Our Debt Free Family

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We Are Officially Credit Card Debt Free!

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credit card debt free

COVID-19 definitely put a damper on our family’s debt freedom journey (at first). However, my husband has since gotten a new job and we encountered some windfalls that have allowed us to pick up some of the slack and refocus on our debt-free goals. Now, (insert trumpets) we are credit card debt free!

Being Credit Card Debt Free

Prior to this, we had about $2,000 in total credit card debt. We only had about $500 left to pay off though. So, once we got a windfall, we paid off the last account balance of $498.21, and just like that, we are free of credit cards once and for all.

Honestly, it feels pretty weird! I know it will take of lot of dedication to continue being credit card free. Now, we are one step closer to financial freedom and the ability to put that money towards other debts.

What’s Next

And that is exactly what we have planned next!

Because we no longer have credit card debt to pay off, we are going to refocus that money on paying off the tool loans, the car loan, and student loans. To do this, we are going to focus on them in this order…

  • Tool loans – roughly $10,000 owed
  • Car loan – $19,216 owed
  • Student loans – $24,185 owed

Once these things are severely paid down, we will focus on paying off tax debt and getting any other financial needs situated. Now, you’re thinking, how long will this take?

I’m hopeful it will take us between two and three years to be debt-free. The plan is to add some additional funding to our emergency savings over the summer and then attack our debt full-on. Every extra penny we have will go towards paying off each of these accounts (in that order). Any windfalls, such as cash gifts, bonuses, and over time will also go towards debt repayment.

Once we are debt-free, we will be looking to buy a home. Initially, that will be more debt, but because we are going to be financially free, it will be easy to swiftly pay the house off. Being credit card debt free has us both optimistic and thinking about our debt-free future! Readers, how did you feel after paying off all of your credit card debt? 

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Should You Invest To Pay Off Debt?

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Invest to pay off debt

Investing while you still have a debt to pay off is a controversial topic amongst debt-free communities. However, many people still find it difficult to climb out of the debt holes they’ve dug. Many have to search for side jobs, part-time gigs, and other ways to pay off what they owe. In some cases, individuals have started to invest to pay off debt. Is this a good way to reach financial freedom?

Investing When You Have Debt

If you follow the teachings of Dave Ramsey or any other debt-freedom-focused financial advice, you know that most don’t recommend you invest at all until all your debts have been paid. This is typically because the quicker you pay off your debt, the sooner you’ll be able to put all of your extra resources into investments, retirement planning, and other financial goals.

In fact, paying off your debts early may be one of the best investments you can make. Paying off your mortgage early, for instance, has a guaranteed return on investment. You’ll save money on interest. However, the same guaranteed return isn’t there when you are investing. In some cases, you may even lose money that you couldn’t really afford to (especially if you are holding debt).

Should You Invest to Pay Off Debt?

I frequent the debt-free subreddit looking for good advice and interesting topics. One Reddit user took to the forum to ask others about their thoughts on using investments to pay off debt. Essentially, they were wondering if they could invest to pay off debt, meaning they wanted to make minimum payments on their debts while using any other money to invest in the stock market. Then, eventually, they’d cash out and pay their debts in full.

Most, if not all, Redditors advised against doing this. Here’s why…

  1. Your investments won’t outpace the interest on your debts. You’ll wind up paying way more interest over time if you are waiting for investments to grow.
  2. Holding debts while you try to invest is counterproductive. Investments can provide good passive income and even help you prep for retirement. Unless you pay your debts though, you’ll still be in the red.

So, all in all, it isn’t advisable to invest to pay off debt. Instead, use all of the “extra” money you have to snowball your debts. Once you’re finally debt-free, then look into investing your money.

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Learning to Live on One Salary

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live on one salary

In my last update, we celebrated having paid off $20,000 or so in debt within one year. However, there have been a lot of changes with our cashflow in the house that has hindered the speed of that continuing. Mostly, we are down to one (main) salary.

My husband is breaking off on his own a bit and has been considering starting his own business. Because of this, cash flow on his end hasn’t been consistent. We’ve lived on one salary multiple times in the past, but every time it is different. Here’s how we’ve learned to live on one salary (and benefits of doing so).

Learning to Live on One Salary

Living on one income isn’t as hard as it sounds. First, you have to come up with a budget that only requires a single budget. For us, it is my income because it is more stable. Your family may want to choose the larger (or smaller) income, depending on your financial goals.

If you are over budget when you tally up your expenses, see where you can cut costs. Do you really need Hulu, Amazon, and Netflix? Or, if you’re looking for a bigger decrease, consider downsizing to a smaller home to better fit your new one-income budget. Others may find it beneficial to move to a more pedestrian-friendly area to cut down to one (or no) car payment or walk more places. If you’re comfortable doing so, you may even consider taking in a roommate or renter.

Consider giving up your indulgent behaviors like going out to eat, junk food, and other items as well. You certainly don’t need to eat out every Friday and spend tons of money on junk foods. This will help cut down the cost of food in your budget as well.

Why You Should Live on One Income

You’re probably thinking, why would anyone willing to live on a single income? It can be difficult and, at times, hinders you from being able to do everything you want to. It can also help you achieve some of your financial goals and feel more secure with your finances as a result.

  1. It makes saving money easier. Simply save your spouse’s income instead of spending it. If you can live on one income, why not bank the rest? You can create a strong emergency fund.
  2. You can use the cash for debt repayment. If you want to focus more on your debt payoff plan, living on one salary can make that more doable as well. Learn to live on one spouse’s income, then use the second to pay off what you owe.
  3. Financial security increases when you have a surplus of cash flow. You have more money than you need, why wouldn’t you feel more secure? You have the ability to invest in your future, pay off debt, and increase savings. It can truly pave the way for financial freedom.

Not to mention, if you live on one salary, you will always be ready if something happens to one of your jobs. You’ll have some savings, and you will be able to continue your current lifestyle until your spouse finds a new job (or starts earning more).

Our Debt Freedom Progress

live on one salary

So, while we are adjusting to living on a single income again, our debt freedom progress has been slow. However, today we paid the final $175 payment to completely pay off a credit card. That will free up an additional $175 for us each month to redirect towards other debts and savings.

In the next few months, we will be paying off other accounts and see our debt freedom progress continue. I will be in a wedding in October, which will be a small cost (around $200 total). We have prepared for that cost though. Both of us are planning to spend the holidays at home as well, to cut down on travel costs.

Readers, have you lived on one income? Tell me about your experience in the comments!

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Here’s How to Gauge How Long It Will Take You to Pay Off Debt

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how long to pay off debt

Anyone who has tackled paying off their debt knows having a timeframe doesn’t always work out. However, having an idea about how long to pay off debt can help drive you to meet your financial goals. Luckily, there are plenty of tools to help you put a finish line in your sights.

How to Determine How Long It’ll Take to Pay Off Your Debt

Of course, the key factor in how long it’ll take you to pay off your debt is how much debt you carry. To do this, I’ve opened a Credit Karma account. This gives me a snapshot of all my open accounts and the total amount of debt I carry. Once you get that number in your head, you know where you stand in your debt free journey.

Next, you’ll need to separate your individual accounts by amount and interest. Some people organize these by highest-to-lowest interest (how I do it) or you can organize it by lowest-to-highest amount owed. After you’ve organized your information, you can gauge how long it may take to pay off each piece of debt.

Tools to Gauge How Long to Pay Off Debt

There are a plethora of debt calculators on the internet. However, not all calculators were made the same and not all will give you the same information.

Most debt calculators have you enter some basic information:

  • Amount owed
  • Interest rate
  • Current/expected monthly payment
  • OR desired payoff timeframe

The last two bullet points are where the biggest difference is to be seen. If you are planning to only maintain the current monthly payment, rather than setting a timeframe for paying off your debt, your outcome may be drastically different. Here’s an example:

Auto Loan With Current Monthly Payment

  • The balance owed: $22,074
  • Interest rate: 4.8%
  • Current monthly payment: $488.74

How long to pay off debt: 50 months

Auto Loan With Timeframe

  • The balance owed: $22,074
  • Interest rate: 4.8%
  • Timeframe: 24 months

Expected monthly payment to pay it off in 2 years: $966/month

Debt Calculators to Try

If you want to find out how long it will take you to pay off your debt, there are two calculators I’d suggest checking out.

  1. Credit Karma: I can’t say enough about Credit Karma and the services they provide. Not only can you get your free credit score, but they also provide you with tools to help you pay things off.
  2. Calc XML: This site has a fantastic debt calculator that will help you figure out how long it’ll take you to pay off your debt based on your current or expected monthly payment.

When you look at paying off your debt, it is good to set goals. However, it is also important to not get discouraged when looking at the timeframe and monthly payments. You can use the tools above to determine a reasonable timeframe. Remember, everyone’s debt freedom journey is different!

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How to Start Paying Off Debt, According to Dave Ramsey

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Dave Ramsey has been a go-to for personal finance advice for decades. Thousands, and possibly even millions, of people, have turned to him for what they should do next. Ramsey’s specialty is reaching financial freedom, which we all want. The first step to achieving financial independence is paying off your debt.

That sounds way easier than it is though – so, how do you start paying off debt? 

In the video above, a caller details his family’s financial struggle. At the time of the call, they were at least $96,000 in debt and had no clear plan of how to pay it off. Ramsey outlined the following steps to solve the family’s debt crisis.

  1. Get organized. First, get all of your finances into one place so you can see everything. Mint is a great tool to use for this!
  2. Know how much you owe. Once you have all your finances in one place so you can see how each part is moving, write down how much you owe and what kind of debt it is.
  3. Start writing down a budget at the beginning of every month. A written budget is a great way to keep on top of things and you’ll be able to see and plan every part of your finances.
  4. Sell everything you can. In the video, Ramsey tells the caller to sell his $27,000 car. It doesn’t always need to be that drastic, but you can look for things around the house to sell or even downsize to one car if needed.
  5. Identify ways to trim your budget. Once you have been budgeting a month or two, identify places to cut cost. For instance, you will need to cut eating out, going on vacation, and many other fun things to achieve your goal of being debt-free (but it will be worth it). Check out this Budget Planner.
  6. Make extra money when you can. Whether it is picking up a second job, selling personal items, or odd jobs, find a way to bring in some extra cash. Then, put all your newfound money towards paying off your debt.

If you’re interested in learning more about Dave Ramsey’s steps to getting out of debt, check out The Total Money Makeover.

Readers, have you read or listened to Dave Ramsey in the past? What do you think about his response above?

Becoming Debt Free: Side Jobs to Help Pay Off Debt

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side jobs
Paying off debt is no small task, especially if you have a substantial amount to be paid. Everyone should have the goal of being debt free one day but it sounds a lot easier than it is. In my case (and the case of many others), you need to generate more income to be able to pay off your debt. What side jobs are best for generating income to pay off your debt though?

Side Jobs to Pay Off Debt

Taking on a side job or part-time job is no small task. Many people who choose to take on a side job to pay off their debt don’t have kids or any family responsibilities. If they do have a family, the other half of the marriage is generally caring for the kids and home. That being said, taking on a side job is a great way to pay down and pay off your debt. You’ll want to be able to generate a decent amount of income if you’re putting in the effort though. Here’s five of the best side hustles to use to pay off your debt.

Freelance Writer

If you’ve got a knack for writing apply for a freelance position or post your resume on a freelance website. Most companies pay per article or per word so you’ll be able to rack in a bit of money. Depending on your experience and the place you’re writing for, pay can be anywhere from $25 up to the thousands.

Become a Social Media Assistant

Social media assistants can make pretty decent money and the work isn’t all that demanding (if you’re tech savvy). For the most part you just man the company/website’s social media pages, do promotional work and sometimes run a Facebook advertisement. Social media assistants get paid per post sometimes. If you get hired on as a social media assistant (part time) you’ll be looking at an average hourly wage of $15 per hour.

Part-Time Work

If writing and social media aren’t your thing you can always get a traditional part-time job. Most fast food places and retail stores need part-time help. These positions won’t likely pay much (minimum wage to $10 for most) but the extra cash can help you work your way to becoming debt free. Check around in your area to see if there are any available part-time positions.

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Nannying/Babysitting

Being a nanny or babysitting is another great way to earn extra cash. If you’re good with kids and able to get good referrals babysitting can pay anywhere from $10 to $25 per hour. The greatest part about becoming a babysitter, also, is that you can pick up/turn down babysitting opportunities as your schedule allows. Care.com is a great place to start looking for babysitting positions near you.

Salesperson

Becoming a salesperson may seem like a full-time gig but many people have become rather successful selling items part time. You may have seen the “ITWorks” girls on Facebook or even had friends that sell LuLaRoe. Either way, these sales opportunities can help you pay off your debt over time. Just remember to check for the signs of a scam before jumping into a business venture.

These are just a few side jobs that you can take on to help you pay down and pay off your debt. Do you have any other side jobs that could contribute to someone’s savings or “debt fund?”

Photo: Working Law Solicitors

When is Debt Consolidation a Realistic Option?

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debt consolidation

 

When it comes to paying off debt there are multiple approaches you can take. For some, debt consolidation seems to be the answer but is debt consolidation the best answer?

What is Debt Consolidation?

Debt consolidation is essentially taking out one loan to pay off all (or a good chunk) of your debt.  It is generally used for people who have a large amount of consumer, or credit card, debt. This makes it so that you’ll have one easy payment each month going towards your debt-payoff efforts. For some, this has been the answer to their struggle with debt.

The Problem With Debt Consolidation

The biggest issue with debt consolidation isn’t taking out a loan to pay everything off. The issue lies with the individual’s personal finance approach. Normally, people who consolidate their debt have no plan to spend cash and not run their credit cards for everything. This makes it so that some people who have taken the debt consolidation route may wind up back in tremendous debt. There is also a good chance that they don’t have an emergency savings fund either, which means if an emergency arises it will likely go on their credit card.

And, even if you’ve established a solid plan for saving and reforming your spending habits, debt consolidation may wind up costing you more in the long run. For the most part, people choose debt consolidation to make their lives a little easier and, in some cases, decrease their monthly debt payment. However, debt consolidation loans can come with a higher interest rate and will last much longer than most of your current debt repayment plans. This means you could potentially wind up paying more when all is said and done.

Should You Consider Debt Consolidation?

If you’re thinking about debt consolidation, you’re not alone. There are plenty of people who have consolidated and paid off their debt successfully. And, while there are plenty of things to consider before doing so, it is a viable option for some. If you’re considering debt consolidation, remember the bottom line: Will it cost you more to consolidate? If the answer is yes, don’t.

Also, be sure that you have a solid financial plan for once your debt is consolidated so you don’t go back to the same spending habits. Oftentimes “moving” the debt, like you do when you consolidate, makes people forget about the debt they were in, to begin with.

Other Ways to Get Out of Debt Without Debt Consolidation

Debt consolidation is far from the only way to pay off a large amount of debt though. Here are just a few ways to get out of debt without consolidating:

  • Get a Look at Your Finances – Take a minute and really sit down with your finances. Get an idea of what is possible and what is out of reach in terms of paying off your debt and your budget. If you need to, reach out to a financial advisor.
  • Write Down Your Budget – Once you’ve got a sense of what your finances are like, start tracking your spending and create a budget. Make sure you write it down and hold yourself to sticking to it!
  • Get a Second Job – If you’re having trouble paying off your debt, consider getting a second job or side hustle. Bringing in more money will always positively affect your finances.
  • Live on Less Than You Make – This is a budgeting basic but something you need to keep in mind. If you truly want to be debt free you CANNOT spend more than you make.
  • Don’t Take on New Debt – If you’re just getting out of debt or trying to get out of debt, don’t take on any new credit cards or loans. Though credit card offers can be tempting, just say no.

Getting out of debt is no easy feat. While debt consolidation may seem like the answer to your problems, be sure you consider taking some simpler avenues (like living on less than you make and earning more) before taking on a consolidation loan. Remember, it’s not really getting rid of your debt, it is simply moving it!

Have you consolidated or paid off debt successfully? We’d love to hear your story!

Photo: CafeCredit.com

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Which Debt is Worse: Student Loans or Credit Cards?

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Which debt is worse
If you’ve ever been in debt you know that not all debt is created equal. While all debts owed should be paid off, there is a way that you should prioritize your debts so that you’re able to pay them off in the most sufficient manner. So, which debt is worse? Student loans or credit cards? How do you pay off your debt in a way that makes sense?

Which Debt is Worse?

When it comes down to which debt is worse (student loans or credit cards) there is no black-and-white answer. No matter what you should be sure to remain current on all of your payments. The only time the question “which debt is worse” comes into play is when you are looking to pay it off. If this is the case you will want to jump on paying off your credit card debt before your student loans (while continuing to remain current on your student loan payment installments).

Credit card debt is generally high interest. It will also have the bigger impact on your credit score and finances in the long run. To truly understand why you should tackle credit card debt before student loan debt you need to understand how your debt works.

Understanding Your Debt

Before you decide which debts you should pay when you should fully understand your debt. Sticking to the “student loans vs. credit cards” topic of discussion, you can break down each debt into parts. When you look at your student loans, for instance, most loan companies provide a breakdown of payment towards interest and payment towards the loan itself.

For student loans you’ll be paying between 3 and 5 percent interest (closer to 7 percent if you are paying off graduate loans). If you have multiple student loans then you have to contend with multiple interest rates which is why many institutions will consolidate student loans in most situations. Interest rates on credit cards, however, are much steeper. The average credit card interest rate sits around 20 percent (four times as much or more than student loans). Because of this, you’ll want to pay off your credit card faster than the student loan debt.

How to Prioritize Paying Off Your Debt

There’s not really anything such as “good debt” but not all debt was created equal, which means each type of debt should be prioritized. Here’s how you should tackle your debt:

  • Pay off any debts prohibiting you from living your life. If there is a debt significantly impacting your life, pay it off. For instance, if there is a debt you owe to a rental agency that is making it impossible for you to rent a home you’ll want to pay that off quickly. If an old checking account and hurting your banking, try a bank account without chexsystems until you’re back on your feet.
  • Next, pay off debts with high interest rates. Target the debt that is accruing the highest amount of interest. If you pay this off quicker you’ll pass less over time. Pay off credit cards and other high interest debts before tackling others.
  • Make payments on the interest if you can. Many loan companies offer the option to pay additional money on the interest. You can do this with mortgages as well. Be sure that you know that your payment is going towards the interest though (and not to the loan itself).
  • Pay off the debts that are costing you the most. Once again, all debt is bad but some debt costs you more than others. If you want to get rid of your car payment, for instance, put in some extra work to get it paid off and have that extra cash in your pocket every month.
  • Tackle other debts. Once you’ve taken care of the bigger, more expensive debts in your life, tackle everything else. You can begin paying off the other items aggressively or simply pay them on a regular schedule to help improve your credit.

No matter what your approach may be to paying off debt, understanding your debt and interest rates is an important part of becoming debt free. Have you ever had to tackle a significant amount of debt? What did you do?

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Photo: The Balance