I have written previously about our debt free journey – My Debt Free Journey – Part I. This post talks further about what we did to get out debt.
“One day Alice came to a fork in the road and saw a Cheshire cat in a tree. ‘Which road do I take?’ she asked. ‘Where do you want to go?’ was his response. ‘I don’t know,’ Alice answered. ‘Then,’ said the cat, ‘it doesn’t matter.”
― Lewis Carroll, Alice in Wonderland
What Choices Did We Make To Get Out Of Debt?
We kinda felt like Alice. We were at cross roads of sorts and we had to make a choice. Are we going to be debt free? or Are we going to simply save for a down payment? It was going to be one of the most crucial decisions we ever made. It would set the tone for how we viewed personal finance and what’s our general view about money!
When faced with a decision like this, we have often listened to our gut feeling. What we lacked in knowledge we made up for it with our conviction. I spent the next few weeks digging through a lot of personal finance stuff online. Of all the stuff I read or listened to, the teachings of Dave Ramsey, resonated with me a lot. I firmly believe what Dave Ramsey often quotes, “Personal Finance is 80% behavior and 20% head knowledge” . So for us being debt free “felt” the right choice. In matters like this, a purely mathematical answer will never be the “right” answer.
What Debt Was Still Pending?
- Pay off Auto Loan – $16,000 (both of our cars)
- Pay off Mortgage balance on rental property – $6000 (total approximately $100,000 worth)
- Build an emergency fund 3 months of living expenses – $15,000
Should We Payoff Debt Or Save For A House Down payment?
I am glad we chose to become debt free and followed closely the Dave Ramsey Baby Steps to get out of debt. Over the course of the next 9 months, we leaned hard on all the debts we had and knocked them off. We also were able to secure our emergency funds in place. Of all the things we did, having that emergency fund has helped us sleep better at night.
During this debt free journey, we picked up a very useful habit. We stopped using credit card as our primary source of spending. After watching Dave Ramsey, I was beyond convinced that I had to get rid of my credit cards (I certainly didn’t need 7 cards) and basically closed all cards and retained just one. We then made a rule that we will slowly but steadily use debit card to do all our transactions both online and otherwise. Initially it was a bit of a hassle but we got used to it. We are so much used to our debit card now that we only use credit card if it’s a large budgeted purchase. e.g. booking a hotel or an airline. So far this has worked out very well for us and our credit cards have now become like a stand by instead of our primary choice of transaction. We are very well aware of dangers of playing the rewards point game and we have learnt our lessons. No we didn’t miss those credit card reward points. Cash back on credit cards don’t make you wealthy but good money habits will. So we are not playing this reward points game any more!
During this time, we learnt how to budget using the Every Dollar App. I must confess here that I did start by trying out other tools like Google sheets, YNAB to eventually settle down with Every Dollar. I have been using this app for about 7 months now and have found it super easy to use and very intuitive.
Along the way, I have read quite of a few amazing books about personal finance and investing. Some of the note worthy ones include:
- Total Money Make Over – Dave Ramsey
- I will teach you to be rich – Ramit Sethi
- The richest man in babylon – George Samuel Clason
- Automatic Millionaire – David Bach
- Common Sense on mutual Funds – John C Bogle
I am so happy we embarked on this journey. It feels so good to be debt free! Don’t be a slave to the lender, be debt free!