DEBT ROUNDUP

Over the course of about 20 months DH and I paid off about $31,000 of his personal credit card debt (More about that HERE and HERE). I mentioned in my 2nd Post that I started listening to Dave Ramsey's podcasts. After hearing the DEBT FREE SCREAMS, featuring listeners who call in to shout out loud that they're finally debt free except for their mortgage, the light bulb went off in my own head. For the first time in my life, I was ready to put a stop to my consumerism lifestyle and to DH's mindset that debt is a part of life.

After a full week of listening, I went home one day in mid January and told DH we should get rid of all our debts. I explained that this would require suspending all savings to our joint account for the period that we're paying off debt and throw all extra cash towards debt. He didn't share my excitement because he likes the idea of seeing money accumulate in a savings account. But it doesn't make sense to stockpile cash that's gaining no interest while interest rates continue to ravish our debts. He simply said "I'll think about it". Determined not to lose focus, I kept listening to the podcasts and after hearing more stories of sacrifice to pay off debts, I approached DH with a more compelling argument.

The second time around, I pointed his attention to his $90,000 total debt baggage from credit card, school and car loan. He disagreed and called me CRAZY because he assumed the figure was a lot less. When you spend your life swiping credit cards and signing loans without calculating the total weight of debt, you tend to believe you're in control because you make your payments on time. Most people never do a DEBT ROUNDUP but when they do, they quickly realize the damage of past decisions. Armed with the one trusty method that NEVER lies, I pulled out a spreadsheet adding up his total debts since we've been married. The look on his face was quite sobering. The next day he said "Let's just pay off everything....I'm tired of being a slave to debt". That conversation was the catalyst to a future of financial accountability and better money management.

As of today, our DEBT ROUNDUP total stands at $62,570.33. This amount consists of all debt including credit card, school loans and car note but does not include our mortgage. Our goal is off this debt in 12 months. While Dave Ramsey motivated this plan, we'll be veering off his suggested Baby Steps. Let's take another look at the sequence of the Baby Steps:

  • Baby Step 1 - $1,000 to Start an Emergency Fund
  • Baby Step 2 - Pay off all Debt except the house using the Debt Snowball
  • Baby Step 3 - 3-6 months of monthly expenses in savings
  • Baby Step 4 - Fund retirement accounts using 15% of household income between 401K, Roth or Traditional IRA
  • Baby Step 5 - Establish college fund for kids
  • Baby Step 6 - Pay off mortgage early
  • Baby Step 7 - Build Wealth and Give

DH and I are a bit out of sorts on the order, having all the steps completed except Baby Step 2 and Baby Step 6. First of, DH and I are Christians who believe in tithing. I've heard all the arguments against it and I understand why some people feel the way they do. But it doesn't change the fact that we tithe. I go a step further and I consistently tithe up to 15% of my income. That giving covers Baby Step 7. We own and live in a multi-family property which means that $1,000 is barely enough should one of our tenants fall on hard times and isn't able to make their rental payment. As a landlord, those unexpected curve balls can happen like when the balcony on our master bedroom collapsed last summer and fell directly on top of the balcony on the first floor. That's 2 balconies that need replacement and repair. So we keep a lot more than $1,000 on hand.

Listening to his podcasts, Dave Ramsey suggests temporary suspension of any funds going into retirement or college accounts. We've decided not to suspend either because we are late starters in focusing on our retirement and we're in our mid 30's. Lastly, we've decided not to suspend 529 contributions for my LO (Little One) because I'm determined to NOT let him pay the price for our poor decisions over the years. My responsibility as a parent is to plan and secure his future no matter the cost and I take that very seriously. I know the math makes more sense to throw as much cash towards debt to reduce interest, but so far our investments have outpaced our interest rates. We're also conscious of the fact that we can't predict future returns of the market. So the plan is to continue our respective retirement contributions, continue to fund 529 and use every dollar left over after expenses to aggressively pay down our debt. 

I'll provide a monthly update in our debt repayment journey.

 

Have you conducted a debt roundup? How prepared are you today to start aggressively paying off all debts ?