Small Debt Payoff – Round 1

It was just after the new year 2019 and I was finally fed up with debt! My husband and I had just had a successful round of IVF and I was pregnant. I was overjoyed! Which was swiftly followed by a bout of panic. Because we were about to be parents? No, that came later… I was panicked because we seemed to have an overwhelming amount of debt for people who looked like the picture of middle-class and were about to have a baby. I did not want to start off our new journey into parenthood with a mountain of debt! (I would prefer more of a steep hill ;))

Since moving from Southie to the suburbs and from a small 488 sq. ft. condo to a beautiful new construction over 2,000 sq. ft. home in May 2016, we thought we needed some thaaannngggsss… We did not. But we bought them anyways. We financed a living room and kitchen table set, which we promptly paid off the first year in the house before the 0% financing was due to expire. No harm – no foul, so we thought. This first venture into 0% financing gave me false hope we would always be able to pay off our debt. Oh how naive!

Here’s a list:

• Water bill: in an effort to have a very green lawn our sprinklers were running nearly everyday in the summer, when the bill came due at a whopping $2K, we just didn’t have (read: weren’t willing to deplete our savings) the money to pay this. 
• American Express: a joint credit card with my husband for *points*
• Best Buy: 0% financing for 2 years! Awesome, right? Wrong. The minimum payments are geared to pay off in 5 years
• Raymour and Flanigan Furniture: 0% financing for 5 years, scheduled for a 5 years payoff. Not as bad as the Best Buy, but still annoying. 
• Capital One Credit Card: My husband’s credit card, doesn’t really use it but left a balance of about $2K on there. 
• Citizens CC: My credit card which grew to an embarrassingly high balance at the end of grad school due to some very, very stupid decisions I made and again following all the medication for IVF.
• Grad school loans: Not terrible, but terrible. 
• Car payment: Not tackling at the moment
• Mortgage

Now it’s Fall of 2018 and we’re deep into IVF, which in case you didn’t know comes with a slew of drugs partially covered by insurance, but you still have a copay for (some bills were in the hundreds, one was in the thousands). Lots of time these drugs were paid for with a credit card because we had to stretch ourselves thin with all these additional payments we thought we would have paid off in a month. Ugh.

After expressing my concerns to my friend who was married with one child, she reintroduced me to the Dave Ramsey 7 Baby Steps to Financial Freedom. She had told me about him before when she began her debt free journey, but I never looked into it because I didn’t have too much credit debt, my debt was “good” debt like student loans and a mortgage. Yeeaaa, there’s no such thing as “good” debt and I regret not researching this years ago when she mentioned it. But this time, I was sold.

If you are not aware of the baby steps these are them and the ideals behind them:

1. Save $1000 Emergency Fund
   • According to Dave Ramsey you need roughly $1,000 for an emergency to prevent from going further into debt if you have a small emergency. If you know something that is going to cost more than that is coming up, you save more. You can adjust this number higher or lower to suit your needs.
2. Pay off all consumer debt
   • Payoff everything aside from the mortgage. Everything extra in your budget goes toward your lowest debt first*. Once one is paid off you move to the next lowest while making minimum payments on everything else (aka the Debt Snowball). *I have in some instances as you will find out below, paid off a slightly higher debt first to avoid more accrued interest.
3. Save 3-6 months of expenses
   • Save 3-6 months of expenses as your emergency fund so that you don’t have to go back into debt if a true emergency occurs (job loss, death, natural disaster, etc). 
4. Invest 15% in retirement
   • This is of your GROSS income! I will note that neither my husband or I have stopped contributions to our employer sponsored retirement funds because we both have pensions. Do what is right for you! There are plenty of success stories where people do not stop contributing to their 401(k)s, etc. 
5. Save for kids college
   • This is not a set percent or amount, but whatever you can afford ESAs or 529 plans are a great start, but do remember: you WILL retire, you child MIGHT NOT go to college. Adjust as they age and find their calling (or at least something they think they will create a decent career out of).
6. Pay off mortgage early
   • Dave recommends only 15 year mortgages… Well, unfortunately I got to the party a little late. On the plus side, we do not have PMI. We will assess this once step 3 is complete.
7. Give generously
   • When you have no debt you can truly give like no one else! Or so Dave says. I do not know what that means to me at this time. I reckon there will be some soul-searching if we ever… I mean… ONCE we get to this step. 

Armed with my new found ambition, I immediately took to Pinterest to enjoy all of the infographics and read all the success stories. I was a woman possessed!

After reviewing our finances, I made another discovery: we spent about $1K going out to eat in both November and December! I could not believe it. These expenditures ranged from a morning coffee to a fancy dinner out with friends. I was horrified. We decided to focus on our small debts first: the AmEx, Water Bill, Best Buy, and the Capital One credit card, and furniture.

Breakdown:

Debt	Balance
Water Bill	$1644.26
American Express	$911.62
Capital One	$2949.47
Best Buy	$1293.85
Furniture	$2070.48
Total	$8869.68

Step 1: Complete

Fortunately, we had over $1K in savings so we already accomplished baby step number 1 and could move right on to #2. I also implemented a spending freeze where we only bought essentials. This meant being diligent about meal prepping and not going out. Not going out was suddenly very easy, I was pregnant and didn’t want to tell anyone yet, so this seemed very easy (remember, we’re still at the beginning stage!). We made one very important discovery in our budget –  my husband’s paycheck would cover all our bills as they currently stood with a little wiggle room! Every week I could pay the upcoming bills and we would have my paycheck alone to grocery shop and pay down any additional debt. 

In the first week alone we moved all monies over $1000 from savings and used money from my check to completely pay off the water bill! It felt amazing to have one debt gone so quickly. We chose to start with this bill because it was the most annoying to me. I know, it’s not the smallest, Dave says to start with the smallest. But! The monthly payment for the water bill was $250, and that just freed up $250/month to throw at the next smallest debt. New total: $7,225.42

We were already half way through January and I was feeling the relief. We definitely struggled, we were so used to convenience before we had some slip ups throughout the month. For an entire week my husband bought coffee, and we even let ourselves buy coffee on the weekends (a big no-no we later learned). Meal prepping didn’t go well one week and I was buying lunches. But by the end of the month, the AmEx was halfway paid off hovering around $500! 

Then, we got our taxes done!!! The first week of February was amazing, we did our taxes that weekend and we knew what we were getting back and that we were throwing it all right at our debt. It was a good feeling. 1-2 weeks later we received our return and were able to pay off the American Express, Best Buy, Capital One, and more than halfway pay off the furniture.  I know, I know, the furniture debt is smaller than the Capital One, why did you do that? Interest. The furniture is a no interest loan designed to payoff within the no interest time period. New small debt total: $704.32

I felt like I could breathe again! It was a great feeling. We continued our spending freeze into March and were able to pay off the remaining $704.32 March 27th! 

There were so many lessons learned and things we changed during this time period, I will cover them in another post! 

Now to tackle the large debts!