December 14, 2012

We are getting out of debt, and it is doable

When Stan and I got married we realised that we were facing a combined debt load of nearly $50,000. It had multiple sources; some was student loans, some was credit cards, some was personal debt and a string of questionable decisions. But however it got there, there it was: $47,000 in owed money, give or take a few hundreds here and there.

That's a lot of debt for anyone. That's especially a lot of debt for a young couple just starting out. And it would be easy to look at a number like that and become paralysed. Despair is easy! Big numbers are scary! Et cetera!

But instead, we are getting out of debt. We are getting out of debt and it is doable. It takes hard work and discipline, but it is totally doable. I calculated yesterday that in the nine or so months since we got married, we've paid down over $23,000 of that debt. That's not really halfway because of interest (dang you, interest!) but it's incredible progress!

Not only that, but we're saving $500-625 a month while paying that debt down.

Here are things that are working for us:

1. We treat debt repayment as a fixed expense. It's awfully hard to get out of debt if you wait until the end of the month to see if there's any money left to put toward it. We treat debt repayment the same way we treat paying the rent and giving our tithe: no matter what, that money is going to be used for its intended purpose. Every month we repay about $1150 on our loans. If we have to wait on other purchases, so be it. If we skip eating out, so be it. Debt repayment is a fixed expense.

2. We negotiated with our bank for lower interest rates. This is something that you can just do! We've done it for credit cards and we've done it for the line of credit. It never hurts to call your bank and ask for a lower rate. And if you're paying less interest, you're taking bigger chunks out of your principal. Hooray!

3. We repay as much as we can afford over the minimum amount. Our bank automatically debits our chequing account for the minimum amount due on the line of credit each month. Once that happens, we top it up with an extra payment, so that our monthly payment amount on the line is $900. That extra payment is applied directly to the principal, and it really helps us whittle down the amount we owe.

4. We don't treat dividends as spending money. Any time that extra money comes in -- wedding gifts, bonuses from work, tax returns, etc. -- that money is put directly onto the line of credit. As above, these extra payments get applied directly to the principal. Yay!

5. Savings: we set 'em and forget 'em. For a while we were trying to remember to set aside money for savings every month, and some months we'd remember, while other months... not so much. While we were trying to treat savings as another "fixed expense", it wasn't really working. Then Stan hit on the (brilliant) idea of setting up an automated savings plan with our savings bank. Now every Wednesday $125 gets automatically moved from our chequing account to our savings account -- that means we're putting away $5-600 dollars depending how many Wednesdays there are in the month. It's really encouraging to see our savings growing so steadily, and amazingly we've found that we don't really miss that extra money. (We save with ING; if you're considering opening an account, consider using our referral key -- 15769833S1 -- and we'll both get a bonus!)

Now, obviously this isn't always a walk in the park. Stan and I are fortunate in that we're both working full time right now, and so there's enough money coming in that we can make some pretty big strides here. This can be harder if you're a couple with one income, or you're in school, or what have you... but take heart. Getting out of debt is doable. And when it finally happens, it's going to feel amazing.

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