Debt always seems to rear it’s ugly head in the lives of many Americans. According to a study done by ValuePenguin, as of 2016, the average credit card debt for the American balance-carrying household is $16,048. This is up from the 2014 average of $15,165.
More than $16,000 of credit card debt can you leave you quite the monthly payment. Even if the minimum monthly payment was just 2% of the outstanding balance, that still translates to more than $300 a month!
What would you do with an extra $300 a month?
Last month, I shared a post about how I completely derailed our get-out-of-debt train back in 2012. I encourage you to check it out for a good lesson on what not to do.
In short, within a six month time frame, we gained a ton of extra debt with payments totaling $839 a month.
With quite a bit of hard work we paid a lot of that off.
Then, 11 months ago we set a goal to pay off the two biggest pieces of debt that we had besides our mortgage. They were:
- Disney Vacation Club (DVC) Loan – Just under $10,000
- Car Loan – Just over $16,000
The total for those two was about $26,000.
They were also our two biggest monthly payments outside of our mortgage. The DVC loan was 172.57 a month with a 11.25% interest rate. The car loan was $411.91 a month with a 0% interest rate. That’s $584.48 a month combined.
Quite the chunk of change!
We thought it would take forever to do, but last month we did it! Both of those debts are officially paid off!
$26,000! In 11 Months!!
Freedom never felt so good!
There are plenty of reasons to hate debt. Ralph Waldo Emerson said, “A man in debt is so far a slave.” Benjamin Franklin said, “Rather go to bed with out dinner than to rise in debt.” The Bible says, “The borrower is slave to the lender.”
Andrew Jackson, in a letter to his ward stated:
“Live within your means, never be in debt, and by husbanding your money you can always lay it out well. But when you get in debt you become a slave. Therefore I say to you never involve yourself in debt, and become no man’s surety. If your friend is in distress, aid him if you have the means to spare. If he fails to be able to return it, it is only so much lost.”
(Note: Emphasis is my own. They didn’t have a bold button on word processors in 1833. 😉 )
Debt = Slavery
What do all of these quotes have in common? They all paint a picture that being in debt is the same as being a slave. How well did slavery work out for this country? Yep. Didn’t.
Almost 151 years after slavery was abolished and we are still feeling the after affects of it in this nation.
Debt is the same way. You feel the after affects of it when you’re done with it. How, you ask?
I’m so glad you asked! There are one BIG way that debt affects you after you’ve paid it off.
You Lose Time
Think back to my extra $839 in monthly payments. As I mentioned in that post, people would do anything to be able to save that much a month, and I was spending it like it wasn’t worth anything. That was $839 a month that I was unable to save for a few years.
Now, what if you did the same thing but only had, say, $900 extra a month? $839 of that extra money is out the window to someone else. In that situation, if an emergency arises, you may not be able to handle it. You would have a very small cushion, a $61 cushion, to fall back on if you run low on food or electric bill is higher than you’ve budgeted.
Let’s face it. No one likes sleeping on a small cushion.
Most importantly, you’ve lost the element of time in your ability to save and let your money earn you more money.
Think about it. If you go in debt over something, even if it’s no interest, that is potentially years of paying someone else instead of paying yourself. If you were to pay for something outright, you would still have that monthly payment to be able to put away and build using compound interest.
Even just a year of paying my debt payment of $839 without interest is a huge missed opportunity. Without interest the total saved would have been $10,068. If I were to invest it with an average 5% return compounded monthly, the total would be $10,445.49.
That’s $377.49 in interest that I missed out on for just a year!
Man! Time doesn’t fool around. And you shouldn’t fool with time like I did.
Not Having Options
When was the last time you wanted to actually do something big with your money?
Now, I’m not talking about going out to spend $100 on a restaurant meal for two when you normally spend $50. I’m talking really wanted to do something with your money. Think a family or couples vacation, changing careers, or saving up for something nice you want.
A couple of years ago I really need to switch careers. The line of work I was in was affecting nearly every aspect of my life. I was sorely in need of a mindset shift.
In reality, I should have switched careers probably a good two years earlier. Things wouldn’t have gotten so bad if I was able to make the move sooner. Mindset was definitely a big part of that, but there was another big reason why I couldn’t switch careers and take the necessary pay cut.
Monthly payments to debt.
Remember that $839? Because I was a slave to my debt, I was forced to work at a job that was sending me on this downward spiral into misery. I was not able to make any sort of move unless it was paid off.
Ever since then, I have never really enjoyed debt. Even so-called “good debt” kind of rubs me the wrong way.
A Taste of Freedom
It was at that time that I really started looking at ways to pay off our debt quickly. Never again did I want to be enslaved to debt.
I would try a few things, see how it worked, and then try a couple more strategies. We were able to start by paying off almost $12,000 within 5 months. But that was with paying off 4 credit cards. The two big guys (Disney Vacation Club Loan and Car Loan) were still out there.
I wanted more.
So I made the choice to give it everything I had and pay off those two big loans that were costing us $584.48 a month.
Breaking Free from Slavery Without Feeling Enslaved
I really wanted to be free from this debt, but I didn’t want to live in poverty to do it. After all, that wouldn’t be very atypical. I didn’t want to further be enslaved just to be able to stop being enslaved by debt.
Trading slavery for slavery is not the way to go. So we kept our current budgets. We kept our vacation plans. We didn’t stop living in order to pay off our debt.
It took a lot of work, and a lot of attention, to be able to do that, though.
A Month Dedicated to Debt
Because of what I’ve been through with debt, and the fact that average credit card debt in households is over $16,000 (and rising), the entire month of October will be entirely dedicated to breaking free from debt.
Every post is going to be teach about what debt is and can do you to, the true cost of that interest bearing debt, and if there really is such a thing as “good debt.”
Next week, I’m going to give you 11 Proven strategies that you can use to pay off your debt faster. It’ll also be linked here when it’s finished.
I know that each of the 11 strategies work because I literally used all of them to help me accelerate paying off $26,000 in 11 months.
Stay tuned for next week!
In the meantime, what is your relationship with debt like? Comment below!