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I don’t talk about debt very often due to the fact that I was fortunate enough to avoid it. However, I do understand that debt can crush people and leave their financial houses in shambles. That’s why I decided to bring in someone who faced the debt head-on and eventually persevered with her debt payback strategy.
Today’s guest post is from Ashley with Budgets Made Easy. She was able to pay off $45,000 in 17 months. Now, she helps people budget their money so they can pay off their debt. You can follow her on Facebook.
How It All Started
My financial journey really began, like everything else, as a young child. I was raised by a single mother in a low-income household. I saw and lived through the struggles. I knew I didn’t want to live like that again. So, as I got older and started working, I tried to manage my money. What I didn’t know at such a young age was how to avoid debt.
I thought debt was a normal part of life. I went into debt at just 16 years old for my first car. Which I only paid $900 for and it was a 1974 Chevy Nova. It was a piece of crap but it was mine and I loved muscle cars. I now have a 1968 Chevy Nova that has been completely cashed flowed.
My freshman year of college, I learned that the place I had been working for the past 3 years was shutting down. It was my first and only job I had. I had an even bigger car payment, car insurance, and a cell phone, I was paying for at that time. I was scared and didn’t know what I would do. I think that really started the seed for not wanting to have any debt.
Fast forward a couple of years, I moved across the country to live with my high school sweetheart. We made some big financial mistakes over the years but the important thing is that we learned from them.
We got married and bought a home before the recession hit. It was a home we really couldn’t afford at the time and I see how the whole housing crisis happened! We moved from our starter home after 7 years and bought our dream home. I was working as a police officer and my husband had a stable job. We were able to save money and had good credit, so we thought we were doing good.
The new home had an in-law suite that was separate from the rest of the house and really didn’t function for our family. So, we followed the advice given to us and used a 401k loan to finance a home remodel. This was one of the worst financial decisions, we have ever made. That 401k loan will cost us $1,000,000 by the time we retire!
Fast forward 4 months and my husband got laid off from his job. We just had our 2nd child at this time. We had enough money in savings to be okay for several months and he was getting a severance package. It was stressful but it was made easier since I was naturally a saver.
Then a couple weeks later, we got a letter in the mail saying we had 90 days to pay back the 401k loan since he was no longer employed. Well, it’s hard to come up with $20,000+ without a job.
The following year, we found out that since we didn’t payback that 401k loan, it was now taxable income. Given the amount that the loan was, it bumped us into the next tax bracket also. This was the turning point in my financial journey.
Taking Back Control
We put the balance we owed to the IRS on a zero-interest credit card. At that time, it was another lessoned learned and I moved on. Well, until the credit card payment came due the next month. For whatever reason, I didn’t think there would be a payment due since we had 18 months without interest. I know that was stupid, but I really didn’t think about it. I didn’t have that payment in our budget and realized I didn’t have a plan to pay it off before interest accrued.
I then started searching for debt payoff plans and discovered Dave Ramsey. This would forever change my life for the better. I ordered the Total Money Makeover and read it in 2 days. I was instantly hooked.
I got to work on making my budget zero-based and paying off debt. We already had an emergency fund so I was able to jump right into paying off debt. We were able to pay off all of our consumer debt, $45,000 in just 17 months! This included the credit card for the IRS, a vehicle, and my student loans.
I was intense about it and wanted it gone as soon as possible. I even figured out how much I was paying every day in interest on my student loans to keep me motivated. When we got to my student loans it was almost $5 every single day. It was the largest debt at $25,000 so it took the longest. I had graduated college 10 years before this and had only paid off $3,000! It was motivating to me to see how much I was saving every day since the balance was so big. It took us 10 months to pay off that student loan.
Once we were debt-free, we kept having one emergency after another come up. We lost a lot of momentum and it took us longer than planned to save our 6-month emergency fund.
We finished our emergency fund right as we had our 3rd child and I quit my job. We are now saving for retirement, kids college funds, and hopefully paying the mortgage off early. This pay year we have had some big expenses and haven’t been able to save as much as we would like. However, we still have a 6-month emergency fund and are on the right track. As I start earning more money from my home-based business, we will be able to fast-track our plans. We are still making progress even if it has slowed down since our financial situation has changed.
My advice to you is to believe you can do it because you can. I grew up poor and didn’t have the first clue about managing my money. I worked as a police officer until my 3rd child and was still able to become debt-free and save money. You do not have to come from a wealthy background or make a huge income to be financially free.
Just believe that it is possible and you will find a way to do it. Write your goals down with a timeline then figure out what needs to happen to get there. Did you know you are 1.5 times more likely to achieve a goal if you write it down? Just start and keep going, you can do it too.
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