Having debt and saving money don’t tend to go hand in hand. Some would say they are two opposites and others would say that opposites attract. Well, here’s my story about how being in debt led us to saving more and being smarter about our financial situation.
I’ve had my share of “small” credit card balances with 0% introductory offers, and then transferring those balances to different introductory offers. I would then pay off the balance, only to charge something again. I was a master at that being a single woman with a small income.
Then I met my husband and before I knew it, we were trying to pay for a wedding. I wish I could say that I had a savings account stocked up for that very thing, but I didn’t. So we tried to save money on most of our wedding details, but we still ended up with more wedding than we had money.
Enter the credit cards. When we got married, it looked like this: We had $11,000 in credit card debt – $1500 for the remaining balance of my engagement ring, $2800 for the honeymoon and our wedding bands, $1200 from a previous 0% balance transfer of mine, and $5500 from a previous credit card balance of my husband’s. Granted this is not a large amount of debt compared to what others may have, but it sure was a big number to us.
Immediately after the wedding, I went over our budget to see how much money we could put toward those credit cards each month. Our first step in helping free-up some money to pay off the debt was renting an apartment for a year instead of renting a house which would have incurred many extra expenses.
After a couple of months of tracking our expenses and getting a realistic view of what our financial situation looked like, I created a plan to attack the debt – card by card. I’ve heard people suggest to pay off the smallest balance first and then work your way up to gain momentum. I didn’t take that route – I attacked the highest interest rate first.
My husband’s previous credit card balance is the only one that we were paying interest on – the rest were at 0%. So I began by allocating our large payments toward ‘the beast ‘ (as I referred to it as). I continued to make the minimum payments on the other cards, until the time came for the 0% introductory rate to end on one of the others. As soon as that came, I paid the entire card off since it was a smaller balance. Then back to “the beast” for the next month’s payment.
Then one day I got the statement for “the beast” and it said our interest rate was 11%! My husband had told me it was only at 8%. He wasn’t wrong, it’s just that he apparently had a variable rate. So I transferred the balance of that card to another card with a special rate of 1.9% for 8 months, which is when I planned to have the card paid off by. So now “the beast” wasn’t a beast because of its interest rate, but because it was the highest balance we had.
The next month we were able to pay off another small balance card with a 0% introductory rate that was ending. Then payments continued on “the beast,” which now had a lower interest rate. We were on track with our plan and were half way to paying off the entire balance, when I unexpectedly lost my job. I was more than frustrated because I really wanted to get these cards paid off. Luckily, we still had enough money from my husband’s income and from the small unemployment checks I received to survive and make the minimum payments on the remaining balances, but it did put a dent in the plan.
After 2 months of being unemployed, I finally got a new job. We were finally able to get back on track with our debt plan. Due to a significant salary increase for me, we were able to make up for the 2 months of unemployment. We finally paid off the 2nd highest balance right before Christmas and the glorious day came right before our one year wedding anniversary when we were able to make our final credit card payment and declare that we were debt free.
It was a glorious and wonderful moment for us. We were able to look back and think about the financial sacrifices and discipline it took to get us to that point. After a year of sacrifice and disciple, we vowed never to get into a position like that in the future. In fact, we realized that life wasn’t so bad without all the little extra expenses we thought we wanted.
So without anymore $1000+ credit card payments to make every month, we left our spending budget the same and started to save all that money. It’s been almost a year since that joyous occasion and we’ve since been able to purchase our first house, pay cash for new furniture and house needs, as well as put away 3 months worth of living expenses in a high yield savings account.
Going through the discipline and hard work that it takes to pay off debt taught us that we don’t really need what we thought we needed and that it’s not very hard to set aside money each month to achieve our financial goals. I think I learned more through that experience than I could have ever learned in a book. In fact it was this experience that motivated me to learn more financial wisdom from various authors. I want to encourage others out there that a negative financial situation can turn into a positive one if you allow yourself to learn and grow from it.
Image courtesy of danesparza