*This is Part One of a multi-part series on how we eliminated our debt.
I want to start with a little background about Mr. Bug and me. We were not always as diligent with our money as we are now. We made a lot of mistakes throughout our 20s which led to us having a lot of debt when we got married. I wanted to write this post to show people that while you may be swimming in debt and think you can’t get out of debt, it IS possible if you put your mind to it and actively work at it. Will it be easy? Heck no! But, to go head to head with the debt monster and come out victorious and debt free is the most rewarding feeling! To know that you don’t owe debt to any lender and that you aren’t paying on student loans 20 years after graduation, there truly is no better feeling.
Mr. Bug and I got married in 2009 and while it was a very exciting time, it was also a very stressful time. When we got married, we each had personal debt in the form of consumer debt and student loans plus the expenses of our recent wedding. I remember sitting down to pay the bills shortly after the wedding and trying to decide which bills we could NOT pay that month because there simply wasn’t enough paycheck to go around.
Shortly after saying “I do”, we decided to have a powwow and sat down to take a look at where we were with our finances and boy was that a wakeup call! The grand total? $64,000 IN NON-MORTGAGE DEBT!
Here’s the breakdown:
So, what do you do when you realize you have $64,000 in non-mortgage debt? You stop digging yourself into a hole and start fighting the debt monster! We immediately stopped charging everything and decided to tackle the consumer debt first. We combined several of the small consumer debts into one big loan by opening a new credit card with 0% interest on cash advance balance transfers. The balance we transferred was $12,000 and we had to pay a 3% transfer fee. The charge for this was $360, which is a heck of a lot less than the interest rate we were paying on the other cards (an average of 15% between the cards!)The consumer debt listed above is from credit cards and personal bank loans. The auto loan is for a car Mr. Bug purchased when he moved to the US from Germany. The student loan is mine, the combined remaining balances on my undergraduate and MBA degrees. We did not add the mortgage on here. If we add in the mortgage, that’s another $130,000 of debt for a GRAND TOTAL of $194,000!
Once the highest interest rate debts were transferred to the 0% credit card we paid the minimum amount required on that card each month and turned our sights to the remaining credit cards that we didn’t transfer. We chose the one with the highest interest rate and that was the one we worked to pay off first. We would pay the minimum on all other monthly payments and whatever was left over from our paychecks was paid towards the highest rate card. We only paid extra on one debt at a time, so we could pay chunks and knock it out as soon as possible. Once the highest interest one was paid off, we went to the next highest interest one and so on and so on until all of the interest bearing cards were eliminated and then we focused on the 0% card.
When you pay a chunk towards debt, there isn’t a lot of money left from your paycheck to live off of at the end of the month so we had to find creative ways to entertain ourselves and to save money. A great way to do this is to organize game nights with friends. Grab some cheap wine and beer (there are plenty of good wines for under $10 a bottle), pick up a $5 take away pizza, and you are set for hours of entertainment!
Cutting down on your grocery bill is a great and easy way to save money. We used to get all of our groceries and household items from Walmart. When we were there getting groceries, it was very easy to be tempted to buy things that weren’t on the shopping list and the totals added up. We switched to getting groceries at Aldi (Aldi being a German company and Mr. Bug being from Germany really helped with this) and completely stopped going to Walmart for groceries. We only went there for household items and would ONLY buy what was on the shopping list. At Aldi you can get so much more for so much less money. It was a win win!
Mr. Bug and I are not big into cooking. We love to eat out so this was where a lot of our money went each month. We found a great to save money and we could still enjoy eating out, just not as much as we used to. When we did go out to eat, we would split a meal. Almost all restaurant meals are gigantic anyway so they are perfect to split and we were still able to go out to eat and not feel deprived.
In the first year of our marriage, we were able to pay down $10,000 of debt.
It took us five VERY long years to dig out of this giant mess of debt. We would get ahead and pay off a credit card and knock down the total amount of debt only to have a life event occur that would derail us and increase our debt some more and then the vicious cycle would start all over again. Sound familiar? It’s Murphy’s Law.
My biggest piece of advice would be to not get discouraged and to keep at it because eventually you WILL see a light at the end of the tunnel and be able to rid yourself from the debt monster.
Stay tuned for the next part of this series which talks about how we were able to turbo charge our debt payoff.