Over at The Digerati Life, Silicon Valley Blogger muses about handling large debt loads. Her examples include two bloggers who have large amounts of debt: the always controversial Casey Serin and a newer blogger Debt Kid. She also narrates a story of a man she knew who bought a $1.5 million dollar home, but who had a bunch of contingency plans should things go financially awry.
In our own writings, I have to admit that we can be brazenly blase about the amount of debt that we have and how we’re tackling it. I feel that we can do this because we’ve come up with our own action plan to manage our debt. When we first started this blog, we had $18,054.88 in credit card debt, and $135,966.11 in student loan debt. Many people look at those numbers and tend to freak out; we did too. Fast forward to today and we’ve eradicated all of the credit card debt, and we’re working to accelerate the student loan payment. Here’s how we’ve managed this amount of debt without waking up in cold sweats.
1. We have relatively low rent. This was our first step for our finances after college and has been paramount to freeing up cash. Currently our housing costs are 18% of our take home income (about 10% of our gross).
2. We used the debt snowball for debts with balances of under $1,000. We had a few cards with a few hundred dollars debt on them; each of them demanded a minimum payment every month. One of things I do like about Dave Ramsey’s debt snowball is that it frees up cash relatively early in the debt payoff. Even though it made more mathematical sense to pay off the higher balances first, when we paid off the lower balances it freed up more cash in that it was one less minimum payment we’d have to deal with.
3. We applied freed up cash towards the higher interest rate balances. When we first started this blog, I was paying off a debt that was at 20.99%. As soon as a few of the lower balance cards were paid off, the extra cash went towards battling the debts with monster interest rates.
4. We took advantage of great credit card deals. I managed to lower the debt of my credit cards to 0% and 2.99%; Her got all of her debt on a card with 0% interest as long as we made 2 purchases a month on it.
5. Since we started this blog, we increased our income by at least 42%. In these two years, I received three pay raises; Her received two. We also have some income from this site. The extra cash definitely made sleeping at night easier.
6. We have an emergency fund. Yeah, it’s not clearly defined, but we know that if there is an emergency that arises we can take money from our savings. After the wedding, we plan on having 6 months of expenses remaining in our savings accounts.
7. Once we paid off the credit cards, we took advantage of another offer to put $11,000 on a card at 1.9%. We put exactly that amount of student loan on there, saving us a lot of cash in the future.
8. We have not incurred any new consumer debt. We vowed to never pay another penny in credit card interest and now take advantage of rewards programs.
9. We are a one car family. Shortly after moving to Chicago I sold my car; it was costing me a lot of money to have it in the city. With the car we do have, we minimize our expenses.
10. We continue to look for ways to increase our income, use leverage and arbitrage to get better interest rates, and make
solid decent financial decisions.
For us, it was these actions that showed us the light at the end of the debt tunnel.
Are you under a mountain of debt? How have you managed it? How do you let it not keep you up at night?