Our Plan To Remain Debt Free
Posted on October 6, 2007 by Eric
Filed Under Budgeting, Credit Cards, Debt, Frugality, Mortgage
At the beginning of the year, we were able to declare ourselves “debt free”. This was no easy task I can tell you. We still have our mortgage, but we don’t consider it debt exactly. Certainly, it is debt, but it’s at a decent interest rate, we get a tax deduction for our interest payments, and if it’s our only debt, to me that’s “debt free”.
We managed to pay off both of our car loans early. We also eliminated all of our credit card debt this year. We did both of these primarily through some major changes in lifestyle (especially our eating habits - dining out can cost a fortune!)
Now that we are debt free, we have no intention of going back. We’ve made several changes in our life to help us not slide back into that “bad place”. Some of these changes include:
- A strict budget - Not so strict we have to beat ourselves for an overage, but a guideline we shoot for with appropriate flexibility in certain areas. The budget helps ensure we live below our means, and that we plan for savings.
- Our non-emergency emergency fund - This ensures that we never have to maintain a balance on our credit cards even when we go over more than our flexibility allows (up to a few hundred dollars).
- Our emergency fund - This way we can handle even those big cases where we have an emergency. We’re very strict about this being used only for emergencies. Our goal is to eventually build up 6 months living expenses (bare minimum living expenses).
- Delaying gratification - Like the iPhone incident of last weekend - I’m no longer going to just indulge myself. All of my upcoming purchases will be planned, and will require taking part of the budget and setting it aside for purchase in the future. This also ensures that when I do indulge myself, it’s not impulsive, and it’s something I’ve researched and know that I want. Oh, and that I find the best deal.
- We will drive our cars until they can drive no more - Consumer reports says that can save up to $31,000. For me, a car gets me from a to b, and doesn’t need to be anything fancy. It felt weird typing that, but that’s how much I’ve changed recently. I used to want a flashy car, but now I’d rather save and invest my money.
- Find the best deals - I want to understand how much something costs, where I can get the best deal, and make sure I’m not getting ripped off. In the past, I didn’t always bother to research and find the best deal, and convenience was usually the motivating factor. There isn’t anything wrong with convenience, but now I will measure that against other factors.
So, with these things in place, and barring any serious emergencies (like something medical), I think we can remain debt free. We have to remain strict and follow this plan. We cannot allow ourselves to fall back into the “old ways”.
I’d love to hear from other folks who managed to get out of debt. Do you have a plan to remain debt free?
Image source :Daquella Manera
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Congrats on no debt! We were able to become debt free at the beginning of the year also by cashing out at 401K. Not the best way to do it but it was the best decision for us. We are committed to staying out of debt by simply not buying anything we don’t have cash for and only dipping into savings on those rare occasions we find something we really want or need. I never want to go back to having debt… being debt free is to fantastic of a feeling! :)
[...] decided he would pay off the mortgage. On the day he made the last payment, he realized he needed a plan to remain debt free. Time to go on to a new phase in life: investing. He read a book entitled Stock Picking for the [...]
@Kimberly - That must have been a really tough decision to cash out your 401k. What made you decide to choose that route in order to eliminate your debt?
Glad to hear that you are in a better place now. Being debt free does feel good!
[...] Penny Closer figures out a way to remain debt free. I wish we were debt free. I don’t care, we love the MINI Cooper! Now shut up and let me have [...]
Great post! Congratulations on being debt free. We are on a journey to become debt free. It is a long road but I can’t wait to get there!
Jennifer - Thank you for the comment and welcome to A Penny Closer! It took some changes in our life to get debt-free but it was worth it! Good luck on your journey. It takes some time, and some changes to your lifestyle, but it’s a great feeling to only have the mortgage to worry about!
I became debt-free last month, including mortgage, and just can’t believe I’m completely in the black now. I never, ever want to have to borrow $ again, from anyone. I have a financial 3-ring binder and whenever I read something re budgeting that hits home with me, I write it down to serve as a reminder to me in the future that my budgeting efforts are worth it. If I just control my spending, then there’s no reason why I shouldn’t stay in the black. So I was the culprit that goe me into debt and I’m the culprit that can keep me out of debt. I think I need to give myself a year of staying out of debt before I’ll be able to relax and not worry about it anymore. I became debt-free last month, so next Oct. I can do a review and hopefully I will be debt free then too. For someone who always lived above my means, I think I need to continue to live below my means for a whole year before I really, really know that I can do it. Hope that makes sense.
Sandy - that’s fantastic! Even the house paid off? I look forward to that day myself!
We’ve both always lived above our means too. We’re coming up on a year without debt ourselves, but still sometimes have to fight the urge to buy something that we really don’t need. It’s probably going to be a lifelong struggle, but after a year, hopefully you’ll have such a great handle on it that you’ll be able to continue to easily live below your means.
That’s great that both of you have managed to stay out of debt for almost a year now - congratulations! There’s hope for me then. Staying out of debt is hard to do in our society. It takes strength of character to protest against society’s message of buy now, pay later. But the pay off of living below my means is worth it to me because it really has reduced (eliminated) my stress, knowing present and future expenses are covered through a budget, and gives me peace of mind, plus it enables me to build wealth by saving automatically each month (paying myself first), so it’s all good. Managing my money does require a lot of effort though and I just want to continue to make that effort month after month and not throw in the towel. So I read a lot of financial articles, etc. I’ll stick w/my older car too. My ego has never been wrapped up in a car, but I think for guys this would be way more difficult, so that says something that you’ve had a mindshift. But I have too in other ways. I don’t care about impressing neighbors anymore, where there was a time when I did. It’s easy for me to delay gratification now, like you’re doing, but what about 3 and 6 months from now? So I want to continue to work on it then just as I am now.
Sandy - Thank you for the comment! I think reducing stress is critically important to living a happy life,and it seems like a lot of what you have done to live more frugally has helped you reduce your stress. That’s great! Not worrying about getting a new car, or impressing the neighbors (or your friends), is huge and gives you much greater peace of mind. I’ve also found with delayed gratification that some of the things I used to buy I could easily live without, and saving up for something I really want feels much better than just going out and buying and trying to figure out how I was going to pay it off.
[...] Eric shows you how to remain debt free and how he managed to achieve that. What I really liked about his plan is that he included two [...]
pay yourself first.
cut spending.
save the rest.
keep doing it and
your “frugality” turns
into blessings.
then the important thing
is to give it abundantly
to people you love….
We’re in the same boat - paid off our non-mortgage debt last year, and plan to keep it that way. Just about everything we buy goes on our credit card, and we have a self-imposed credit limit of $1000/month. We don’t have to keep track of every penny, but we don’t let our balance go over $1000. We always know that’s an amount we can easily pay off and still be able to pay extra on our mortgage, save for retirement, and add money to our HSA and emergency fund. I check our card balance every day, and the last week of the billing cycle we tend to tighten the belt, watching every purchase to make sure we don’t go over. It’s a simple strategy, and it makes spending decisions very easy - how much do we have left until we hit our $1000 for the month, and how many days are left in the billing cycle? Keeps us very much in check, and forces us to spend less than we earn.
“For me, a car gets me from a to b, and doesn’t need to be anything fancy. It felt weird typing that, but that’s how much I’ve changed recently. I used to want a flashy car, but now I’d rather save and invest my money.”
I think we all could learn from that! Desire for flashiness is fun in the now, but saving will pay in the long run!
A strict budget is key. I’t amazing what a simple concept it is and yet we all suffer with the inability to implement it to the letter. However budgets really do reap rewards in the long term.