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How We Reduced, Then Eliminated, Our Debt
Way back when Disaster Struck we didn't have any debt except our mortgage.
But it was a huge payment once we didn't have jobs - 52% of our income!
Back then interest rates were officially around 18% (we had friends paying 21%!) so just about everyone had huge mortgage payments.
Thankfully we had closed our credit cards before we were married (the week before our wedding, we went to the bank and closed them both; we had one each and neither had a balance) and we owned our car (Wayne had a work vehicle so we sold my car before we bought the house).
To say we were drowning was an understatement and we only had the one debt.
After we recovered from the shock of losing our jobs and finding out Hannah was on her way, we sat down and worked out a budget to the cent, based on the casual work we could get.
We were blessed, because while we never knew where the work would come from, Wayne never went more than two days without work of some kind. We were never sure how much it would pay, or when it would come, but it was enough to put food on the table, pay the mortgage and bills and allow us to live.
It was 3 years before he found a permanent, full-time job and boy did we think we were rich with a regular, full-time income. And that's when we went gung ho at paying down the mortgage.
This is what we did, and it worked.
1. We went back to our original, very low income budget. No treats unless they were homemade, no eating out, no new clothes unless I made them, no holidays, no new furniture etc. etc. etc.
We worked out to the cent what we needed to live, and everything else went into our emergency account (at that time it was 10% of our total income) and what was left was then paid off the mortgage. This was in the days before internet banking, so every week after I'd worked on our budget I'd go into the bank and make a cash payment on the mortgage.
We did the same thing with gift money (we asked our families for cash rather than "stuff" as gifts and explained why).
2. We went to a strictly cash budget. I made envelopes for all our expenses. I'd go to the bank once a week on a Friday, withdraw the cash and put it in the envelopes. The night before, we'd sit down and work out how much of each denomination we'd need so I could put the exact money in each envelope. Remember, this was 28 years ago and there was no internet banking and no home computers. It was all paper and pencil. Anything left from our spending each fortnight was paid off the mortgage.
3. I recorded every cent we spent. It was relatively easy for me back then because I only went to town one day a week, and paid all the bills in cash. We did the grocery shopping once a month, and I used my shopping list and price book to know to the cent how much it was going to cost. If prices had gone up, something had to go back on the shelf and I'd look for a cheaper substitute because we didn't have even 5c extra in the grocery budget. That $200 a month paid for all our food, cleaning supplies, toiletries, a packet of nappies once a month and the baby's medicine. Some of you may have seen my green notebook on A Current Affair a couple of times, it has been featured in some of the budgeting stories I've worked on. It had shopping lists, records of bills paid, my original price book records and recipes for some of the earliest MOOs I made.
4. Every fortnight we'd deliberately work on building our emergency fund. It wasn't called that back then, but it was a separate account we opened just for emergencies. We were absolutely determined to never be left in a situation of not knowing how we'd be able to pay the bills and eat ever again. It took us ages to get to $100, then $500, then $1,000 (boy did we feel rich with $1,000 in the bank!). We kept plugging away until we reached $5,000 in the bank and kind of stopped. That was enough to keep us going for around 5 -6 months and we felt comfortable with that. Then the GFC hit. Then we focused on building it up to at least 12 months of our living expenses. It didn't happen overnight, it took years and lots of going without and making do to reach our goal.
5. We sold anything we didn't need. Garage sales and the Trading Post brought in cash that we paid straight of the mortgage.
6. I worked from home, teaching creative tapestry, doing typing (at night when the children were in bed). I sewed and sold children's and babies clothes. Wayne kept working for a local farmer on a casual basis at the weekend. And all that money was paid straight off the mortgage.
7. When we finally had a regular income again, we still lived on our no income budget. By then the kids were in school, so we had school fees and the associated costs to build in, but whatever was leftover each fortnight went straight off the mortgage.
8. As interest rates dropped, we kept up our original mortgage payment, we never dropped our payment.
In a nutshell, that's how we paid off our debt.
It seemed to take forever to pay off that mortgage, in reality it was only a few years (eight years).
Don't think for one minute it was a breeze, it wasn't. There were times I just wanted to give up and go splurge on something completely frivolous and useless and I'm sure Wayne did too, we are human after all.
We kept our goal in mind, we talked about what it would feel like to not have to worry about every cent, about how good it would be to go on holiday (we've had some amazing trips since we've been debt free), how if we decided we wanted a new TV we'd be able to buy one.
And that kept us focused (most of the time).
We had a cash budget; we still have a mostly cash budget.
We save for the things we need and want. We don't have credit cards, we don't have any loans now; if we want or need something we do our research, shop around for the best value for the best price (and remember cheaper isn't always the best value), and save up so we can pay cash.
We built our skills. Gardening, preserving food by dehydrating, bottling and canning, sewing, knitting, crochet, painting and decorating, tiling, building, basic mechanical repairs are all skills we have worked on over the years so we are a little more self-sufficient.
We do things ourselves; we don't pay someone to do the things we can do, and we keep our money for us.
We sat down and talked about the things that are important to us. Back then it was school for the children, paying down the mortgage, building savings for financial security. And we made a conscious decision to ditch the things that weren't important to us so we'd have the cash to enjoy the things that are.
We still do that.
How have you/are you paying down debt (credit card, mortgage, personal loan - whatever) and still managing to live?
Do you have any secrets to stay focused? What do you do when you get a case of the "but I want its...."?
And what are your frugal splurges that you can enjoy without shattering your debt repayment plan?
But it was a huge payment once we didn't have jobs - 52% of our income!
Back then interest rates were officially around 18% (we had friends paying 21%!) so just about everyone had huge mortgage payments.
Thankfully we had closed our credit cards before we were married (the week before our wedding, we went to the bank and closed them both; we had one each and neither had a balance) and we owned our car (Wayne had a work vehicle so we sold my car before we bought the house).
To say we were drowning was an understatement and we only had the one debt.
After we recovered from the shock of losing our jobs and finding out Hannah was on her way, we sat down and worked out a budget to the cent, based on the casual work we could get.
We were blessed, because while we never knew where the work would come from, Wayne never went more than two days without work of some kind. We were never sure how much it would pay, or when it would come, but it was enough to put food on the table, pay the mortgage and bills and allow us to live.
It was 3 years before he found a permanent, full-time job and boy did we think we were rich with a regular, full-time income. And that's when we went gung ho at paying down the mortgage.
This is what we did, and it worked.
1. We went back to our original, very low income budget. No treats unless they were homemade, no eating out, no new clothes unless I made them, no holidays, no new furniture etc. etc. etc.
We worked out to the cent what we needed to live, and everything else went into our emergency account (at that time it was 10% of our total income) and what was left was then paid off the mortgage. This was in the days before internet banking, so every week after I'd worked on our budget I'd go into the bank and make a cash payment on the mortgage.
We did the same thing with gift money (we asked our families for cash rather than "stuff" as gifts and explained why).
2. We went to a strictly cash budget. I made envelopes for all our expenses. I'd go to the bank once a week on a Friday, withdraw the cash and put it in the envelopes. The night before, we'd sit down and work out how much of each denomination we'd need so I could put the exact money in each envelope. Remember, this was 28 years ago and there was no internet banking and no home computers. It was all paper and pencil. Anything left from our spending each fortnight was paid off the mortgage.
3. I recorded every cent we spent. It was relatively easy for me back then because I only went to town one day a week, and paid all the bills in cash. We did the grocery shopping once a month, and I used my shopping list and price book to know to the cent how much it was going to cost. If prices had gone up, something had to go back on the shelf and I'd look for a cheaper substitute because we didn't have even 5c extra in the grocery budget. That $200 a month paid for all our food, cleaning supplies, toiletries, a packet of nappies once a month and the baby's medicine. Some of you may have seen my green notebook on A Current Affair a couple of times, it has been featured in some of the budgeting stories I've worked on. It had shopping lists, records of bills paid, my original price book records and recipes for some of the earliest MOOs I made.
4. Every fortnight we'd deliberately work on building our emergency fund. It wasn't called that back then, but it was a separate account we opened just for emergencies. We were absolutely determined to never be left in a situation of not knowing how we'd be able to pay the bills and eat ever again. It took us ages to get to $100, then $500, then $1,000 (boy did we feel rich with $1,000 in the bank!). We kept plugging away until we reached $5,000 in the bank and kind of stopped. That was enough to keep us going for around 5 -6 months and we felt comfortable with that. Then the GFC hit. Then we focused on building it up to at least 12 months of our living expenses. It didn't happen overnight, it took years and lots of going without and making do to reach our goal.
5. We sold anything we didn't need. Garage sales and the Trading Post brought in cash that we paid straight of the mortgage.
6. I worked from home, teaching creative tapestry, doing typing (at night when the children were in bed). I sewed and sold children's and babies clothes. Wayne kept working for a local farmer on a casual basis at the weekend. And all that money was paid straight off the mortgage.
7. When we finally had a regular income again, we still lived on our no income budget. By then the kids were in school, so we had school fees and the associated costs to build in, but whatever was leftover each fortnight went straight off the mortgage.
8. As interest rates dropped, we kept up our original mortgage payment, we never dropped our payment.
In a nutshell, that's how we paid off our debt.
It seemed to take forever to pay off that mortgage, in reality it was only a few years (eight years).
Don't think for one minute it was a breeze, it wasn't. There were times I just wanted to give up and go splurge on something completely frivolous and useless and I'm sure Wayne did too, we are human after all.
We kept our goal in mind, we talked about what it would feel like to not have to worry about every cent, about how good it would be to go on holiday (we've had some amazing trips since we've been debt free), how if we decided we wanted a new TV we'd be able to buy one.
And that kept us focused (most of the time).
We had a cash budget; we still have a mostly cash budget.
We save for the things we need and want. We don't have credit cards, we don't have any loans now; if we want or need something we do our research, shop around for the best value for the best price (and remember cheaper isn't always the best value), and save up so we can pay cash.
We built our skills. Gardening, preserving food by dehydrating, bottling and canning, sewing, knitting, crochet, painting and decorating, tiling, building, basic mechanical repairs are all skills we have worked on over the years so we are a little more self-sufficient.
We do things ourselves; we don't pay someone to do the things we can do, and we keep our money for us.
We sat down and talked about the things that are important to us. Back then it was school for the children, paying down the mortgage, building savings for financial security. And we made a conscious decision to ditch the things that weren't important to us so we'd have the cash to enjoy the things that are.
We still do that.
How have you/are you paying down debt (credit card, mortgage, personal loan - whatever) and still managing to live?
Do you have any secrets to stay focused? What do you do when you get a case of the "but I want its...."?
And what are your frugal splurges that you can enjoy without shattering your debt repayment plan?