Friday, June 30, 2017

And I ask myself, How did we get here?

Our debt story started 15 years ago when Fortysomething and I started graduate school. It's not that we had to pay tuition. In fact, we didn't. As science students, we had the luxury of having our tuition and health insurance covered by our department, and we even earned a small but respectable salary by teaching science labs.

Looking back, we could have made it work. We should have made it work. Rent in that area was reasonable, the transportation system was cheap, and there were plenty of things to do that didn't cost a cent.

The problem was, we didn't want to move to our new town and rent. No. We wanted to buy. We'd heard our parents and their peers and some of our wealthier friends wax poetic about the glories of investing: "Why rent when you can get a monthly mortgage for the same price?" was a common argument. It made sense. In fact, it sounded like the right thing to do, the responsible choice.

We had no down payment, true, but our credit was good, and in the days of subprime mortgages, that was enough to get us what we wanted. Within a matter of weeks, we were making an offer on a small two-story condo in a nice part of town. A few weeks after that, we were homeowners. We felt like we'd achieved adulthood.

But the back-of-the-envelope number-crunching we'd done before making our big purchase didn't take into account things like PMI (again, we'd had no down payment, so PMI was built into our monthly payment), condo association fees, and the kinds of repairs that everyone who's ever owned a house is familiar with. We soon realized that our monthly mortgage far exceeded average rent in our town... and moreover, we realized we were having trouble making payments.

So we did what many of our grad school friends were doing: we took out student loans and used them to bridge the gap between what we owed and what we could actually pay. The loans gave us a false sense of security. In reality, by the time I earned my Master's degree, we were tens of thousands of dollars in debt - all because we'd felt the need to buy instead of rent.

More than a decade later, the debt remains. The interest rates are relatively low on these loans - 7% for mine, 7.25% for Fortysomething's - but the paydown is incremental because a) our monthly payments are relatively small and b) the balances are so high (as we discussed in a previous post, our student loans make up 70% of our debt).  Sometimes I feel like the student loans are going to be a part of my life for the entirety of my existence.

I don't have many regrets in life, and to some extent, that includes somewhat frivolous financial decisions. Those two months of backpacking in Europe in 2004? Unforgettable. That trip we took to St. Lucia in 2005? Once in a lifetime. The move to rural Montana in 2006 on a whim? An experience we'll always remember.

But the student loan debt and, by extension, the first house? Major regret. If I could transport myself back to 2002, I would storm into that lender's office and put my foot down. I would snatch the pen out of younger me's hands. I would explain that when you're 23 years old and you have not a penny to your name, you don't need to be jumping into homeownership - and that had 23-year-old me been willing to rent, 38-year-old me would have far more financial security.

So yes, I regret it. But I also realize that the past is the past. Now is the time to fix all of this. We've put it off for long enough. When I look back in 10 years, I want to be proud of us for making this sea change, not frustrated that I was unwilling to do better.

Sunday, June 25, 2017

Introducing the $76K Project

They say that in life, you have to write your own story. So here's what I want to see when I read my story five years from now:

We used to be $75,000 in debt, but we've paid it off. The $22,000+ in credit card debt? Gone. The $53,000+ in student loan debt? Eliminated. Kicking our debt out the door took a lot of discipline, patience, and a long-term mindset. The process wasn't always easy, nor did it always go as planned. We've made some mistakes. We've had some setbacks. Ultimately, though, we stuck with it. Now we live in place we love, and we're not saddled with hundreds of dollars in debt payments every month. We persisted. We're free. 

The specifics on how we got here is a discussion for another post, and one we'll certainly share.  The short version is that it took many, many years, during which time we've moved multiple times, traveled frequently, experienced underemployment, faced hefty medical bills, and - frankly - made some pretty dumb decisions. We haven't always been patient enough to save and instead have made impulse purchases with our credit cards. We've owned a house we couldn't afford and taken out student loans that now sit on our shoulders like financial elephants.

So here we are. 

Three months ago, my partner and I (he's Fortysomething, I'm Thirtysomething, and we have one Kiddo) decided to get serious about paying it off. We started with over $76,000 in debt. We made a rather clunky, bumbling budget in April, stuck with it, refined it in May, and kept powering through in June despite several unexpected bills. It's been challenging: we live in a relatively expensive area, and our dual income is decidedly middle class. We've had to cut back on going out to eat (my Achilles heel), and we've realized we can't afford to hit up Target every weekend for new clothes or home decor. We know we can't gallivant off on expensive vacations just because we feel we deserve a holiday. 

What keeps me going is that I see progress. We now have a savings account, for example - nope, we didn't have one a few months ago - and we've seen our total debt decline, if only by a few hundred dollars. The changes are taking place at a glacial pace, but now that we're three months out, I see their effects.

I'm putting all this out there in part to help myself stay motivated and in part because I know we're not alone. People don't talk about their debt, and if there's anything I've learned from our experience, it's that the choices we make with our money don't always reflect the reality of our financial situations. We are not the only ones who've spent what we don't have and in the process dug ourselves into a deep hole.

That said, it's hard to put it all out there because I know we should be in a better situation at this point in our lives. If you're in the same boat, or if you want to avoid this particular boat (I highly recommend said avoiding of debt boat), follow along. We want to share our story and strategies, and we'd love to hear about yours as well.

Current debt status:

Total debt, June 25, 2017: $75,505.31
Credit card debt: $22,286.44
Student loan debt: $53,218.87

Current savings: $2000



Winning, November 2017 Edition

I almost - but not quite! - slacked off on posting the November edition of WINNING, a series in which I identify our accomplishments in an e...