Debt is a normal part of American life. It's how we pay for our college education, how many of us buy cars, how we purchase a house, and unfortunately how many choose to "afford" luxuries like shopping sprees and vacations, or our "safety net" for tough times.
Even in our personal endeavor toward debt freedom (thank you, Dave Ramsey), there's a certain aspect of debt that seems innocent. It's best to avoid it and it's not ideal, but it's not inherently evil. Or is it?
Something I saw in the documentary 58: The Film helped me to see the dark side of debt. An Indian man borrowed money from a quarry owner. He is now held in bondage to work there, never able to pay off the debt at the high interest. Even his little ones and wife are called on for this back-breaking labor in the quarry. No education, little food, and hours in the hot sun day after day. His debt will be passed on for generations, because he simply needed $600.
Sure, I'm grateful that Nelnet isn't knocking on our door trying to take our life away. (They could--we live in the same town as them and owe them a lot of money.) But even more than that, I'm sad that we take debt so lightly. For the people's sake that are held in near-slavery to pay off their bondage. Because that's what debt it is: Bondage. We don't feel like it here in Debt-America. But it's real, and it doesn't go away until the debt is gone.
The rich rules over the poor, And the borrower
is servant to the lender. | Proverbs 22:7
This year, we are embarking a little more intentionally on the road to debt freedom. I'm excited to share pieces of that journey with you here (and even have the Main Man's blessing to do so).
Here's where we are in Dave Ramsey's financial baby steps...
Baby Step 1: $1,000 to start an emergency fund.
Over the last 6 years our emergency fund has gone below $1,000 more often than it has been at $1,000. Poor decisions on beater cars has led us to pull from savings for car repairs far too often. With this tax refund, we will be able to get our emergency fund back up to $1,000, and our recent car purchase will hopefully keep us from endless repairs.Baby Step 2: Pay off all debt using the debt snowball.
There are three forms of debt that we have currently or have had in the past...CREDIT CARDS | We put our wedding expenses on credit card in 2007, which was paid off with our first joint tax refund in 2008. We have since been essentially credit card debt-free. Anything put on credit (plane tickets, car repairs) is only done so when we know where the money will come from and is paid off almost immediately.
AUTO LOAN | Our history with cars has been to put about $2000 into finding a used car. This fails us when we make bad decisions and end up putting lots of money into the car. We decided to stop this cycle by doubling our purchase price with this year's tax refund. We found a great deal on a car Daniel's been searching for... but the government won't be sending refunds until February. So, we took out a loan. Our first personal loan ever. But it will absolutely be paid in full once our refund comes in.
STUDENT LOANS | Daniel and I both have a private student loan through the college we attended and student loans through Nelnet, and there was an additional Sallie Mae loan. Between tax refunds and snow ball payments we have paid off the two smallest loans, and with this refund will hopefully be able to pay off our final smaller private loans. That leaves us with our much larger Nelnet loans left to pay, which are currently in Income-Based Repayment.
CURRENT DEBT TOTAL | That leaves us a total of approximately $54,500 in total debt. Ouch!
Our Next Steps Out of Debt
Use incoming money efficiently.
After last year's car repairs, our emergency fund is currently at $450. Our tax refund will help us get it back up to $1000.Once our tax refund comes in, we will also pay off the car loan (we made sure to get one with no fees for doing so early). We will get the car into the mechanic and put a little bit of money into initial repairs to help us spend money on only basic maintenance over the next year or so. About $4500 total.
Selling our Volvo will help us pay off our remaining private student loans: about $1600 total.
Reduce expenses, increase income.
We are already (and have always been) on a pretty tight budget. However, we're looking for those things we can do for a year to get focused. Our debt may not (without a miracle won't) be paid off in a year, but a year is easier to give something up than what feels like forever. One thing we've done is lowered our spending money to $30/month. For some people that's incredibly low. And it is. But it's manageable for us in our current lifestyle, and it helps us feel the hurt of our bondage.We'll make more money to throw at our debt by selling items we don't need/use, continuing my freelance writing, using Daniel's excess per diem and credit rewards wisely. And we believe in miracles.
Get off IBR, make at least minimum payments on Nelnet loans.
The Nelnet loans have been in Income-Based Repayment (IBR) since 2010. We did that when we found out I was pregnant with Ian so that we could put those payments into the medical bills. Then Daniel lost his job, we used our savings to move, and his new job pays $500/mo less. So, we're still in IBR with our Nelnet loans, which means we're making $0 payments while interest accrues and our debt is actively going UP. I know, makes me sick just thinking about it. But the monthly payments that used to go into our private loans, reduced expenses and increased income should all help us meet this goal.Pay what you have vowed—Better not to vow
than to vow and not pay. | Ecclesiastes 5:4-5
Live like no one else now, so we can live + give like no one else later.
Being debt-free and paying cash for cars or home down-payments or vacations sounds appealing. I am also hoping we will learn to be comfortable with frugality to a point that when we're debt-free and our finances are loosened up, we'll have that much more to give away and promote God's Kingdom.Oh, and while being debt-free is reward enough, we will also have quarterly checkpoints that we'll do something special as a family. Either a staycation, a visit to my parents, or some other special (low-budget) family time.
