I started this series two years ago to hopefully share hope and encouragement with other families who were scraping by on a low income. Before my $50 Revelation that started it all, we were discouraged with our debt. We were living by our budget, making our payments with a little extra here and there. We were making ends meet and we weren’t getting further into debt, and I thought that was the best we could hope for.
We hadn’t heard much about Dave Ramsey or any kind of debt free movement back then, though I had seen some stories referenced on Money Saving Mom. The stories I had read about people getting out of debt included high salaries, living rent free, very generous gifts from wealthy family members, inheritances, etc. None of this was going to help us.
The $50 Revelation
I was lying in bed one night after we’d just switched our car insurance, which saved us $50/month. I started wondering what that small amount added to our regular payment might mean for debt reduction. We also had some money from our tax return, so I added that in as well. I worked the numbers in my head and found that we could pay off my first loan of $8,000 in a year or so.
That was the glimmer of hope that started it all–$50/month.
Once we saw the possibilities, we started working harder to make some extra room in our budget. We cut out a lot of expenses and reworked our budget, which allowed us to free up $190/month to put toward debt reduction. If you think that would be impossible for you, go check out the steps we took–I shared in detail all the cuts we made.
I want to stress this–we had a TIGHT budget, living paycheck to paycheck before we started this journey. There are likely some ways that you can cut your budget as well. How we cut $190 from our budget.
A Bump in the Road
Right away, just a couple months after starting our debt-free journey, we hit our first bump in the road. We found out in May 2012 that my husband may be transferring to the other side of the state. We found out for sure in July 2012 and moved at the end of July 2012, 6 hours away from home.
This added a lot of stress to our tight budget! First of all, we drained our meager savings account paying deposits and moving expenses.
Secondly, because we weren’t able to sell our house, we needed to find an additional $250/month in order to make ends meet! It is here that we could see the hand of God so clearly–when we were cutting back our budget in order to be debt free, He was preparing us to be able to meet these additional expenses. You can see here how we managed to cut our budget an additional $250/month.
Since July 2012, this has been our budget. There is no wiggle room here. But it was a necessity. We had our house on the market all that time, but we weren’t able to sell it. We tried to rent it, but that didn’t work out either.
Over the last nearly 2 years, we have paid over $13,000 in house payments (including taxes and insurance) on a home that was depreciating the entire time because of the down market. We were literally throwing money away, which is a part of the reason that we no longer consider a mortgage to be “good debt”…at least not always.
At the beginning of this year, our mortgage increased from $569 to $640, due to a mistake with our escrow account last year. Fortunately, we were able to pay off the last of my student loans this spring which freed up a bit of money in the budget to cover that. For those student loans, we paid off nearly $20,000 in just 2 years!
Selling Our House
This spring, we had paid off the last of the student loan debt, and our only remaining debt was the mortgage–the one on the home that is basically unsalable because of financing difficulties on mobile homes. We were getting more and more frustrated with it, and finally decided to try an auction with a reserve. No one even showed up.
At this point, our agent suggested we ask our lender about the possibility of a short sale. In early May we received a cash offer. Our first desire was that we could accept the offer and then pay off the rest of the debt to our lender separately. However, this was not approved because they wouldn’t release the lien against it until the debt was satisfied in full.
So, the only option was to go the short sale route, in which they would forgive the remaining debt and it will go on our credit as “paid in full for less than owed.” It’s definitely not ideal, but after much prayer and consideration, we decided to do it. The shortfall is a very small amount (although still too much for us to pay with cash to make up the difference), and this was the only offer we received in about 4 years of multiple times on the market.
So, we are debt free. Life throws us curve balls along the way, so it looks a little differently than we first intended. We don’t own our own home, we are still renting.
And I am finding that even though we have rent to pay each month, it’s not the pressing weight of debt. If we needed to move, we could pack up and move and be out, at most, a month’s rent. Not $13,000+ in payments over a year and a half!
Also, our original plan had us owning our home in 7 years. With the money freed up from our previous debt payments, we could still potentially save up the money to buy a house in 5 years! So, we could be still on that 7 year track, despite the setbacks we had.
We did put an offer on a home in the country that needs some work, and that is all still up in the air (and may not go through anyway if we end up with a black mark on our credit), so we may end up with another mortgage, but it is well below what we could afford and we could pay it off in 4 years.
The important thing is that right now, we are debt free for the first time in our adult lives.
Read the Whole Story
This post is pretty long, but was condensed to put the whole story in one post. Here is the entire series, if you’d like to read more…
- ~Create Your Own Budget
- ~Our Original Tight Budget
- -How we “Found” an extra $190 in our budget
- -When Life Throws a Curve Ball (How we cut $440 from our budget!)
- -Our Snowball Plan (to be debt free in 7 years)