Wednesday, April 9, 2014

7 Days of Dave: Day 3

Welcome Back! It's Day 3 in our "7 Days of Dave" series.

Today we will be looking at Baby Step 2: Pay off all debt using the debt snowball
What does that mean?
Make a list of your debts (excluding your mortgage or rent payment) from smallest to largest payoff amounts. The smallest will be your first priority.

Here is a breakdown of our loans:

Loan 1: $3,500
Loan 2: $7,500
Loan 3: $12,500
Total Loans: $23,500

Loan 1 began billing us within 6 weeks of Mark's graduation. Because we had wedding money and enough money in our "3-6 Months Emergency Fund" we decided to pay that loan off in full. It had a very high interest rate and we really wanted to just focus on the others. Paid in Full: June 2009.

From there we began paying the monthly minimum on Loan 3 ($120.00) and making as large of a payment as possible on Loan 2. Some months we were only able to double the monthly payment on this loan but others (if I subbed a lot or during the hoidays/birthdays) we were able to sometimes pay as much as $1,000 a month on this loan. Paid in full: May 12, 2010.

Down to just that last big one! Because we had only been paying the minimum we had a great deal left. During this time, Mark used one paycheck to make our house payment ($561.00) and the other to pay entirely on the student loan. I used one paycheck to cover all of our utilities and groceries and the other to pay entirely on the student loan. I will say that once we were down to this one loan we did to choose to loosen up a bit. We began to eat out occasionally and even took a short trip to Georgia the summer of 2010 to visit family. However, in January 2011 when we learned we were expecting we knew we had to have the loan payed off before the baby came/I quit work to work at home. Less than 8 weeks before Annabeth was born we achieved our goal. Making that final loan payment phone call was one of the best days of our lives!
Paid in full: August 2011

Mark is listening to the automated system say 
"Loan is paid in full."

 "Now you must live like no one else 
later you can live like no one else."
Debt Free Rileys!

Why does Dave suggest to pay off smallest to largest?

The general idea is that small wins (ie paying off a loan) is a great motivator to keep going and working hard to achieve financial freedom. By trying to pay off the largest first, people have to wait longer, work longer, and may become frustrated or give up sooner. 

I will say that being able to work hard and pay off two loans in the first year of marriage was a great feeling! Yes, together, they equaled less than what we had left in Loan 3 but it still felt like a great accomplishment having two paid off!

This step (along with Step 7 - where we currently are) was, spiritually, the most important to us. As Bible believing Christians, we seek God's Will in all aspects of our lives and use the Bible as our handbook. In striving to be debt free we really sought to live out Romans 13:8 "Let no debt remain outstanding, except the continuing debt to love one another, for whoever loves others has fulfilled the law." (NIV)

Be sure to check out Dave's page on Baby Step 2.

Hope to see you tomorrow for Day 4 and Baby Step 4!

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