It feels like it’s been forever, but we are finally debt free! We have paid off our student loans, credit cards, and even a car loan we had to take out. It feels fantastic to just have our mortgage as our only debt. With this freedom comes a new responsibility: handling our money carefully and figuring out what financial goals we want to accomplish next. Truth be told, this next era scares me more than the debt repayment period.

When we were in debt, we had concrete numbers that we knew we had to work towards. It was easy to look up balances at any time and see how much we owed. Those goals were tangible, and easier for me to work towards than an unknown goal. I think now we need to create new goals that have numbers attached to them so that we’ve got that same financial focus.

I feel overwhelmed in the fact that I’ve got so many things that we could be saving for: retirement, replacement cars, emergency fund, future kids, paying on the mortgage, etc. Don’t get me wrong, I am so thankful that we have been able to work so hard to become debt free and I want to stay that way forever.

I’m thinking that we can come up with a strategy to save and maybe even pay extra on our mortgage that will make us happy. We’re also going to have to keep our future career aspirations in mind: I would like to work part time eventually, and when we have kids I would like to be a stay at home mom. My husband will continue to be a chef and try to advance his career when possible. I’d like to have a substantial savings account built up for when that happens for any unforeseeable expenses.

The thing is: I don’t know how much I should save towards each category. And I’m still lenient about paying extra on our mortgage. What if we decide to move? I’m almost tempted to just put all of the money into one account and just not worry about it. I’m thinking that a good plan of attack would be to prioritize our goals, decide a time line on when we want to accomplish them, and then start saving accordingly. It will be a bit easier to digest when we break it down into smaller goals.

The next step of personal finance is one that I’ve waited a long time for. It will be a new chapter of our lives. To be honest, it does not feel quite as exhilarating as I thought it would! That’s ok- the point is we’ve done it! YAYYYYY!

We’re debt free!! What do you think we should focus on next?

The last time I updated this, I owed $12,333.78 on the student loan. As of today, the current balance owed is $11,899.22! I am happy that it has fallen below the $12,000 mark!

I got paid a quarterly bonus and put most of it towards the student loan. Also, I have paid off the Home Depot Credit Card that had 0% for 12 months before the promotional period expired.

Ultimately, I’d like to pay off this student loan before the year is over, but that seems like a pretty hefty goal, so I’m going to go with 2 years, or 24 months to have it paid off.

I decided today that I was going to calculate my net worth because I had never done so. I was surprisingly astonished when I received a net worth of $37,337! This took into consideration myself and my husband’s information, but I was really expecting to be in the red!

To explain our financial situation a little deeper, I am still in my early 20s and my husband is in his early 30s. We both make a decent income for the area of the country we live in. In fact, we earn almost twice more than the median average household income for our state. We own our own house, have a first and second mortgage, both have Roth IRAs, I have a 401K, and we’ve got a nice chunk of savings kept in a high yield savings account at ING. We both work full time as managers in our respective fields, I work in finance, and he works in the food industry.

I was pretty shocked to see the number come up that was displayed. We’ve had a little bit of a financial crisis lately, with a tree falling on our house, tearing a hole in our roof, and totaling one of our vehicles. We’re going to have that extra expense of the deductible on our home owner’s insurance and we’re going to have to buy a new vehicle in a year or so. Luckily a family member sold us her car for something we could afford so we don’t have a car payment right now.

Throughout my life I have lived frugally. It all stemmed from the lessons my mother has taught me. I remember working my first job training horses, where my Grandpa would give me $50 or so when he sold the horse because I helped out. I always saved that money, and was glad I did. We don’t buy fancy cars or spend money on expensive clothes or electronics. We live well below our means, and to tell you the truth, I love it. I love being as close to debt free as I can. Hopefully in 10 years or so we will be completely debt free. I think one of the keys to long term wealth is not generating more debt than you can handle. For instance, don’t go out and buy a new plasma TV if yours works fine. You don’t have to have the nicest things to “keep up with the Joneses”.

I am going to try to “bank on myself”, where next time I need a loan, say for a car, I’ve got that money saved up so I don’t have to get a loan. I’m going to set up a pre authorized transfer of at least $350 a month (same as a car payment) so that I can pay cash for the vehicle of my choice when the time comes, or at least have a good amount to put down on a vehicle so my loan amount isn’t outrageous.

This was a really interesting exercise and I strongly encourage you to do it as well. You may be as surprised as me to find out your real net worth!

As of this moment, we owe $3,040 on our car loan. Add to that the $1500 I got burned by lending money to a friend, and we are $4,540. in debt.  Honestly?  I’m not stressing too much about it.  I know that we are doing our best to get it paid off.  At this point, though, I’m very tempted to just take the money out of our emergency fund and pay off the car loan.  That would be that.

At the same point, though, $3000. is almost a year’s worth of payments.  I could keep making the $250 car payment.  Life would go on.  I’m thinking that once we get down to $1500 or so, I’ll just take that out of savings and pay it off.

How is your debt reduction progressing?

In a perfect world we would all have enough money to buy whatever we wanted. Need a new car? Buy it! Need a new house? Buy it! Need a new computer? Buy it! Need a new refrigerator? Buy it!

If only life was that simple.

Unfortunately, sometimes credit cards make life seem that simple. But like the old commercial used to say, “you can pay me now or pay me later!” And if you’re not careful, next thing you now later comes along, and you have a pile of debt to deal with.

If that sounds like you, then it’s time to make some changes. Here is a simple 3-step debt reduction plan that anyone can follow. It may sound a little basic, but getting out of debt IS pretty basic. Not necessarily easy, but the concept is basic, if you do it correctly. So here are instructions for creating your own debt reduction plan in 3 easy steps:

1) What is your goal?

Like you would do for any worthwhile goal, if you want to get out of debt you need to make it specific. So the first thing you need to do is to grab a pen and paper, and write down your goal. State exactly what it is you want to accomplish. And also state when you want to do it. Simply saying “I want to get out of debt” is not good enough. It’s much too vague to be inspiring. Make your goal very specific, like “I want to pay off all 4 of my credit card bills and have a zero balance by January 1, 2012.” Now that’s motivating! If you take a trip you need to know the address of where you are going to get there, right? The same with your financial goals. Now that you know where you are going, you need to know where you are coming from…

2) Where are you now?

After setting your goal, you need to determine exactly where you stand right now. This is the starting point on your trip to financial success. So get a copy of your latest credit card statements, and make a list of all of your bills and how much you owe. You can even list them below your goal statement. If you haven’t done this before it can be quiet surprising. And very painful. But that’s OK. You need to be honest with yourself before you can make changes in your life. Nobody said “reaching for the sky” was easy. But it is possible once you can see the start line, and the finish line. Now it’s time to create your “road map” to reach your destination…

3) How will you reach it?

There are plenty of ways to pay off your bills. Make a list of every step you must take to make it happen. Here are some ideas: Pay an extra $20 or $50 each month. Use money from a savings account. Get a part-time job. Start a part time business. Stop eating out. Reduce your cable TV plan to “basic”. Get rid of “extras” on your cell phone bill. Cancel newspaper or magazine subscriptions (and go to the library once or twice a month). Sell stuff you don’t use any longer. Get out your checkbook or bank statements and eliminate as many expenses as you can. Cut coupons. Look for sales. Get the idea? There are lots of ways to save money, if you dig deep enough.

So, are you ready now to take charge of your finances? If so, that’s great.

Of course, this plan doesn’t work if you don’t follow it. Chances are pretty good that it took you while to get into debt, and it will take a while to get out. But if you start now, before long you’ll notice your debt will start shrinking, and your financial life will get a lot easier!

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Want to learn more tips to help you get out – and stay out – of credit card debt? The author of this article, Kris Bickell, created www.debt-tips.com to help consumers like you learn how to find the right debt reduction program. Whether you’re looking for help getting out of debt, ways to save money, or help fixing your credit, you’ll find simple tips to help you solve your financial problems.

photo credit: kainr

Well, we did it! I bit the bullet and finally made the last payment on our Home Depot Credit Card.  It made no sense to me to keep making payments each month when we had the money to pay it off, so I just did it.  It was a wash anyway!

I could have kept the money in our ING savings account, but it seems that is not really a high yield savings account right now anyway. I figured that if I left that money in the savings account for 6 months I’d earn under $1.50. Was the hassle of making the payments each month worth it to me? No.

How does it feel to be credit card debt free? Fabulous! To be honest, I feel better than I did when we paid off our student loans. Crazy, right?

Next up: the car loan.  And then we’ll be 100% debt free except for our mortgage.  Woo!

What are you working on paying off right now, if anything?

After I posted ‘The Debt Shoebox’ story, I received an email asking me exactly how Mr. Money and I dealt with the debt shoebox. The person was curious why I wasn’t more upset about the debt and what exactly came of the situation. What I did at that time wasn’t something I’d probably openly advocate, but I am so thankful it worked out for us. I let Mr. Money borrow cash from me to pay off a lot of his debt.

These are actual pages from the notebook I used to keep track of his debt repayment.  This totally makes me laugh!  I remember a lot of the time he would just pay all the rent one month ($650) and I would deduct $325 from his balance because that was my part of the rent.  Six years later I think it’s hilarious that I tracked it this way!

At 19, I had about $3,000 to $5,000 saved up in my savings account (I can’t remember exactly), which I think is a pretty decent amount of money saved up for someone that age. The amount of debt he had wasn’t horrible, but it was something I knew he needed to take care of quickly. I do remember he had balances of about $2,000 on a student loan, $360 American Eagle credit card, $200 Discover card, $100 BP credit card, and $300 RadioShack card. All of those minus the student loan had gone to collections. Ugh. He had set up payroll deductions to pay on the student loan, and nothing else on the others. We called the companies and settled on an amount, they drafted the money from my checking account and he was free and clear. But not with me. He now owed me money, which we kept track of in this book. Every time he made a payment, I’d subtract the amount he’d paid from the amount he borrowed.

Being older now and definitely more mature and financial savvy, I realize that the decision I made to let him borrow money probably wasn’t the smartest. I am thankful that it all did work out though, and here we are now, married for over four years. At least it all worked out.

Have you ever let friends or family borrow money? Would you advise people to do so?

If you are a Dave Ramsey fan, I’m sure you have heard of gazelle intensity.  Basically the gist of it is that you do whatever you can to pay off your debt in the least amount of time possible. Sell things you aren’t using, cut your cable, put the nix on going out to eat, and so on. We attacked our student loans with gazelle intensity, and paid it off a lot sooner than we had hoped. Now the only unsecured debt we have remaining is our car loan at 0%, and I’m not in a hurry to pay that off any time soon.

I almost feel like so much time and energy was focused on paying off that student loan that I’m exhausted from it.  I’m tired of pinching pennies and scrounging up extra money and putting any snowflakes towards debt.  I feel like we’ve accomplished a lot in a short period of time, and now I want to take my time paying off this car.

Seeing that it’s at 0%, it’s not like I’m paying tons of interest if I don’t pay it off quickly.  I won’t save any money if I pay it off early, but that’s definitely not saying it wouldn’t be awesome if we could pay that off by the end of next year as well.  That would rock.  However, I think now I’m going to focus more on saving money for whatever.  I think we’ve got a pretty good emergency fund established.  I’m contributing the max match rate to my 401k.  So I think I’m going to work on saving for the chance we may move back home in the future (2 – 5 years).  I’ll call it my hopes and dreams fund.

Even if we never move back to Colorado, I can still take that money and apply it to the principal on our mortgage, use it as a baby fund, or whatever.  It never hurts to have that extra cash.

Do you think I should work on paying off that car loan as soon as possible, or is my plan better?

We are student loan debt free!!  On Friday, I made the final payment online, checked this morning, and it had posted.  I can’t tell you how excited I am to be rid of this debt!  We have paid off this last loan of $12,333.80  in 1 year, 3 months, and 25 days.  Yes!

I don’t think I’ve ever mentioned it on the blog before, but this $12,333.80 is not the only student loan debt we had.  In 2004, Mr. Money enrolled in culinary arts school and we moved across country for him to attend.  Fast forward to October 2006, and now he’s got his degree and has left school with over $36,000 in debt.  Yes, that is not a typo.  $36,000 was more debt than I ever cared to accumulate, and we went full force attacking it.

We paid off  almost $24,000 in two years, on mainly my salary of $12 an hour full time, plus Mr. Money’s salary of $8(?) an hour part time.  Needless to say, we lived pretty poor to be able to pay off that kind of money in that short of a period of time.  In 2007, we bought a house and added more debt to the plate.  At the start of this blog, we had $12,333.80 left. I knew I wanted to pay this off as quickly as possible. One of my 2009 financial goals was to pay off this student loan and I thought it was a hefty goal. Here we are, halfway through the year and we’ve done it.  It is quite an amazing feeling!

It doesn’t feel real that we’ve paid of $36,000 worth of debt (just in student loans!) in 2 and a half years.  Looking at how much money we made doesn’t even make it seem possible but we did it all while saving for an emergency fund, putting a nice down payment on a car, and paying extra on our other loans.  The fact is, we did it, and I can’t imagine a greater feeling.

Now onto chipping away at our car loan and living a debt free life soon!

“Finances are 80% emotion and 20% logic.”  I heard that from a financial adviser the other day.  I gave her a call to ask her advice about paying off debt versus keeping the money in our emergency fund.  Truth be told, sometimes I second guess myself.  Imagine that.

This quote resonated with me all day.  I don’t think I’ve ever heard a quote about personal finance that’s been more dead on.  Really, does paying off debt make sense if it saves you money in interest but you can’t sleep at night because you’ve depleted your emergency fund?  What about on the flip side, is it worth hoarding all your money in your emergency fund if you have enough in there to sustain you for 8 months or so but you’ve got the debt monkey on your back worrying you at all times?

To me, peace of mind is priceless.  Knowing I have an 8 month emergency fund is the most awesome feeling.  Knowing that I’m being the most proactive I can in managing my future by making wise decisions makes me feel like a genius sometimes.

When it all comes down to it, we’ve got to do what we’re most comfortable with, whether it makes mathematical sense or not.   What are some things you’ve done that didn’t make the most sense mathematically but made sense for you emotionally?