Today, I want to announce and share about a significant milestone on our personal financial journey. Actually, I’m a bit hesitant to announce this because, while it’s a great accomplishment, we’ve now achieved the milestone for the second time. :)
But, I write a lot about getting out of debt and try to help people to do so here at One Money Design. I felt I should make the announcement here on the blog and share a little about our story.
We’re debt free again except the mortgage! Yes, I can finally say…who me? debt free? YES!!! As people on the Dave Ramsey show say…WE’RE DEBT FREE!!! It’s a wonderful feeling to be debt free and we’re absolutely committed to doing our best to keep it that way.
How we went into debt AGAIN!
Why is it our second time to become debt free? Allow me to share some background. Several years ago we paid off both of our cars and student loans to position ourselves to live on one household income. But as time passed and we started a family, we reasoned we needed another car (a more family oriented SUV which also included a used car payment). More time past and we sold our second car because of mechanical issues. We replaced it with a used car and unfortunately, another car payment. So, earlier this year, we paid off our SUV car loan and thankfully, the second car is also now paid off.
Cash savings before getting out of debt?
Our approach, until just recently, was to save as much cash as possible versus knocking out the second car loan. Simply put, we felt our savings needed to be more. We haven’t been able to make a lot of headway on savings until just this year. But, as we saved and made minimum payments on our second car loan, the debt continued to weigh on me. I knew we had the money to become debt free and pay off our car from savings, but didn’t use it in order to keep more cash on-hand. After all, cash has always been touted as king and probably even more so in the past year because of the economic crisis.
Getting out of debt before cash savings?
Why did we finally take the money from savings to pay off our second car loan and become debt free? I suppose there are a few reasons for this decision:
- As I said, the loan weighed on me. I don’t like debt and I don’t like being slave to the lender. I suppose this is a psychological and Biblical reason for us.
- I figured I would never take out a loan from the bank to increase my emergency savings. We were essentially doing this by continuing to pay interest on our car loan. Note: the difference between our ING Direct Orange Savings Account interest rate and the car loan interest rate was effectively what our emergency savings was costing us.
- I felt our financial risk to be low right now. In general, my job is stable (although, you never know what tomorrow will bring) and we don’t have any known major expenses on the horizon. So, with lower risk (at least for now) and trusting God will provide, we made the decision to become debt free.
- We have enough in emergency savings to cover most unexpected expenses unless we incur a major medical expense or job loss for an extended period of time.
What do we see as the biggest benefit to becoming debt free?
With a minimal interest rate on the car, we weren’t really paying all that much to the bank. It’s an argument to get out of debt, as I mentioned above, but not too significant of one.
However, the psychological benefits are immeasurable. Some amount of unnecessary stress and weight we’ve been carrying around is now gone. We can finally say – WE’RE DEBT FREE! It’s reassuring this major milestone is now complete and we can move onto using the car payment money to increase our monthly savings.
But, most importantly, we feel we are more in-line with God’s plans for lives and that we can be more free to give of our time and resources, if called to do so.
I’m also excited to increase the amount we’ll be saving each month. Our monthly car payment will be paid to ourselves versus our lender. It will be rewarding to see how quickly our emergency savings will grow each month by adding this additional amount on top of the 5% we’ve already been contributing to savings bring the total to almost 10% of net spendable income (money after taxes and tithe).
How is your journey to becoming debt free going? What do you need to do to get out of debt so that you can be more free to give of your time and resources?
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