rate loans first, and we started making extra payments. Whenever we got paid, I funneled money over to pay down our debt.
We both worked long, hard hours but still took some time for vacations. We weren’t fanatical about it, but we were methodical and consistent. It took about 30 months to clear it all.
I remember well clicking the button to submit the last ACH approval to clear her student loans. We were debt free! (except for the mortgage)
What is Debt Snowball and Debt Avalanche?
Dave Ramsey popularized the Debt Snowball method of paying down debt. It works according to the following steps:
- Pay the minimum payment on all outstanding debt.
- Arrange all outstanding debt in order of smallest to largest balance.
- Use any means necessary to free up additional money in your budget. Use these funds to make extra payments on the smallest debt balance.
- As an individual debt is paid off, “roll” all the dollars used to pay off that debt to the next debt. This will keep increasing the dollars allocated to paying off each debt until all debts are paid off.
Debt Avalanche works the same way, except the debt is arranged in order of the highest interest rate first. There are arguments both ways for which is a better method for paying down debt. Research shows that the Debt Snowball is more effective, even though the numbers verify that the Debt Avalanche, if done perfectly, will save more money.
In Retrospect, What was Good: The intentional focus on paying down our loans was absolutely necessary. We also spent some time together in vacations we’ll not forget: one beautiful cruise to Alaska, and one historical vacation to Charleston, but other than that our funds were committed to the debt pay-down. I was contributing to my 401k a little bit throughout this time (3% if i remember correctly).
In Retrospect, What I Would Have Changed: You don’t realize how much free time you had without kids until you have kids. We worked hard at both of our jobs, but I could have done more in the evenings and weekends on the side to knock out our debt sooner. Less Netflix, more SEO. That is, once we finished with Lost.
Have you used the Debt Snowball to payoff your own debt? How did it work for you?