“Those who cannot learn from history are doomed to repeat it”
Before we can really begin to plan where we’re going, I think it’s important to reflect on where we came from. I have been working on this post for about a week now, and while I would love to tell you a long elaborate story about how my wife and I got into so much debt, the truth is neither of us really knows exactly where the money went. I think most people who are in debt feel the same way. Except for a few expensive things that we’ve bought like a plasma TV and an expensive mattress, it’s the nickel and dimes of life that are thrown on the credit card that add up over time. It’s those nickels and dimes that turn into thousands of dollars when only the minimum payments are made on the balance every month.
So instead of a giving you a long, drawn out story to read, which probably wouldn’t be that interesting anyways, I thought I would list a few of the pivotal points in the past few years that got us into the debt we’re in now.
The beginning
My wife and I haven’t always been in debt. After high school I spent four years in the Marine Corps, and was pretty conservative with money, mostly because I never had any. At the time I only had a single credit card with a low $1,000 limit, and I almost never carried a balance. My wife went through school with a small shopping addiction, but nothing too crazy. She graduated school with one fairly low student loan.
Going back to college is when my own debt really started to build up. I received money from the GI Bill every month, but that was just enough to pay rent and buy food. This was also around the time my wife and I started dating, so of course going out on dates was a regular thing then too. Dating and fixed income don’t really mix too well, and I still spent money like I was receiving a monthly salary.
Buying a new car
About a year after my wife started her first job, her 1990 Honda Civic called it quits. But not in a cheap fashion, instead it would randomly die on the freeway, and then start up again as she tried to coast to the side of the road, giving everyone in the car a good scare. The mechanics couldn’t determine what caused the problem, so our only choice was to pay a few hundred dollars at a time to try and fix what may or may not have been the problem. Instead she decided it was best to buy a new car. But not just any car, a car that cost about 100% of her annual salary (the car we’re currently working to pay off). She financed it for 6 years, which reduced the payments, but meant she would end up paying more in interest over the loan’s life. Being able to afford such an expensive car meant paying everyday expenses with the credit cards, always with the good intention to pay them off at the end of the month. This is when my wife’s debt really began to add up.
Hitting the tipping point
I would guess that near the peak of our debt, my wife and I had over $40,000 in debt, which included credit cards, an auto loan, and student loans. The sad part is that other than a few big luxury items we shouldn’t have bought, we really don’t have much to show for all of that spending. We used our credit cards the way you would use a debit card for every day purchases. It was the little things that really added up - $60 to eat out one night, $60 on groceries another. We bought nice clothes to look good for work, after all if you want to get promoted you should dress the part. We didn’t live an extravagant life, but we didn’t live cheaply either. Shopping was a popular past time for both of us. She frequented the malls, while I regularly went to the bookstores and electronics stores.
The tipping point for us was our wedding this past June. We didn’t have a choice about starting our new married life together in debt or not, but we did have the choice about which direction we were going to go. We have decided to take the road to freedom from our debt. And so now, a few months after the wedding, is where you enter the story and we begin our journey together.
Small Victories
Even though our current debt situation is less than ideal, we like to look back at the good choices we made in the past, choices that would have qualified as extremely dumb moves in this story.
The biggest decision we’re glad we made was to not buy a condo in San Diego, where both of us went to school. For one it would have been a terrible financial decision. We would have bought near the peak and surely would have been upside down now that the housing market has begun to plummet. Making the monthly payments would have been tough, and it’s likely we would have continued to put living expenses like groceries on our credit cards. Add to that the interest adjustment we would have been facing, and our financial picture could have been looking very different right now.
Buying the condo would also have prevented us from moving to the Bay Area this past year, a move that has brought an enormous amount of happiness to our lives. Both of our families live up here, as well as many of our long time friends. We both agreed that we feel more at home here than we ever did living in San Diego.
Another good decision was not buying another new car this year. I totaled my car almost 12 months ago, and almost bought a new Honda Pilot. That choice would have put our debt levels up another $30,000. It also would have reduced the extra money we have available monthly to pay down existing debt. Factoring in gas, insurance, and maintenance, and we would probably still be making minimum payments on all of our debt, if we could have made them at all.
Where we’re at now
After the wedding we worked hard to pay off our joint credit card. This card had both the lowest balance and the highest interest rate. We paid that off at the end of November, and next up is the car. We will continue to use the debt snowball method to pay off our credit cards and student loans until we are completely debt free. It’s going to take a few years, but our long-term goal is to be debt free by 2010.
You can take a look at a past post I wrote about fulfilling the requirements to get out of debt to get a better idea of what we’re doing to work towards our goals.
I hope if you’ve read this far you’ll stick around until then to see if the dream of becoming debt free becomes a reality. You can subscribe to the FreeFromMoney.net feed, found at the top right corner of the page, either through RSS or email.
