by Ashley
If you missed my post earlier this week, I announced the exciting news that we are officially consumer debt-free! YAAAAAAAAAAAY!!!! (insert happy dance emoticon)
What’s funny is almost immediately after making the final payment on the car….it broke. Ha!
A bit of euphemism. It didn’t break down. Just a piece of it broke off. Check this out.
Nothing even happened to cause it to break! I was just driving down the road to get to work, minding my own business, when out of the corner of my eye I saw a piece of our car just flapping in the wind! I immediately exited the highway but on the exit ramp the piece fully fell off and broke into several pieces.
Hubs looked it up and thinks he can get the part for relatively cheap ($100ish) and do the install himself. So all is well, just kind of funny that the second it becomes OURS….it breaks. Ha!
At any rate, I’ve had a couple people comment and ask what’s next now that the car is finally paid in full.
It’s tough because #1) I’d love to start punching Navient in the face, taking out loans left and right, and #2) I have a relatively small balance transfer loan (just over $2100) from what was originally a student loan that I’d love to pay off next month.
BUT…
I’m trying to use my head and not just my heart (which says to start stomping the student loans NOW), and make our first priority re-building our emergency fund.
If you don’t remember, our EF was slowly whittled away the second part of 2015. As was our “living on last month’s income” fund. Hubs’ business wasn’t doing so hot in 2015, so whenever I needed that extra little boost for paying debts, I’d “borrow” here and there. First from the “last month’s income” fund, and then when hubs had a no income month I used our EF and, well, now we’re down to basically nada in either of those accounts (note: not entirely true…we still have a few hundred in the EF, but not nearly what we’d like to have).
We have 3 big goals for 2016:
- Save up $10,000 for a house down payment.
- Save $5,000 for an emergency fund.
- Put $30,000 toward debt.
Starting in February, we’ll begin chipping away at items #1 and #2. We’ll still be paying toward debt, too, of course. But we’ll be doing so at a much less aggressive rate as we, instead, try to restock some money in the bank.
The plan is to put nearly $2,000 a month into savings. This will be $1250/month toward the house down payment fund (our goal is to buy by the end of summer, so we need to save heavily the first half of the year), and another $500/month into our dedicated Emergency Fund.
In addition to that, we’ll still be making debt payments in the range of $1500-$2000 per month.
It’s going to be tough. That’s a pretty aggressive rate of savings and debt payment. We’re talking about $3500/month between the two, which is more than what our average monthly debt payments were last year (see here for a quick-view breakdown of the majority of last year).
But when you have something so meaningful that you’re working toward, it definitely helps put the fire under your pants. That, plus this will be our first full year both working full-time (and I still have the part-time job, too). It’s just going to be astronomical earnings compared to 2 years ago. Even compared to the first half of last year. So I think we can do it.
The first half of the year will, admittedly, be a little heavy on the savings side of things. Then the second half of the year we’ll make up some ground and really start making some good headway with the student loan debt.
But it won’t be all savings and no debt until then! It wouldn’t make sense to blog for a getting out of debt blog if I wasn’t actively working on the debt!
I’ve got a few tricks up my sleeve to try to make some good progress even while in savings mode! I’ve GOT to have the balance transfer student loan paid in fully by April (that’s when the interest sky rockets from 0% to 13%!!!) But right now my projections show it being paid in full by March. Then I plan to initiate a second balance transfer to do it all over again (they still have the deal with 0% APR for a year, and only a 2% initiation fee; this is half the initiation fee of other offers I’ve received).
I also may consider some type of consolidation program a little bit down the road. I like having my loans separated currently because it gives me a big psychological boost every time I pay off one of the loans (and I target them one-by-one, paying minimums on all others). However, I hate Navient with such a fiery passion that it may be worth it to consolidate with an outside company just to get them out of my life. We’ll see. I’m not jumping on anything now, but keeping my mind open to the possibility down the road.
Anyway, that’s it for now. I just wanted to dedicate a post to the question I’ve been seeing, “What’s next?”
Also…counting down the days until the all-cash paid Cruise 2016 vacation in April! We’ve been planning and saving for it since February 2015 (over a year!!!), so we’re beyond ready! I can’t wait! Whoever said you can’t have a little bit of fun while in debt-repayment mode certainly never read here! It may be a controversial stance, but I’m a believer in balance in life. We’ve worked HARD the past two years to dig ourselves out of the giant debt hole we were stuck in. Yes, we have a long way to go. But it’s precisely because this is a MARATHON (and not a sprint) that I think it makes sense to build some fun into the budget. Otherwise it’d just be impossible to stick to for so long! That’s my view on the matter.
What are your plans once you get out of consumer debt? Tackle student loans? Your mortgage? Get your savings up to snuff? Or are you going to go beyond? Perhaps save enough to retire early? Do some traveling, etc? I’d love to hear YOUR plans!
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Freshly 40, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!
Save enough money for a 20% downpayment on a house otherwise you are stuck paying PMI which can get pricy and is basically throwing money down the toliet. I know since I stupidly have to pay it myself.
I second this. I wasn’t sure if you were just thinking $10K towards the down payment was a doable amount this year and next year you’d save more, or if you were only going to have $10K as the downpayment.
Another thing to know is that many lenders will let you pay the property tax and insurance without escrowing if you have a certain % equity in the home, around 30%. Most people don’t care about that, unless they get stuck with a servicer who can’t stay on top of making the tax and insurance payments.
Putting 20% down is the plan. To do so we’ll save $10,000 this year, use the $10,000 from my money market account (which I’ve had the entire time I’ve been blogging and it’s just been sitting there), and I will add to it a financial gift from my mom. With all funds combined we should have enough for the down payment + an extra cushion for necessities when we first move in (how much extra, of course, depends on the price of the home we buy). We’re going to be looking in the mid-100s.
Ashley mentioned that she is getting an gift (undisclosed amount) from her mother to assist with the home purchase.
Kay makes a good point. It probably makes more financial sense to save for a down payment than it does to pay extra on loans. (And/or wait a little longer before buying).
P.S. I wasn’t a fan of the car payoff given so much priority. It’s not just about one car. I can’t wrap my brain how one is ever debt free when paying so much for vehicles. All this to say, if staying debt free is important to you, your next priority would be saving up for vehicles. That should really be a high priority. I don’t think it should necessarily be a higher priority than home ownership, savings, or retirement, etc. But if you are each going to replace your vehicles every 7 years or so then that is going to take a lot of savings to do without debt. (I don’t know what your plan is, but just throwing out 7 years as an average). I’d figure what you need when, divide by how many months you estimate you have, and input that into your budget now. Staying debt free will always be planning and saving to that end. Once you pay cash for your next vehicle you would then start saving your “car payment” for your next car. Once you get ahead of the curve it’s not the same as when you are catching up. I only save $100/month to replace my vehicle. It’s $100/month that I *always* save but it’s never been any more than that.
This is just one of those things people always end up quickly back in debt with. I didn’t see anyone mention that you should be making a plan to keep out of car debt? To me that seems like the glaring next step.
As to your questions, I’ve never had any consumer debt. Just working on early retirement!
I think this is a great idea. You should definitely be saving your old car payment for your next vehicle. Or for maintenance. Don’t just add it to the snowball because then in a few months I’m sure you’ll have another car emergency!
Yay for early retirement! That’s a great goal!
I definitely do have in the back of my mind that we’ll need to start paying ourselves a car payment at some point, but I think that won’t be until next year. My car is a 2012 and we plan on driving it to the ground (hopefully 10+ years). Hubs’ car is more precarious, but it’s also cheap. He just has a work truck. We bought it cash for about $3,000 several years ago and it’s been an absolute work horse, taking lots of abuse and still going strong. When the time comes to replace it, we’ll probably do something similar (used, beat up work truck for cash). At this point I’m more concerned with savings for vehicle maintenance (tires, etc.)than saving for a new car but that IS something that we’ll work toward in the future.
That’s great! That you are willing to pay $3k for a truck sounds much more reasonable from a “staying debt free” standpoint. I know you had mentioned worrying at some point if you would have to replace it and I Was wondering how on earth you planned to do that.
Anyway, with your willingness to not spend so much on a work truck and the 20% down plan, I think you are doing really well! & how exciting to do your cruise without any consumer debt? What a nice reward!
The only debt I have is my mortgage. I paid off my third car in 2001. I was able to pay cash for my fourth and current car in 2012. I started setting aside $250/month for a new car to be purchased around 2022. So far, I have $9K, but I’ve stopped saving for it because now we’re saving for a wedding.
Ditto, somewhat, for pre-paying on the mortgage. The extra I’d be putting towards the mortgage now goes into a sinking fund. If we miss the wedding saving goal, or we get hit with unanticipated costs then I can use money from the mortgage fund. If we end up on or under budget for the wedding then all the mortgage money will go towards the mortgage.
I’m turning 45 in March, and I ran the numbers – there’s no early retirement for me unless I win the lottery. On the plus side we’re on track with our retirement savings. So, really, my focus is on saving for the wedding (a modest one), and post-wedding killing the mortgage.
YAY!!! Those are fantastic goals!!! And congrats on the upcoming wedding! When is it? What an exciting thing to pay for a wedding in CASH! Our parents generously helped a lot with ours, but we put quite a bit on credit cards (which I then crushed as soon as I started the debt reduction mission). Such a good feeling to pay for things (like a CAR!!!) in cash! That’s awesome!
Thanks!
We’re shooting for May/Juneish 2017. Part of me just wants to go to a JP now… I HATE planning parties 😛 But I also really want our families to be there. We’re planning on a morning wedding to keep expenses down – lunches are a little cheaper and not as much drinking happens. And it will be on med-small side. Plus, I’m not buying a full blown wedding dress. I’m going for an off-the-rack formal white dress 😉 A big help in keeping things sane is that my mother is also ok with a low-key wedding, so no MOB craziness 🙂
As for buying a car with cash… It was definitely weird feeling! It was the second car I’d ever bought new, and it was pretty surreal going to the credit union to get the bank check. But, man, is it nice to know that I’m on the title and there’s no lien!
The part fell off our car during a road trip late last year! It cost less than $250 to fix but like our car, there was nothing that hit it or otherwise – just flew right off! So annoying.
I’m hoping my annual bonus will be enough to pay off our smaller car loan. You set yourself a very aggressive goal but look at what you did last year – just keep your eye on the prize!
A few items that I can see need immediate addressing before either student loans or house savings:
1. Paying off the balance transfer
2. Topping off all of your pre-pay funds for annual or period expenses
3. Save up the buffer to live on last month’s income
4. Save a “mini” emergency fund ($2500 – $5000)
I think I’d pay minimums on student loans until wrapping up those items. After that, let the debt crushing begin!
These things will also help you in the mortgage approval process. The more assets you have the better.
I’m conflicted on your plan of trying to split the pot and do 4 things at once with your money. Definitely a little too much for me but you seem to work well with distinct buckets. One question have you looked into your estimated taxes for 2016 yet? You will have a much higher income than you’ve had in years past. I’m wondering if its going to throw you into a separate tax bracket or not, thus reducing the amount you anticipate taking home.
Those are some BIG goals for 2016! But I’m sure you’ll make it with all the motivation I’m hearing and us readers’ support! Funny how your car broke as soon as it was paid off LOL
Good luck on your journey!