In January, I wrote an in-depth article outlining how my wife and I managed to pay off $14,383.15 of credit card debt in 366 days. While I am extremely proud of that accomplishment, I wasn’t entirely truthful in my telling.
Nothing I originally wrote was false, everything I said was true. I did, however, leave out one crucial detail: we had more debt besides the credit card.
There was the personal loan we took out in 2019 to cover moving expenses that was still a hair over $10,000. There was our new iPhone 11s that we finally upgraded after three years which cost us $60 a month. Oh, and don’t forget about that old medical bill with a $756.91 balance, interest-free but debt nonetheless.
If my calculations are correct, on January 1, 2020, we were sitting on $27.256.10 of debt.
On March 17, 2021, that number was $0.
In the past 442 days, we’ve shelled out over $30k to tackle this debt, bought a house, and have finally put ourselves in a position where we don’t have to live paycheck to paycheck anymore.
We ruthlessly—no, obsessively—went after this debt. I remember that New Years’ morning of 2020 vividly, sitting at my desk, crunching all the numbers and thinking How the f*ck are we going to pay this off?
I dreamed of the day when we wouldn’t owe a dime more and that day has finally come.
Now, in my original credit-card-debt-payoff article I covered the snowball method, our budgeting process with YNAB, and even how we managed to save $5,000 in our yearly grocery budget. More importantly, I shared the message that you should never feel ashamed for being in debt but rather determined to make wise decisions and move past it.
I won’t repeat any of that financial how-to stuff here. You can go back and read the original article if you like (personally, it’s one of my favorite pieces I’ve ever written). In this article, I want to focus on what’s next, what happens after you beat debt, and what I’ve learned after overcoming the greatest financial hurdle of my life.
In other words, what happens after debt?
This is my plan.
Make a personal net-worth statement
“I think I’m close to $500,000 net-worth. I have to update a few properties on my statement but I believe I’m almost there.”
My friend Stewart (not his real name) said it so casually. He’s worth $500k, he’s as old as me. I felt woozy.
Ever since leaving college with a fancy piece of paper that said I knew a thing or two about engineering, my net-worth has had a tiny little negative sign in front of it.
My wife, always the career-driven person that she is, took out another $150,000 in student loans to go to pharmacy school. Combined, our net-worth was so far in the other direction that I just assumed that’s how it’ll always be.
“Half a million?” I asked Stewart.
“Yeah, give or take.”
Curious, I wanted to figure out my net-worth. Fully prepared for a mild panic attack, I fired up trusty old Google Sheets and created two columns: Assets and Debts.
The debt column was easy. I listed out our student loans and our mortgage. It felt oh-so-good not having to fill in any other debt besides those three. The asset column took some thinking. I had an old IRA account from my lost corporate days, our Nissan Rogue (which we paid off in 2020) was technically an asset, albeit not a great one, oh and don’t forget about the $15 in Bitcoin I own. I scraped together everything I could think of.
The results shocked me.
Before you get too excited, we’re still very much in the negative. But it doesn’t look like we’ll be here for that much longer. When I extrapolate our debt payoff efforts of the past year and a half and assume we put that money towards various savings strategies, we’re only 2 to 3 years away from breaking even and 15 away from cracking $1 million buckaroos.
Here’s what I never considered:
Buying a house put a new asset in our pocket
Yes, we have a mortgage in our debt column now but it’s offset by the value of our home, which will continue to go up as we put more sweat and equity into it. Currently, our home is worth $23,000 more than the mortgage, and as we continue to pay down the mortgage that number will only grow.
Start your 401(k)s young, kids
I didn’t make the best financial decisions in my early twenties (more on that soon) but I’m sure glad 22-year-old me had some common sense to contribute to his 401(k) when he started working at his big boy job. After I left Corporate America, I rolled over my 401(k) into a Wealthfront account to manage myself which has grown by 24% over the past three years.
I’m still underutilized
For the past year, my own business efforts have stagnated as I’ve taken on a more prominent stay-at-home dad and educator role in our home. This year, after applying to a writing job, I rekindled in myself new confidence to go after becoming a paid writer and help support our family even more. My goal is that my income will eventually be used for fun things like vacations that we would never even consider under our current budget. Life needs to be lived after all. It’s not always about the numbers on a balance sheet.
All in all, after expecting a mini panic attack, things were looking up.
Build a buffer
This week my wife received her paycheck and something magical happened.
Our entire budget is filled for the month of April. Previously, my YNAB budgeting process looked something like this:
- Money hits our bank account
- I set aside $800-$900 to pay down debt
- I use what was left over to pay for the next two weeks
Every two weeks looked like this. The only buffer we had was a small emergency fund set aside in Wealthfront in case anything unexpected came along (and Mr. Unexpected did show up when our car completely pooped out on us).
Yes, my wife has a comfortable job but for the past year and a half, we’ve been living paycheck to paycheck. Not anymore. After obsessively tackling our debt, our goal is to build a barrier of protection.
For the remainder of 2021, savings is the name of the game. Because I am an avid YNAB budgeter I know exactly how much we spend each month from coffee to shampoo. No bill is left unpaid, no payment is left uncategorized. Every dollar has a job.
My first goal is to save enough so that the next three months are all budgeted out. Aging your money as we call it in the budgeting world. The idea is that any dollar that comes into your bank account isn’t spent for a longer period of time. Before, every dollar lasted no more than 14 days. Now my goal is to grow our money to 90 days.
By my calculations, it’ll take us the remainder of the year to hit this savings goal at which point we’ll shift gears and tackle our next financial burden.
What about those pesky student loans?
I’ve mentioned our student loans but haven’t specifically talked about what we’re going to do with them. That’s because we’re treating both of our loans differently.
Let’s start with mine.
I currently owe just over $47,000 of undergraduate student loans. Yes, I graduated 9 years ago. Yes, I’ve been paying them off. Yes, student loans suck and never seem to go away.
I used to have a combination of federal and private loans but refinanced them into one lender back in 2017. I had to in order to keep up with the payments but in doing so, I lost what little federal protection I had. (In other words, if student loan debt is forgiven, I’m sh*t out of luck).
Skipping past the negative, here’s the positive: by July of 2024 I will have my student loan 100% paid off.
Using Dave Ramsey’s student loan payoff calculator, by paying an extra $1,000 a month starting next January, I will pay off this loan 6 years earlier than expected. We’re currently paying $512 a month toward my student loan, what a relief that’ll be.
Now my wife’s student loan is a different beast altogether. Her loans are completely federal and from her post-grad studies (thankfully she received a full-ride for her undergraduate degree). Since my wife works as a professor at a university, she qualifies for the Public Service Loan Forgiveness program. If she makes 10 year’s worth of qualified and on-time payments, the remainder of her loan will be forgiven.
Therefore, our goal is to not pay any extra towards her loans because the majority will be forgiven after 10 years. Again, what a relief that day will be.
My advice for the cash-strapped-20-something
I remember getting my first real big boy paycheck in January 2013. My wife and I were practically broke after blowing all of our money on a honeymoon to Ireland and France the month prior.
We were starting our adult lives completely from scratch. The paycheck hit our bank account and that was about it. We used it to pay for rent, groceries at Trader Joe’s, and cat food. Two weeks later, more of the same.
We never spent extravagantly but we also didn’t budget either. We saved some but that quickly evaporated after we had our first child.
Eventually, we fell behind. The credit cards tempted us, What’s one more swipe? The personal loans smelled like free money. Until on January 1, 2020, when I ran the numbers and a cold sweat enveloped me.
I’m not over exaggerating when I say learning to budget saved us.
If I could go back in time and hold a dagger to my 22-year-old self, I’d say something like this:
“Listen, buddy, the only thing preventing me from driving this dagger into your side is if you sit down and actually understand where your money is going. Start with a spreadsheet if you have to, I don’t care. All I care about is that you understand the only money you can spend is the money you have. Actually, the only money you can spend is what’s left after you save at least 15% of your income. If I don’t stab you in the side, debt will, and that dagger is even more painful to remove.”
If I had more time to chat in this highly-unrealistic situation, I’d also show my 22-year-old self the power of compound interest, I’d have him draw up his first net-worth statement (even if it wasn’t all that much), and I’d tell him to hold onto his full-time job just a little bit longer while he built up his 5-to-9.
I’m writing these words the morning after I called up my loan servicer and told them I wanted to pay off our loan. The lady on the other end, so casually, yet curiously asked, “Any particular reason?”
“Because I don’t want it anymore?…”
“Okay,” she responded and launched into her pre-written, obligatory small print—something about if I want to change my mind I had three days (no thank you) and how dare I gyp them instead of slowly paying off my loan like most people.
“Say ‘I agree’ to these terms and confirm your payment,” she said, finally.
Just like that, the biggest financial hurdle of my life was wiped away. This morning as I write, my coffee tastes better, lighter, free-er. We’re ordering takeout tonight. We might even go to IKEA this weekend.
For once, I have options.
And that my friends, is the name of the game.