So Mr. Woodpecker and I have been attending Financial Peace University for 11 weeks now. We only have 2 to go until we’re finished with it. It has been wonderful going through it with him, getting on the same page, etc.
We both have some significant debt.
I have around $15,000 in credit card or merchant card debt.
I have around $13,000 in student loan debt.
He has around $45,000 in student loan debt.
I have a home mortgage – $162,000 approx right now.
So we have a lot of debt. However, from a non-Dave Ramsey point of view, most of this is “good debt”. Yes, I use that good loosely.
The Dave Ramsey plan is to save $1,000. Then debt snowball all your debts except the mortgage. Then save 3-6 months in an emergency fund. Then after that is done start contributing 15% to retirement, funding college savings, and paying down the mortgage. Then build wealth and give.
However, we’re not going to do things the 100% Dave Ramsey way. My student loans are at 2.25%. His are at 4.5%. The house is at 4%. To me, these are interest rates that are not robbing us of our money and threatening to make us poor. So we’ve mutually agreed that, for us, the student loans are going to go at the same point as paying down our mortgage.
We both have $1,000 emergency funds. We’re both going to go with insane, amazing intensity for 6 months (contributing around $2,300 per month) to pay off the credit card. Then we’re going to ease up after that 6 months and go back to “normal living” while saving $1,000/month to get our 3-6 months funded and also starting to fund things like vacations, new car fund, house fund, etc that we’re going to stop contributing to in order to pay off the credit card. Then after we get 3 months of both of our combined income (or 6 months of his, around the same amount), then we’re going to tackle the student loans.
For us, this just makes more sense. It makes it happen faster. And it makes us feel more secure. Only having 6 months where we’re going “whole hog” makes the getting out of debt process seem faster. If we have to wait to also pay off student loans we’re looking at 5 years of “whole hog” – which, for us, isn’t sustainable.
So what are we planning on doing during this 6 months to make this debt go away ASAP? Well, let me tell you!
- I’m stopping my contribution to retirement. I don’t get a match anyway and it is only for 6 months. When the 6 months is up I’m going to start contributing again either back to my 403(b) or I may consider just opening up a Roth IRA since I don’t get a match.
- We’re living on one paycheck. I make more money than Mr Woodpecker. So we’re going to live off of my paycheck for things like the mortgage, gas, entertainment, food, etc. Since it is only 6 months we’re not going to include clothing, electronics, etc. We can both go without new pants and a new computer for 6 months. All of Mr Woodpecker’s money will go to the credit card debt, or making minimums on our student loan debt.
- I’m getting a season job. Or at least I’m going to try. Because I’m a professor, I don’t work from December 15th (ish) to January 20th(ish). I also don’t work evenings and weekends. So I’m going to attempt to get a seasonal retail job to do during this time. Evening though I’ll be making minimum wage I still hope to work 15-20 hours per week. I know I will be exhausted, but it is for a greater goal and this is the only holiday season I’ll have to do this.
- I’m working overload next semester. The way my school works is that if you teach over a certain number of contact hours than you get paid for them… in February. So any extra teaching I do in the Fall and the Spring I get as an extra paycheck in February. Guess what… that falls within the 6 months. Hello $$$. Depending on how things fall with my classes I’m looking at 3-5 extra contact hours, or around $3,000-5,000 before taxes.
- We’re trimming fat in the day-to-day budget. Mr Woodpecker has a fairly large entertainment budget, around $150/month. He’s agreed that for 6 months he can give most of that up. We’re still giving him $40/month in his entertainment, but it will still be substantially reduced. We’re also cutting quite a bit in the food department. We’ve agreed to going out to eat only once a week, and then only so a place where the meal is no more than $10/person. This is a pretty big deal for him because he would eat out at every meal if he could. Lastly, the doggie daycare is going good-bye. I know this seems obvious to a lot of people. But our dogs love daycare. We love our dogs after they go to daycare. It is money, in our opinion, that is well spent. We’re going to try forgoing daycare and spending more time at the dog park. It is only for 6 months, hopefully the dogs will understand.
- We’re stopping yearly savings for non-necessities. I’m not going to contribute anymore to my Christmas fund (we’ll do Christmas with the money that I have currently saved, which is quite a bit). I’m not contributing anymore to my Vacation fund for 6 months. I’m not contributing to my clothing fund, beautification fund, new car fund, car repair fund, or my house fund. If anything happens to the car or to the house, the emergency fund will pay for this during this 6 month period. We’ll then fill the E-fund back up with debt money and keep on going. I will however still be saving for insurance and car registration since these are things I can’t stop having. We will also not stop saving to Mr Woodpecker’s medical bill fund, though we are looking in October to change his insurance from a high deductible to a low deductible plan since he’s going to doctor’s 4-5x per week right now.
We’re both excited about this fight for the end of the credit card debt and are both super motivated to get it gone. We can then start to build a budget without the obligatory $400/month just to pay minimums to the credit cards and can start to have a budget where we are contributing to retirement, paying down the mortgage, paying down the student loans, and not feeling guilty for going on vacations, saving for a fence, etc. It is a pretty great feeling and I’m glad, after 3 years of trying to get rid of debt, to have a partner who has motivated us to finally just take the plunge and go at this debt without reservation or hesitation.