The hardest part of approaching the finish line

Our debt free journey has been a long one. We started our journey in 2008. It’s been a long seven years. Now that we are approaching the finish line, we have also entered the most difficult part of the journey, making it to the end.

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We started this marathon with over $220,000 in debt. We have paid off over $158,000. It started slow but as we cut our budget and increased our income, we started making huge progress. We faltered a bit after we paid off the credit cards but we got back on the track and started running again.

We have $62,071.23 left and it is becoming more difficult to stay motivated.

When we started our minimum required payments were over $2,000 per month. That was a tremendous amount of money, especially since we were making about half of our current income. Today, our minimum payments are $436.48.

It’s easy to get into a false sense of security. When I make those large debt payments every time we get paid, I think of all the things we could do with that money. $436.48 per month isn’t a lot. We could swing that even if one of us lost our job. We should ratchet up our savings, go on a trip, buy my husband a car. There are so many things we could do with that money rather than sending it to the stupid bank.

Then I remember the outstanding balance. $62,071.23 hanging over our heads. It’s like a weight holding us down. While $436.48 doesn’t seem like a lot of money, $62,071.23 sure is. It’s keeping us from fully following our dreams. It is risk that we just don’t want to have.

Next to my desk, taped to the wall is our debt snowball from when we got back on track in August 2013.

Debt snowball

 

It is a reminder every day to keep me on track. It not only reminds me where we are now, but also where we have been and how far we have come.

While I enjoy the sense of security that I have from paying down the debt, I’m fairly certain that I will love the sense of security when that debt is completely gone.

 

End of the year financial review for 2014

There is nothing like a year end review of your finances to give you a bit of a heart attack. This morning, I went through all my old budgets to calculate how much we’ve paid in debt and interest in 2014. It’s interesting to get an annual view, especially when you are making goals for 2015.

If you want to do your own review and don’t have budget sheets handy, just go back to you bank statements and add up all the payments you made to creditors. If you check your final statements for 2014, they should list how much you paid in interest to each of those creditors. Since we only had four debts left in 2014 and three of them are involved with our taxes, I needed to get those numbers anyway.

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Last year, I didn’t do a full debt roundup but I did calculate the amount of interest we paid in 2013: $6,990.

So how did we do in 2014?

In February, we paid off my car. Total paid on the car in 2014: $10955.80.

In June, we paid off my husband’s student loan. That month our total debt dropped below $100,000. Total paid on Jeff’s student loan in 2014: $21,433.32.

In July, we started hammering away at the home equity line. My goal is to have that paid off by the end of February. Total paid on the home equity line in 2014: $31,772.60.

If you include interest, we paid $71,352.98 on four debts. We paid $5,418.56 in interest. That means we paid off $65,934.42 in debt in 2014.

When I first looked at all of those numbers, I was a bit shocked. That’s a LOT of money. We also did some work around the house, had some significant car repairs, paid some vet bills for one of our cats, made some investments in our business, made our tax payments, and increased our savings a bit. We were able to do all that and still pay almost 52% of our take home pay in debt payments.

This also helped me confirm that we can pay off our remaining debt in 2105. Our current balance is $64,504.21. That consists of $15,649.97 on the home equity line and $48,854.24 in student loans. If we were able to make $71,352.98 in payments in 2014, we should be able to do that again in 2015 as long as I can find another teaching contract or find other ways to increase our income. We are already looking at the later just in case another teaching contract does not come through.

This has also made me start thinking of all the awesome things we will be able to do once we are debt free. We should be able to pay off the house in a few more years. We will be able to increase our retirement contributions and give more. We will also be able to start traveling again.

While these numbers gave me a few heart palpitations, they also gave me hope for the future.

Have you done a financial review for 2014? Have you made financial goals for 2015? 

Life after debt

Today’s post is written by my friend, Camilla Kragius, author of the new book How To Get Out Of Debt Living Paycheck to Paycheck: 9 Simple Steps to Financial Freedom. Camilla is a challenger of the status quo who wants you to leave your comfort zone and start living! She loves to travel, go on adventure and inspire others to work on their goals and dreams. She writes about life, productivity, finances and ways to get off the traditional path. She lives in Utah where she spends her time playing in the outdoors. You can find her at No More Hamster Wheel and The Traveling Swede.life after debt

Do you work?

That’s a question I get surprisingly often. To a lot of people my life must look like one long string of play and fun. And for the most part it is. But it wasn’t always that way. For a long time it was a long string of stress, sleepless nights and regrets thanks to debt. A lot of it.

At first it was manageable. I mean, everyone has debt, right? That was the lie I told myself. I didn’t grow up being told debt was normal so I tried to find an excuse.

Then as time went along the debt increased, decreased and increased. Many of you recognize the yojo-ing when it comes to debt. You get smart and start paying things down. Then you get tired because you don’t see much change so you give up because you feel as if you are just spinning the wheel going nowhere.

So you head back to the mindset that minimum payments are part of life and one day something miraculously will happen like a mega bonus at work or even better a mega win on the lottery. Because after all, something that drastic might be the only way out. I used the excuse that if I only made more money I would be able to pay off my debt. Well, I didn’t have an income problem. I had a spending problem.

Without a change in mindset sooner or later you hit rock bottom and you are down to three choices. Declare bankruptcy, go homeless or find a way to pay it off. The first two didn’t sound like fun so I choose the latter. It wasn’t particularly fun either.  I think having the stomach flu for a month would be compare.

But I’m here to tell you it’s worth it. Every single day I’m so grateful that I made the decision to get out of debt. Today I have freedom. I can travel, spend time with friends, go places, enjoy life. Can I do everything I want? Of course not but when people wonder if I work it’s a great testament to that I’m living a life that looks like I’m not working because the financial freedom I now have allows me to play a lot.

So on days when you feel as if you are stuck spinning the wheel going nowhere tally up how much money you will be able to put into your savings account once you are done paying off your debt. Then visualize yourself getting off the wheel. Because once you are off a whole new world opens up. A world where people will ask you “Do you work?”

Note from Kristin: I am so excited to get where Camilla is right now. Do you want to get there too? Check out Camilla’s book How To Get Out Of Debt Living Paycheck to Paycheck: 9 Simple Steps to Financial Freedom.

4 reasons to not use credit cards

Today’s guest post was written by blogger, Jana Lynch. Jana and I are both living a very counter-culture lifestyle and loving every minute of it.

Photo by Daniel Oines

Photo by Daniel Oines CC

 

Confession: I don’t use credit cards. Neither does my husband. We survive fine, too.

We stopped using them about seven years ago when we decided to pay off all our credit card debt. We realized how out of control we were when we used them, and we realized we couldn’t be trusted with them in our wallets. It was how we got into debt in the first place.

At first it was difficult; we had become accustomed to charging any and everything and using cash or our debit cards seemed…weird. But we knew what we stood to gain if we refrained from using them so we stood firm in our resolve. It worked, too, because we paid off our credit card debt and have managed to remain that way for 3 years. And, seven years after our initial commitment, I’ve realized that, in addition to the debt, there are a few things I don’t miss about credit cards.

For instance:

  1. Having a bulky wallet. Carrying all those cards around bogged down my wallet and made my purse heavier than it needed to be. I’m pretty much resigned to having a ridiculously large mom purse, but I can slim down my wallet. Now I can find all the important cards (like my insurance or library card) when I need them and my purse is lighter.
  2. All those bills to pay and fees for late payments. I am not the most organize person and, even with having a list of bills written down, I sometimes manage to forget one. When I had credit card debt, it was more bills to remember to pay and not paying those had serious consequences. Plus, I’m fairly lazy and want to spend as little time as possible paying bills. Without the credit cards, that happens.
  3. One less worry about ID theft. Last year, my alma mater’s system was breached and identities dating back to when I was in school (mid-late 90s/early 00s) were compromised. Then there were all those breaches at Target and other stores I can’t think of right now. Not having credit cards, and not having to remember which card I used at which store, gives my paranoid brain a little peace of mind. It’s one card to keep track of, and it’s a debit, so I know instantly if there’s a problem. No waiting for a statement to figure that out.
  4. Less bills to pay. I’ll admit that I am not great at remembering to pay bills on time. I have the majority of our bills set up for an autodeduction and the ones that aren’t (utility bills) get paid once a month, on one particular payday. When there are credit card bills due, it’s one more thing to remember to pay, it’s more money going to someone else than staying in my account, and it’s one more chance to make a mistake that might, quite literally, cost us. Without them, it’s easier to pay the bills and I’m more efficient. Plus, the extra money helps out with other expenses.

This is not to say that credit cards are evil. If you can use them properly, then have it. I just know, and have a proven track record attesting to it, that I can’t. So I stay away.

Getting out of debt, and getting credit cards out of my life, was one of the smartest choices I made. And while it’s not easy, refraining from credit card use, I do it. I would love to walk into a store and buy all the things and not worry about how I’m going to pay for them that day. But I also know the stress it’ll cause isn’t worth it.

So I keep the credit cards at home, locked away.

Everyone is better off.

How about you? Do you use credit cards? Why or why not?

Jana Lynch is a blogger at Jana Says, where she talks about everything from parenting to pop culture to mental health issues, and runs the blogger mentoring program Bloggers Helping Bloggers. You can stop by and say hi on Facebook, Twitter, Pinterest, and Instagram.

 

What Is Killing Your Ability to Dream?

What is killing your ability to dream?

This morning, my husband and I were running errands and chatting about our hustles. Jeff is working on a podcast, new website and finishing up his first book. I am working on this site and my new site, Accounting In Focus. All this is in addition to our day jobs and side businesses. We were sharing ideas and updates when something struck me.

I don’t think we could have done this five years ago.

Five years ago, we were drowning in debt. We could barely breathe, let alone dream. We were at the bottom of Maslow’s Hierarchy of Needs.

Abraham Maslow studied individual’s needs. His research is the basis for the Hierarchy of Needs. In short, Maslow’s research stated an individual’s needs must be met in a certain order before moving to the next level. A person will strive to meet the level of need and once those are fulfilled, he or she will naturally move to the next level.

First we must fill basic needs: food, shelter, and other basic survival needs. Then we move on to safety needs, like security and stability. I believe debt falls into this second stage because debt typically hurts our security and stability. It causes risk in our lives. While we have debt, it is hard to move on to the higher levels of the Hierarchy.

Esteem needs are those like achievement, mastery and self-respect. This is typically where we start to dream. Self-actualization is the point at which we start to realize our full potential and seek to grow. If dreaming and realizing those dreams is in the top two tiers of the pyramid, could debt be crushing those dreams?

In our case, I believe it’s true. As we have paid off our debt and have more security in our lives, we have less stress. Stress is tiring and sucks up a lot of our mental capacity. I remember how tiring the stress was. I remember the all consuming nature of it. It zapped my energy.

While we have not paid off all of our debt, the fact that we can now live on just one income has really helped us feel more stable and secure. It has helped us open our minds to creative projects and personal growth. My husband is writing again. We are both creating again. We are taking in knowledge and improving ourselves. Even though the days are generally long, we are both excited about our projects rather than exhausted from the stress of debt.

Is stress overwhelming you? What is stopping you from dreaming? Have you begun to dream again? What got you dreaming again?

4 Reasons You Should Never Cosign

Has someone approached you about cosigning a loan? Maybe it was your child, a sibling, a parent or a really good friend. You want to help but you shouldn’t. You may not realize exactly what you are on the hook for. Here are four reasons you should never cosign on a loan.

4 reasons you should never cosign a loan

1. The loan affects your credit 

When you cosign for someone else’s loan, the loan affects your credit from day one. This affects your credit in a number of ways, even if all the payments are made on time. The loan will affect the amount of debt you have outstanding, your debt-to-income ratio, and your debt-to-outstanding-credit-limit ratio. The loan can lower your credit score even if the payments are made on time. Even if you don’t borrow money, this could affect your ability to rent an apartment and your car/homeowners/renters insurance rates.

If there are late payments on the loan, those late payments will appear on your credit report. If you cosign on a mortgage or for a car and that asset is foreclosed on or repossessed, you now have a foreclosure or repossession on your credit report.

2. The debt is your debt

When you cosign on a loan, that loan becomes your loan. The reason the borrower needs a cosigner is because the lender does not believe the borrower is creditworthy. Either the borrower doesn’t have sufficient credit or has bad credit. When you cosign, the bank is using your credit to make the borrower creditworthy. Cosigning means co-responsibility. Therefore, the bank has the right to go after you for nonpayment. You can be sued, garnished and have assets confiscated, as if you were the primary borrower.

If you are not prepared to make the payments for the duration of the loan, do not cosign.

3. Your obligation doesn’t die with the borrower

This is the worst part of cosigning. Typically when you take out a debt and pass away, the debts you have would be paid by the assets you have. If there are no assets, then the debts are forgiven. This is not the case when there is a cosigner. The bank will go after you as the cosigner.

At least once a year, I read a story about a family who lost a child and are now drowning in student loan debt while grieving the loss of their child. In the most recent article, the family is struggling with $200,000 in debt while trying to raise their three grandchildren after their daughter passed away. This story is just heart-breaking. I can’t even imagine what these families are doing through.

4. The relationship changes

One of the consequences that we often forget when discussing this topic is the effect that cosigning has on the relationship between the borrower and the cosigner. I have seen relationships torn apart. Thanksgiving dinner just doesn’t taste as good when debt is a side dish. There is a tension that forms, especially if there are late payments or worse. Do not let this happen to your relationships.

We all want to help people we love, but cosigning is not the answer. There are other ways to help. You might be able to work with the loved one to see if there is another option. Many people run to borrowing as the first option but there may be other ways. If you want to help financially, you could give a gift or match funds saved by your loved one.

If you start to feel guilty about saying no, just remember how cosigning can affect your life. Cosigning can burn your credit score, your budget and your relationships. I urge you not to sign on the dotted line.

 

Declare Your Independence From Debt

Life, liberty and the pursuit of happiness. That is what we celebrate this weekend. How free do you really feel with a mountain of debt and monthly payments that keep you from doing what makes you happy?  Are you sick and tired of going to a job you hate? Tired of worrying about how you will pay your bills next week? Enough is enough.

It's time to declare your independence from debt

There is more to life than living paycheck-to-paycheck. There is more to life than sending your hard earned money to a bank each month. It’s time to declare your independence from debt. It’s time to get on a plan and get it all paid off.

Here are a few tips to get you started:

  1. Vow to never again spend more than you make. You can’t win with money if you are spending more than you bring in.
  2. Create a spending plan. You don’t have to wait until the beginning of August. Start with your next paycheck. You can use my 28 day budget to guide you.
  3. Curb your lifestyle. The more you are willing to cut, the faster you’ll get out of debt. Cutting back $25 per week on eating out will add an extra $1,200 per year to your debt payoff plan. Cancelling your cable can save you another $1,200 per year. Where can you cut back?
  4. Generate extra income. Start a side business, work overtime or get a part-time job.
  5. Sell stuff. Have a tag sale, list things on Craig’s List or Ebay.
  6. Get mad. Those that are really successful at getting out of debt get MAD. REALLY MAD. Make a list of all your debts and put it on the wall. Shake your fist at it when you see it every day. The angrier we got about the debt the faster we paid it off.

This 4th of July vow to change your life. Are you ready to get out of debt?

If you are currently paying off your debt, how much debt have you paid off so far? Let’s give some inspiration to those who are just starting.

Why I’ve never been so happy to be $99,604.91 in debt

Why would anyone be happy to be $99,604.91 in debt? That is a tremendous amount of debt. Yes, I know and today I’m doing a happy dance about it.

Last week, I was paying bills after we got paid. I logged into my husband’s student loan account to make a large extra payment. After the loan payment, the amount due was less than $3,000. I started running some numbers in my head. Then I started logging in to check my balances.

  • Husband’s student loan: $2,776.48
  • Home equity line: $46,937.24
  • Combined student loan: $49,891.24

Total debt remaining: $99,604.91

We owe less than $100,000! We owe less than six figures. Now we only owe five figures!

Over the last few months, it’s been harder and harder to stay focused. It probably doesn’t help that I keep getting cruise guides in the mail. It also doesn’t help that all we have left are large debts. There are fewer quick wins to keep the momentum going.

Seeing this was just the recharge I needed. Having to pay off $220,000 worth of debt is a long road. When we first started, it was a huge mountain that I never thought we could climb. The weight of it was unbearable. There were times I didn’t think it was possible.

huge mountain to climb

Then we started to hit milestones. Each small debt was another milestone. Paying off the credit cards was a huge step up that mountain. Paying off the car was another. As the debts got larger, there were fewer milestones and it got harder to stay focused.

This is a marathon. Going below $100,000 was the energy drink I needed to keep running after my legs and back are sore and I just want to get in the hot tub on a really big cruise ship.

I’m hoping to pay off the last of my husband’s student loan this month, then it is going to be a while until we get the next debt paid off. I’m going to be tracking $10,000 milestones to stay focused. The debt free date is getting closer. I can’t wait to reach the finish line. Until I get there, I’ll just listen to this:

Do you track milestones while getting out of debt? If you’ve paid off a lot of debt, how did you stay motivated?

What happens when you get too excited about paying off debt

I’m starting to get excited. Really excited.

We are getting close to paying off another debt, my husband’s last student loan. I can visualize the zero balance. I’m getting super intense.

Too intense.

Last week, I started looking at the budget. We had money left in some of the categories: pets, medical, cleaning supplies, toiletries. I thought about the declining loan balance and got intense. I transferred those extra dollars to the line item for the debt an made a large payment which included that extra money. I had a bit of blow money left over and sent that as well. It wasn’t a tremendous amount of money but all the extra money added together was a nice extra bonus on the debt snowball.

And I forgot to look at the grocery budget. We had $19 left in the grocery budget and it had to last a week. Did I mention I was planning to make my husband’s birthday dinner this week? And we were out of bread. And milk. Oh yeah and Splenda (which we use to make iced tea which we drink every day). And coffee creamer. This was shaping up to be a bad week, especially if I couldn’t have coffee!

I could transfer a few dollars from somewhere to get us through the week. Oh wait. I just sent all that extra money to the student loan servicer. Yup. Bad week.

I was so excited to pay down the loan that I forgot that we might need food. Food is kinda important, right? Nah, it’ll be good for the diet. Yeah, not so much.

Don’t worry. We are not going to starve. I made some bread because we did have flour, yeast and dry milk. I also made some Italian bread. Both recipes were from the The Cook’s Illustrated Cookbook (which is my go to cookbook for just about everything). We had some chicken so I made grilled chicken and pasta.

My husband requested lasagna for his birthday dinner. My pantry is pretty low at the moment so the only thing I had on hand was jarred spaghetti sauce. No ground beef in the freezer. No lasagna noodles. I didn’t even have any mozzarella cheese (we almost always have mozzarella cheese in the house). I didn’t even have milk to make bechamel.

I went to Wal-Mart with my $19 to see if I could pull this together. The priority was coffee creamer, Splenda and lasagna ingredients. Of course, I walk through the door and see the most beautiful bananas that I’ve seen in months. I grab some hoping that there is some way on God’s green Earth that these will fit into my budget. I was fairly certain I was going to put them back. The grocery gods were with me on that trip. I got the last small bag of generic Splenda, which was the same unit price as the large bag but I didn’t have to spend almost half my budget. I also got the last marked down package of ground beef in the store.

With my bananas, the total was $18.68. I got everything on my list and got to take home my bananas. The lasagna was amazing. Husband was very happy about his birthday dinner. We had enough lasagna left over to make a second meal with it which we will probably eat on Tuesday (his actual birthday). I have some cheese left over so I’ll probably make chicken parmesan. We’ll also have breakfast for dinner and probably hot dogs. We certainly aren’t going to starve.

Seeing my grocery budget that low was a bit, no very unnerving. Before sending money to the debt snowball, I really need to slow down and make sure we’ve got enough money in the budget for everything we need. In the future, I’m going to make sure to wait until the last day of the budget before sending extra payments. Well, I’ll try my best.

Have you ever cut your budget so tight you were worried you wouldn’t make it? 

Refinancing your debt doesn’t accomplish much

refinancing doesn't accomplish much

High interest rates suck but lowering your interest rate does not solve your problem.

Your interest rate is not the problem.

Your behavior and your debt is the problem. Lowering your interest rate does not make your problem go away.

Just because you lowered your interest rate does not mean that you have accomplished something amazing.

If you have $30,000 in credit card debt at 15% and you lower your interest rate to 12%, you are saving 3% per year or $900. That assumes that you don’t pay down the balance over that period of time. If you are transferring the balance to another credit card, you will typically pay a balance transfer fee of 3%, which means your savings just evaporated.

Don’t get comfortable. GET ANGRY!

The only way to get out of debt is to get so pissed off that you are motivated to act. You get so motivated you stop going on vacation. You get so motivated that you stop eating out. That is the way to get out of debt.

Let’s say you are currently paying $500 per month on your $30,000 in debt. It will take you 9 years to pay off the balance and you will pay $25,798 in interest!

What if you put $1,500 per month on the debt? You could pay off the debt in 2 years and save over $20,000 in interest charges.

Here is where things get interesting: Let’s take $500 per month and put it into an investment for 7 years after you pay off the credit card. So instead of making payments on your debt, we are now investing the money. Remember, this is just the original $500 per month you were paying on the credit card before you kicked things into high gear. This is only for the seven years that you would have made the credit card payments. In 20 years you would have $295,800.

In 30 years, you would have over $900,000! All we did was invest the $500 per month you would have been paying to the credit card company. Working hard for two years to pay off your debt results in you almost being a millionaire.

People, this is why we need to get out of debt!

Get mad. Get motivated. Get moving.

P.S. If you kept making the $500 payments for the entire 30 years, you would have $1.6 million. There is no reason to retire broke. Want to run your own calculations? You can use this calculator at DaveRamsey.com.