When my husband, Robert, and I got married, we each brought a substantial amount of debt into the marriage. For us it was a mortgage, a car loan, loans from each of our graduate school educations, and college loans for me. Luckily, we didn’t have any credit debt and we each had good credit histories and were responsible to pay our required payments each month. But we didn’t want to keep paying a large percentage of our incomes to debt every month endlessly. So we made a plan to get rid of all the debt (other than the mortgage) as soon as possible. We originally thought we could have all but the biggest loan paid off by September 2013 but instead we got all of it gone by that same month!
We were married in November 2011 and as soon as the dust had settled from the amazing wedding, the funky honeymoon (plans fell through on the way to our tropical vacation, so we had to settle for Texas) and the seasonal holidays in January 2012 we got to work paying down debt as fast as possible. We decided to strategize using the Financial Peace Method by Dave Ramsey. I had taken the course myself as a single woman in 2009 shortly after finishing graduate school. When we were married, I shared the course information with Robert and we decided to follow Dave’s methods.
While conservative, Dave’s Baby Steps do work. For debt payoff in Step Two, Dave encourages the snowball method which has you paying minimums on all your debts while throwing all extra money into the smallest debts (regardless of interest rates) one at a time till they are gone. This gives you a feeling of winning financially because it not only reduces your total debt burden each month but it also gives you something to celebrate on the short scale. We definitely recommend it because we were celebrating paying off small debts every few months instead of spending a year just going after a big one. Some would argue that the avalanche method (largest interests down in order) is better financially, but for us we just couldn’t beat the psychological pride and encouragement of accomplishing each goal and we believe our small successes spurred us to work harder and faster to be rid of all the debts. There is a study proving what we noticed too http://www.kellogg.northwestern.edu/news_articles/2012/snowball-approach.aspx.
How We Did It
Beyond coming up with a monthly budget each month, cash budgeting was the best thing we ever did. We didn’t even start cash budgeting till summer 2012, six months into our debt free journey. We had both been working and all of my income was going into our loans as we lived on a budget based solely on Robert’s income. But I was preparing to stay home with our soon-to-be-born son. Robert asked to try cash budgeting for one month. We attempted it and found we put more into debts on his one income than we’d ever done on two incomes. Even now, debt free with a baby, we still cash budget.
Our cash budget was pretty minimal because we delayed purchases that didn’t line up with our debt free focus. As newlyweds we didn’t go out and re-decorate the whole house no matter how much I wanted to do so. We didn’t buy a second car, I took the bus or we just arranged days for each to get the car. We avoided shopping as much as possible, even sales items add up. For example, ten purses at garage sales for $10/each is still $100 even if it’s not a single $100 purse. We made our wardrobes work for us as much as possible. There were countless other choices we made that helped us stay focused on our goal and focused goals succeed better than scattered ones.
Eating out of the pantry every few months helped really move the budget and debt snowball. Most homes in America have full freezers, fridges, and pantries and I learned to be an expert at meal planning from what we had. It’s become quite a cool skill actually, friends ask me to look at what they think has no meal possibilities and I can usually come up with 15-20 tasty and unique, but not weird, meal ideas out of food they have on hand.
We lived below our allotted cash budget as in we’d set a monthly cash budget each month for needs and small personal slush budgets but most months we’d stay well below that number so we could be debt free faster. But every few months if our below-budget number felt too small we could loosen back to the original goal mark and feel like it was a splurge (though a well set budgeted splurge).
Lots of conversations about money, debt, budgeting: Many marriages are made harder by troubles talking about money together. and now we feel like money-talk marriage professionals with each other. Before every month we’d sit down and plan/guesstimate unique budgeting for that upcoming month, this includes regular expenses (like this month we had a vacation, two baby showers, and the Washington State Fair I wanted to attend). We’d also check our food status to see if we could live out of the pantry and buy very little groceries that month. Then we’d determine our cash system from there and check all balances of savings, giving, debt payoff, retirement, etc.
On September 15th we sent the last big payment off thus closing the last of our accounts with Ford Motor Company (see Robert holding the title to our car that is now in our names), ACS Loans, and Sallie Mae! We’re not ready to go crazy with spending just yet though, since we still have more baby steps to complete on our path to financial independence but having the school and car debts gone is a big weight off our backs. We now own our own educations and our car, it is a great feeling. We are certainly grateful to the companies that loaned us money for school and the car but we are glad to say goodbye to them now too. We are two excited folks about the next step in our financial journey together!
***You can take Financial Peace University yourself too. In fact, we are teaching a local class that just started last week and still has room for more members and guests (http://www.daveramsey.com/fpu/locations/org/47172/class/240282/atid/m_mi) Even if you have different debt or more or less than us or a worse credit score or financial history, Financial Peace has tools for every situation to help you gain control of your finances.