Thursday, January 8, 2015

Financial Freedom: Our Debt

Like most 18 to 20-something year olds, Neal and I believed a few myths about money.  We even had a plan based on those myths.  We were going to graduate from college, get married, save up for about a year, buy a house, fix it up, and then start a family.

Side note: Things have not gone as our 21-year-old selves thought they would.  Instead things went like this: graduate from college, get engaged, buy a dog, suddenly decide to move 3000 miles away to the west coast, get married, move, take Financial Peace University, move back to the east coast, buy another dog, and......here we are now considering relocating again (I swear it won't be 3000 miles again!). 

But I digress.  Those myths (we needed credit cards, student loans were the only way to get through school, we had to buy a house soon, we'd only have decent cars if we financed them, etc.) weren't crazy (everyone we knew believed them too!) but they were just that, myths!  I want to address each of these myths and how believing them got us to where this journey began.

**Please note that these posts only include our opinions and what we feel is right for our specific situation.  What is right for us may not be right for you.  Please do not take offense if you have done any of the things that we may avoid or regret.


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First, credit cards.  We 100% believed we needed credit cards as we had ZERO credit.  We thought we needed to get credit cards and start building credit so that down the road we could buy the car(s) and house that we wanted.  So in 2011 we each got a measly little $500 limit credit card from our bank.  Thankfully (seriously) we were both wise enough to pay off our credit card each month.  With mine I only bought gas.  And I paid the bill in full each month when it came.  Neal would buy gas and groceries and some other necessities with his.  But again, he paid his credit card off every month.  Thankfully we didn't rack up a boat load of debt in the credit card department. 
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Second, student loans.  This is a tricky one for me.  Let me start by saying that Neal was blessed enough to graduate with his bachelor's degree with ZERO debt. Woop woop!  And really, my student loan debt was minimal compared to "the norm."  Now, I say this is tricky, because in my specific situation, I don't necessarily regret pulling out student loans.  Do I wish there was another way I could have paid for school without working and still graduated in four years? Absolutely.  I still managed to avoid loans in a multitude of ways.  I lived at home all four years of school, rent free, and my tuition and fees were paid for in full thanks to my parents' wise investing (thanks Mom and Dad!).  So my financial responsibilities were limited to books each semester, school supplies, my parking permit for school each year, gas for my car, and any personal expenses (fun stuff, eating out, clothes, beauty products, etc.).  I worked part time (20-30 hours/week) in my first two years of school and I worked a full time job every summer through my four years of college and a part time job for two summers in addition to that; I saved as much money as possible from those jobs to put toward school supplies.  The difficult part was when I got sick in my sophomore year of school (had mono but didn't know which resulted in a downward spiral with my health) and decided my overall health and well-being needed to be a priority.  My parents wouldn't put any more money into my college education (for that I very thankful! Besides, they'd already paid for all of my tuition and fees...they'd done more than enough) so it was up to me to figure out a way to fund the rest.  So after many tears, a lot of anxiety, countless prayers, and multiple conversations with my parents, I decided that the only way to keep my health a priority but still finish school in four years was to pull out student loans for my last two years.  That way I wouldn't have to work a steady job (I still did odd jobs and made money where I could) and go to school full time.  For me, I felt student loans were the right choice.  And, thank the Lord, they didn't turn into a huge financial burden for us.  When all was said and done, I graduated with my bachelor's degree and $10,500 in student loan debt (with a 6.55% interest rate) hanging over my head.  Again, if I could go back and work it out so I graduated in four years with no student loans then I would have.  There are definitely ways I could have cut back on my spending more.  Hindsight is 20-20, right?
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Third, a mortgage.  I don't know if anyone else feels this way, but Neal and I definitely felt (and desired) that our life would go: get married, buy a house, have babies.  We saw countless other couples do it.  Our parents did it.  Our siblings did it.  Our friends were doing it.  It just seemed like after getting married, buying a house was the right thing to do.  This was where moving to Washington was more of a blessing than we ever could have known.  Had we not moved to Washington, we definitely would have bought a house with nothing down and we would've financed it with a 30 year mortgage.  Now we see things completely differently.  And, honestly, we have no plans in the near future to buy a house because, even being debt free, we're just not financially ready yet.
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Fourth, financing vehicles.  Neal has gone through a few cars in his day.  Four cars in nine years to be exact.  I know people who have gone through more, but that's almost a "new" car every two years. Yeah, I've had two.  Thankfully we made it through six vehicles without ever paying a payment.  BUT...that changed with lucky number seven.  When we got engaged I was driving the car we still own (2004 Toyota Camry...a hand-me-down from my Dad. Thanks, Dad!)  and Neal was driving a 2002 Toyota Tacoma (a hand-me-down from his Dad).  The Tacoma had almost 225,000 miles on it and was starting to show some signs it was going to need some serious repairs soon.  We decided that once we had a family, we'd need a bigger truck anyways (seriously y'all, my Camry was bigger than the Tacoma. That truck was tiny!).  SO...in April 2012 we found the "perfect" truck.  We purchased (aka FINANCED) our 2009 Chevy Silverado.  That loan was for $23,500 and some change....and it was financed with a 72-month, SIX year loan (with a 5.45% interest rate!). Yikes. 

So by May 2012, I had only been paying on my student loans for six months so I'd barely made a dent in them, and between my student loans and the auto loan, we shared roughly $34,000 in debt (not including the interest which was literally being tacked on daily).  Now, I realize this is minimal compared to the financial state of many households, and for that we are so very very thankful, but that debt was the equivalent of my salary straight out of college.  No, thank you.

$34,000 later, we decided to do something about it.  Stay tuned for the next post to see what that something was!

1 comment:

  1. Things don't always go as planned, and to be surrounded by debt will never be anybody's plan. However, aiming for financial freedom, in my opinion, is one of the best ways to get back on track once again. In any case, I'm real proud of you and Neal for owning up to your financial responsibilities and tackling your debt together. You guys make a great team, and that is inspiring. Thanks for sharing that, Annie! All the best! :)

    Naomi Cruz @ 4 Pillars

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