The thing about paying off debt is – life still happens while you’re trying to get out of debt. We’ve been paying off debt like crazy for over a year and a half. In that time, we’ve had a 3rd baby, fixed my old car several times, replaced my old car, and fixed Ben’s 16 year old car several times, and contemplated replacing his car. It can be frustrating because one minute, you’re going along, feeling motivated and groovy because you’re pinching pennies and paying off debt like a boss. Then, your self employment tax bill comes and it’s higher than you expected. Or your already trashy 15 year old car breaks down for good. Or you have a big medical bill. Talk about 1 step forward, 2 steps back. So what are you supposed to do? From our experience, here are a few ideas for not going into more debt when life happens while you’re paying off debt.
HAVE A BASE LINE EMERGENCY FUND
Ben and I follow Dave Ramsey’s recommendation of a $1,000 emergency fund while getting out of debt. We have $1,000 that we don’t touch and that’s it. Obviously, there are a lot of emergencies that could be more expensive than $1,000… but I think that’s the point. The more desperate it feels, the more likely you are to hustle to get out of debt as fast as possible.
I personally would recommend this $1,000 baseline to anyone in any situation because I think the lack of cushion forces you to stay focused. If you absolutely can’t stand having a savings account that low, you could try having a $3,000 emergency fund for a while. My guess is that eventually, you’ll want to dump the “extra” $2k towards your debt because you’ll be so eager to get out of debt.
The baseline emergency fund covers a lot of scenarios while getting out of debt so that you can avoid adding any more payments or credit card bills. A car fix, an ER visit, an appliance repair, whatever.
If an emergency comes up, USE THE EMERGENCY FUND. Do not open a credit card at Firestone if your tire blows out. Do not put your recent hospital visit on a payment plan, especially if you can plan for it (ahem: baby, optional surgery, etc…). Do not finance the appliance fix at 0% APR for 12 months. Just use your emergency fund cash. Then, halt any extra payments (above the minimums) on your debt briefly to save the $1,000 up again.
BUDGET FOR REAL LIFE
A car accident or sudden death of your engine is one thing. But, oil changes, registration renewals, windshield wipers, air filters, and new tires every 5 years are not emergencies. Those are the costs of owning a car. Moving expenses are not an emergency. Your kids growing out of their clothes is not an emergency. Non-emergencies don’t get paid for out of your emergency fund. They get paid for out of your monthly budget. Each month, you should make a new budget, think about what’s coming up, and budget the funds for those intermittent non-emergency expenses.
SAVE THE CASH IF YOU KNOW IT’S COMING
We had our 3rd baby in June. We found out we were pregnant approximately 32 weeks before the baby was due. So, we knew a medical bill was coming. So, we looked up the “out of pocket maximum” for our family on the insurance plan and saved that up in cash. To do that, we hit “pause” on a few months worth of ninja-style debt pay-down. Instead, we only paid the minimums on those months, and put all extra money aside in a capital one 360 savings account (which I highly recommend ) until we hit the out-of-pocket-max number saved up in cash. Of course we hoped to bring a healthy baby home after a couple days, and not have to spend all of our out of pocket maximum savings, but it was there just in case. Once we had that saved up, we went back to putting all extra money towards loan payments. It took about 3 months to get all the final bills from the hospital, doctor, anesthesiologist, etc… Once we paid everyone our portion, we dumped the rest of the cash we had leftover and made an extra debt payment.
Some other examples of impending expenses to save up for might be a broken household appliance, replacing a car, Christmas gifts, or an overnight with your spouse. Please do not put things like that on a credit card while you are paying off debt. For the love, you will never get out of debt if you keep acquiring debt!
If you’re in a true emergency and you need cash fast to avoid a loan while getting out of debt, don’t be afraid to sell some stuff and fast. After all, it’s just stuff. We have sold all kinds of things over the past couple years. I wish I would have kept track of how much we’ve sold and made, but my guess is it’s been a few thousand dollars total. And that’s just little things that we don’t use anymore. Random crap, toys the kids don’t play with, old clothes. I don’t save any of it. If I know someone who needs it, I give it away, but otherwise I sell it. With Craigslist, consignment stores, and Facebook’s new Marketplace, it is so so easy to sell your stuff these days.
DO WITHOUT or DO WITH LESS
Need to replace your car while getting out of debt? Don’t even bother test driving at the dealer. They’re going to go crazy trying to convince you why the newer options are safer and a better use of your money long-term. Lies. All lies! Okay, maybe that’s a bit dramatic, but you know what I mean.
Think through your purchasing options. The time when you are getting out of debt is not the time to buy the NEWST, BIGGEST, BEST VERSION of whatever it is you need to replace. If you are working hard to get out of debt and have to suddenly replace, for example, an old broken washing machine. Don’t walk over to Home Depot and finance one. Instead, jump on craigslist and see what you can find. I’ve seen practically new appliances for half the retail value because people get suddenly relocated for the job right after they bought new appliances.
Think outside the box. First ask yourself: can I do without?
If not, ask: can I do with less?
CHANGE YOUR MIND
I’m increasingly aware that my husband and I are major weirdos when it comes to our take on debt, but at the end of the day, we just don’t think debt is worth it. (Except a conservative mortgage… but that’s for a different day.) And if you really want to get out of debt, and stay out of debt, you have to decide you don’t want any debt. It sounds simple, almost not worth writing, but I can’t believe how many people I talk to that work like crazy to get out of debt only to take out a loan for a car or a refrigerator a couple years later. Because there’s no interest for a couple years or whatever.
What the what!?
Proverbs 22:7 says, “The borrower is slave to the lender.” Remember that whole feeling-like-a-slave-when-you-make-monthly-payments thing?! It stinks!!!! You have so much more freedom when you don’t owe other people money. Whether it’s a $2,000 monthly student loan payment or a $200 car payment, it’s a payment none the less. Your money is more free to spend it how you want when you don’t have any payments.
The only real and final and lasting way to not go into more debt when you’re paying off debt is to just MAKE UP YOUR MIND that DEBT IS NOT AN OPTION. No credit cards, no extra loans, no borrowing from friends or family. Sell what you have to, work extra jobs, halt extra payments, eat tuna, beans and rice (gross!), and scrape together real cash money for any unexpected life expenses that come up while you’re working on getting out of debt.
You can do it! Don’t prolong your slavery, friends. It’s not worth it.
p.s. looking to build your emergency fund? Here are a few simple ways you can make money on the side from home to try to scrape together your first $1,000.
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