In the first post in the series, I started talking about budgeting and the impact it had on my life. In this post I’m going to talk about debt. As Daniel Kahneman says, “money does not buy you…happiness, but lack of money certainly buys you misery”. My grandmother always warned me against debt. For as long as I can remember, she spoke of it with the disdain you would expect when discussing murder or arson or high fructose corn syrup. So early in my adult life, I refused to get a credit card. I paid for everything with a debit card, straight from my bank account. That worked for awhile. But then there were bigger purchases to make. A car, tuition, a wedding, finally a house. And nobody pays for those things in cash right? Everyone has student loans. Everyone has a car payment. Everyone has a little bit of credit card debt.
And that’s how it got out of hand.
At one point I had racked up enough debt that it started to weigh on me. It’s not like I was ever starving or struggling to make ends meet. But my 0% APR promotions were starting to end and my principals starting incurring interest. I had no savings. I had no emergency fund if the worst should happen. My paychecks were going towards paying last months credit card bill and there was almost nothing left over. How had I gotten into this vicious cycle and how do I get out?
The answer came from the wisdom of Dave Ramsey. It’s crazy how just a little bit of organization can make a seemingly complex problem simple. It’s called the Debt Snowball. You can read all about it on the website but basically you prioritize your debts starting with the smallest ones (I took interest rates into consideration as well). Then you pay off as much as possible every month. The idea is that you’ll get some quick wins by paying off the smaller ones. And he calls it the “Debt Snowball” because as you pay off debts, your cash flow increases which accelerates your ability to pay off each subsequent debt. I would argue another reason is that paying off debt gets rather addictive so it has a bit of a snowball effect mentally as well.
Using the “Debt Snowball”, we paid off all of our debt in about two years. We are debt-free. And I really mean that. No house. No car. No student loans. And it feels great.
Debt feels heavy. You carry it with you. It plays into every choice you make. It plagues your thoughts. Not having debt feels the opposite. You feel light. Your life opens up into myriad choices and possibilities. You have made it out of a deep and dark tunnel and you never want to go back. Over the last two years, my husband and I had to learn discipline. It was a challenge but it got easier and easier. And the payoff is well worth it.
Having money is a great thing. It gives you security. It gives you freedom of choice. It sometimes buys you things that make you feel good. But beware. That way lay danger.