Debt Free Forever
Posted by Gail | Filed under Credit Wise
I’m getting dozens of emails from people every week telling me that they’ll be debt free by the end of 2009 or 2010. Hey, we’ve started a trend! So I am officially launching the designation DFF (Debt Free Forever) for all those people who get rid of their consumer debt and commit to never going down that road again.
If you want to earn your DFF designation, you’ll need to:
Take stock of your debt situation: This may take and hour or three, but having a written plan means you are way more likely to get to where you want to be. Start by writing down all the places to which you owe money.
Stop using your credit: If I have to explain this, then you’re wasting your time reading this blog. Go away!
Prioritize your debt: List what you owe by interest rate with the most expensive (the highest rate) at the top of the list. This is the order in which you’ll pay off the debt.
Calculate the minimum payment on each debt. That’s what you HAVE to pay to keep current and not bruise your credit history. Write the minimum payments beside each debt, add ‘em up, and that’s the least you can put toward your debt every month.
Figure out how much to repay to get out of the hole: Now it comes time to put your money where your mouth is. You’re going to decide which debts you want gone by when. Let’s say you owe $2,500 on your credit card at 18% and $8,000 on your line of credit at 5%, and $21,000 on your student loan at 6.5%. Now let’s say you want that credit card debt gone in six months.
You already know it’s going to cost you $300 a month in minimum payments. But if you want to get that credit card paid off in six months, you’re going to have to slap about $460 a month against that sucker to make it go away.
If you want the line of credit gone in another year, you’d have to commit to monthly payment of $667 for the principal ($8,000 divided by 12 [months]) plus the interest of $33 ($8000 x 5% / 12 [months]) for a total monthly payment of $700 a month.
Of course, if you’ve already paid off the credit card, you can use the $460 you were using to pay it off for your line of credit, so you’d only have to find another $240 a month. That’s called snowballing… you’re rolling the money you used to pay off debt number one to debt number two. Later you can roll the amount you were putting to debt number to into your payment for debt number three.
Which brings us to the student loan. If you decide you want to be done with that debt in four years, you only have 2.5 years left (since you spent the first 6 months paying off the credit card, and the next year paying off the line). So you’d figure out that the monthly interest ($21,000 x 6.5% / 12) is $114, and you’d add that to the principal ($21,000 / 36 [months to repay] = $700) for a total of $814 a month.
Decide where you’re going to get the money: If you want to be debt free, you have to find the money to pay off the debt. It may mean going over your budget with a paring knife. It may mean finding a way to Make More Money. You’ll do whatever it takes.
Make your debt repayments automatic: Set up an auto pay for each debt you’re working to pay off, taking the guess work out of it, and making a firm commitment to the process. Initially you’ll pay the minimum required on all the debt. On your most expensive debt, you’ll auto pay the amount you came up with to have the debt gone by your Debt Freedom Day.
Chart your progress: Create a chart that shows how much you owe. You can use boxes. You can use a thermometer graphic. Whatever works for you. Each time your auto pay goes through, colour in one of your boxes, or move your marker up the thermometer so you can see the progress you’re making.
Debt Free Forever: Once you’re out of debt, promise yourself you’ll never do that again! Reward yourself for your hard work. Take whatever you’ve been using for debt repayment and just once, splurge on something you really, really want.
Reallocate the money: Your final step, have become debt free and done your little self-indulgent splurge, is to reallocate the money you’ve been using for debt repayment. Use 1/3 to boost your emergency and/or long-term savings. Use 1/3 to work toward a goal: taking a trip, buying a car, redoing the kitchen. This is going to be your Planned Spending money from here on in. As for the rest, incorporate it back into your budget so you have some wiggle room.
April 20, 2009 at 8:37 am
Simply said and well explained Gail. Thanks!!
April 20, 2009 at 8:51 am
My only question is – if you are making the minimum payments on each debt all along, while also paying off the credit card, wouldn’t that make the LOC less than it was at the start of the six months?? Ditto the 18 months later on the SL?
April 20, 2009 at 9:00 am
I agree with all that Gail has said, but I have one concern. I use to work for one of Canada’s largest banks and I know that if you only make the minimum payment, they will raise your interest rate because you are seen as a bigger risk. So is it worth making a larger monthly payment if it will keep your low interest rate? I know in the long run following the snowball plan will get me out of debt faster, but i dont want to increase my interest payments. I have two LOC’s with a 3% difference in the interest rate( the lowest balance has the highest interest) But that would mean one full year of paying only minimum payments on the larger LOC.
Any suggestions?
April 20, 2009 at 10:02 am
What I did was use these general principles and mold it to fit our lifestyle, budget, spending habits, interest rates, and amounts owing. We trimmed our budget, and maxed our payments. Recently we re-mortgaged and “paid some stuff off” to free up cash flow and boost other payments. I just made it work best for us. We went from $31000 to just over $14000 and will be debt free in 3 years. (yay)
April 20, 2009 at 10:03 am
…consumer debt free – we will still have the mortgage, but we will boost those payments then!
April 20, 2009 at 10:04 am
Hi MarieC,
Different people do it differently. Depends on what lets you sleep at night. For some people, they want to pay the LOC with the higher interest rate because they are saving more in interest payments. For some people, they want to pay the lowest balance first because they can see the end of that tunnel (as long as they stop charging to it) and therefore, they get that ‘YEY’ feeling.
My suggestion is figure out how much interest you would pay on both your LOC if you are only paying the min payment. Then take the one with the higher interest payment and tackle that first.
April 20, 2009 at 10:07 am
consumer debt free over here!
for now….
April 20, 2009 at 10:07 am
I have just recently taken stock as you have suggested in this article and have put my one debit card into the freezer. There is enough money going into the account from my primary job to cover my fixed expenses. Now I am using the revenue frm my second job to pay down my debt. This has worked for me in the past but I don’t want a ‘next time’. It will take me 26 months to become debt free other than my mortgage and I am feeling good with that. Never stall yourself on wishing what was and how much better position you could be in. Begin now, look forward – don’t look back! I am taking on the challenge of being debt free forever. These next 26 months will go by before I know it because I have built in safety nets,ie emergency savings and large item savings so I won’t need to use the credit.
April 20, 2009 at 10:40 am
What a great summary post!
I love your snowballing technique!
April 20, 2009 at 11:08 am
My only debt is my mortgage. I learned my lesson 7 years ago and divorced it
I still had half of the debt but I worked like a dogat 2 jobs and paid it off in 4 years.
After watching Gail and learning to pay attention to my finances I know that I can be debt free very soon and STAY THAT WAY!!
Jan of 2008 I started an aggressive mortgage free plan. I still have emergency savings and am contributing into an RRSP but, in the meantime it means that I love my old car (I make myself say it every time I get in), our vacations are modest, new clothes are very special and gifts are planned and saved for. There are still “wants” but no “needs” in our life.
Once this mortgage is gone…(in 3 more years!!) my retirement fund is going to be very impressive! (And my paid for in cash set of wheels is going to be sweet!)
I have learned so much from Til Debt Do Us Part in the last couple of years! It started a real interest in finances – I pay attention to where my money goes, I read the small print, I ask questions, I research, I’m Involved! I have a plan!!
Someday I’d love to meet Gail and thank her for her part in the great life I have now, and the positive future that lies ahead!
April 20, 2009 at 11:12 am
Can someone answer me, is a car loan “consumer debt”? If it is, I’m not sure I’ll ever be consumer debt-free. We need two cars because we commute in opposite directions and it’s difficult to carpool with all the committments we have. My car has been paid off for a while, but it’s 10 years old and by the time I need a new one (well, new to me) I will only have $3500 or so saved up, so I will need a loan. I figure that’s probably realistically this fall, or optimistically next spring. We still have the loan from my husband’s car for another three years – if we keep his car in good shape, we should just be paying off my next car when he needs another. It basically looks like we’ll never be DFF if we have to keep buying cars, and we’ll have to do that in order to keep working. Public transport doesn’t exist, and carpooling is iffy at best
April 20, 2009 at 11:22 am
Sandy – while it’s hard to find a universally accepted definition of consumer debt, my definition of consumer debt is debt towards assets that have an extremely low chance of appreciating in value over a long term. Thus a debt consisting of a mortgage is debt towards an asset that over the long term is likely to increase (no guarantees but over the long term 20 years it’s likely to increase at least with inflation) is not consumer debt, while a debt towards a 47″ plasma tv is consumer debt since I think next year I’ll be able to buy the same tv for less. So by that rationale, yes a car loan IS consumer debt.
However, I view being consumer debt free as an important goal, but also like having 5% body fat and being in great shape are important goals. I’m trying to get there but I’m not going to beat myself up for not being there right now and am proud of the accomplishments made so far. A 10 year old car, depending on the mileage and care, is not that old. It’s not uncommon for some cars to get 300,000 kms on them with proper care and treatment too, so there’s hope!.
April 20, 2009 at 11:48 am
Sandy:
Car payments: consumer debt. I think I will be debt-free until I change cars. I have a plan to start saving for the down towards the car change (in ~5 years from now) but I will not have the total amount for the car. I will have to adjust my budget after the next car so I can pay for the following one at the time of purchase. I need a few car cycles to get there.
Playing devil’s advocate: Is a car LEASE debt?
Gail???
April 20, 2009 at 11:54 am
I am DFF!
(except the mortgage, a few years left on that)
That being said I still use the CCs for my own gains! I pay for gas and groceries, happily gaining points towards gas gift cards, and pay them in full every single month. I get the convenience and perks, keep my credit rating and NO DEBT!!!
April 20, 2009 at 12:19 pm
The only consumer debt I’ve got is a small amount owed to my parents for moving and some starter furniture. That’ll be paid off within the year at a comfortable pace. I’ve learned a lot from reading the stories here and watching the show – enough to know that being debt free forever is definitely the way I want to live!
April 20, 2009 at 12:24 pm
I feel like this post needs to be a “Sticky”: How to achieve debt freedom in 10 easy (and not-so-easy) steps.
April 20, 2009 at 1:17 pm
I see all debt as debt – some is more necessary (shelter) than other debt (pretty much anything else). Doesn’t matter what the debt is for you still want to get rid of it. We have a mortgage but are paying it off aggressively. Just last week I printed out our amortization schedule – once with our planned extra payments and once without. That is motivation enough to drive our van a year or two longer than most people. Or to put off that family vacation somewhere warm. We still go on great vacations and will never have enough time to see all that Ontario has to offer much less all of Canada.
I think people get too wrapped up in which debt is the “right” debt to pay first. Just do it! Paying off the largest debt with the highest interest might get frustrating after awhile so just re-evaluate at that time. Paying off the smallest debt may not be “right” but by the time you decide to try something else it might be paid off. If you like numbers and won’t forget – take the amount of extra money you have and split it between all the debts. It doesn’t matter – putting money down on any debt is better than spending that money on “stuff”.
Most people will never be free of car payments – when the loan is paid off put that money into a savings account and when the first car dies you already have a fund for it (planned spending). You are always putting money aside for it but that way you are making interest on the money not paying it.
April 20, 2009 at 1:23 pm
I am extreamly excited to say I will be DFF in 13 months. I just started the jars and have gotten three people from my office to do so as well. It feels so “uplifting” to finally gain control of my finances. I do not have a mortgage (yet) but hopefully one day when my credit rating goes up, I will have one.
This is the first time I’ve stuck to something i’ve started and I have Gail to thank – THANK YOU
April 20, 2009 at 4:17 pm
Hi All – I’m DDF and have been for 5 years now. Make a plan and stick to it, you don’t have to do without just stick to the plan. I was lucky and the plan stayed on the rails, in this climate of unemployment and un-certainty it could be harder then the last few years have been.
My only thoughts on the “Stop using your credit” portion of the BLOG is I love my CC and all the free groceries in get with a major purchase, my son’s university tuition, appliances I have even transferred a car loan to the CC and grabbed the points. Always pay in the grace period and have 6 weeks on them and groceries to boot.
Thanks
April 20, 2009 at 5:32 pm
I’m very proud to say that my fiancé and I, both 24 years old are dept free!!! (except our mortgage) I finished 5 years of university with non dept and I even had some money in a saving account when a graduated. In comparison with many of our friends, we bought the cheapest townhouse we could find, made lots of renovations and created a lovely home. We will tie the not this summer at our small (55 people for supper, 100 for the dance) wedding that will be entirely paid for!
The lesson for this post.
Parents: please educate your children very young about the value of money. I consider myself very luck that my parents thought me this valuable lesson at a very young age. I never had and allowance and if I wanted something special I had to buy it myself. From the age of 11 I had 2 paper routes that took me 1 hour each day to deliver. When I was old enough to baby-sit I was the busiest babysitter in town.
This is the best and most important gift my parents gave me and I will be forever grateful for it.
April 20, 2009 at 6:00 pm
Just want to see congrats to everyone who is debt free and who is working hard at their goals!
Goal 0 – I agree, *if* you can use your credit card responsibly. If you can’t, you may want to give it up for a period of time until you get your spending under control and establish good habits again.
April 20, 2009 at 6:01 pm
Melanie – congratulations on your hard work.
Anon – I get your message, but I do not think it is appropriate for an open forum that encourages discussion and a sharing of ideas.
April 20, 2009 at 6:07 pm
Thanks winkwink
April 20, 2009 at 6:30 pm
We are consumer debt free for the first time in our lives. Yeah!!! This has been a happy state of affairs for over 2 years but it took years to achieve. But then again we spent like crazy for years. Our debt reduction plan started slowly but then it kept going faster and faster. Gail used the perfect word- snowballing.
We consider consumer debt to be anything that we can live without. Therefore vacations, TVs, new clothes, etc are consumer debt but a car loan and a mortgage are not. We need that roof over our heads (and we are lucky enough to be home owners rather than renters) and where we live we have to have a car. But neither has made us house or transportation poor since we have made sure they now fall into the 35% and 15% categories. Without other debts we have been building up our savings and have increased our payments to the mortgage. We are saving money to try and pay out the car loan early as well.
To pay off our consumer debt we did pretty much what Gail has described in this article.
First we stopped using the credit. Then we figured out who and what we owed. For the first six months all that we did (and could do) was make minimum payments but we made darn sure that they were on time. Slowly during that time we played catch up on all of our bills and were able to shift a lot of our high interest debt onto lower interest rate cards. We eventually had nearly all of our consumer debt (credit cards and line of credit but not student loans) reduced to 5% interest.
At this point we changed the way we paid. We paid the minimums plus $10 on each card and the line of credit except the one card that still had a high interest rate. On that one we always doubled the minimum and threw on any extra money we could. When that card was paid off we changed again.
On the remaining cards and line of credit we continued to pay the minimum but also added on whatever interest was charged that month. In effect we looked upon the minimum payment as paying down the principle and the interest payment as paying down the interest.
Meanwhile we started throwing everything we could at our student loans. When they were paid off we attacked the remaining credit cards and line of credit. Since the interest on these was all around the 5% mark we just paid them off from the smallest amount to the largest amount, rolling the paid off card amount onto the next card. The line of credit was the last to go. Eliminating the smaller debts first was a way of motivating ourselves and really feeling a sense of accomplishment since every few months we saw another card paid off.
Our final step in debt freedom was to pay back the Bank of Mom and Pop. They never charged us interest or harassed us for payment and were even embarrassed to take our payments. Loving fools.
In tribute to our parents we have been buying wheelchairs in their names from the Wheelchair Foundation and/or contributing to other charities that they supported. We are now thinking about starting a small grant for books for our local college students in their memory. They gave us so much for free that we just want to pay a little of it forward.
April 20, 2009 at 7:09 pm
I am not debt free but I am consumer debt free. I count on one hand the number of times I carried a balance on my credit card since I got one ten years ago. I had a car payment for about 2 years when the previous vehicle was unreliable out of town. All I have right now is a student loan that is 3.125% fixed (I am almost down to 4 digits) and my mortgage I just refinanced as a 4.875% fixed rate (incredibly low for the US). Although I would love to pay off my student loan it makes more sense to add any extra money to my mortgage. I’m not sure about Canadian student loans but my student loans are Federal and therefor if I lost my job or decided to go back to school they could be deferred. Currently I’m only paying about $10 extra on my principle so that I can finish building my emergency fund, home maintenance fund and checking account. My office reduced hours by 10% until the end of summer so I have been able to do this on a reduced income. When our pay is back to normal I plan to take the “extra” money I have been living without and add it to my mortgage payment every month. I would suggest to those with a mortgage to play with the ammorization calculators to see what adding even a couple of dollars to your mortgage will do to the term of the loan and savings. It is a great way to encourage yourself.
April 20, 2009 at 7:17 pm
I am $1500 away from being completely debt free!
April 20, 2009 at 8:07 pm
Hi Sandy,
Sorry, I may be misunderstanding your post. Why can’t you buy a nice used car for $3500?
Are cars really expensive in Canada? My last car cost $1200-AUD (about the same Canadian), was 13 years old and ran like a dream for the four years I had it. I only got rid of it because I moved to an area where I didn’t need a car and could rely on public transport to go everywhere.
I have been reading Dave Ramsey’s blog as well as this one and the amount of money people spend on cars is amazing! And petrol prices are so much cheaper in America and Canada than here!!!!
Sarah
April 20, 2009 at 8:17 pm
“Debt free” should actually mean free of all debt, not just consumer debt. If you have a mortgage, that’s a debt and you can’t call yourself debt free.
April 20, 2009 at 8:52 pm
You can buy a good car for that, Sarah and Sandy.
My husband has been driving a vehicle to work (50k per day?) plus we use it for errands, shopping, picking up kids from school and he paid $2500 2 years ago. Now it needs a few hundred dollars in upkeep, but it should get another 50,000 clicks, at least. It’s not my idea of beautiful by any means, but it looks neat, shiny, and works.
April 20, 2009 at 9:19 pm
I’m very sad to see the hard line some people are taking on the debt-free issue. One person was rude enough to comment unkindly on another’s grammar. This is a site where we support each other and share our joy. This is not a place where we slam each other or bring each other down. The rude comment has been deleted. I do not define “debt free” as Ann does… when I talk about debt free forever, it’s consumer debt free… having a mortgage to finance a home is a perfectly acceptable form of debt, assuming you haven’t strapped yourself and are using other forms of credit to fill the gaps. Chillax people! We are all doing our best to get to where we need to be. BTW, the next time I see a “nasty”, I won’t just delete it, I’ll ban the address as well. Meanies go away!
April 20, 2009 at 9:47 pm
Me again – the person that gave the previous rude comment – I apologize for it, sincerely, both to the person it was directed at, and also to Gail and all other readers. No excuse, I was wrong. Again, I apologize.
April 20, 2009 at 11:18 pm
Thank you Anon for the apology!
I think there is no hard line when it comes to debt because being debt free means different things to different people so good positive support is all we need!!!
April 20, 2009 at 11:54 pm
My finance and I are consumer debt free. I have student debt… but I’m also still going to school and I consider it an investment. Since being debt free, we started giving our selves an allowance (“Mad money”) each week as a reward. It’s a little perk for knowing that we did such a good job.
April 21, 2009 at 6:52 am
This was just the extra motivation I needed to stay on track this week I think. I’ve been invited out for lunch AND I drove by my fave clothing store yesterday thinking, “Self, you need a new fill-in-the-blank-here.”. So today I’m making an excuse to not go to lunch, I’m turning my head (but driving safely!) the next time I go past the clothing store, and I’m staying on track!
Unfortunately I thought I could use my PC card to earn points while buying groceries, but this month I also paid for a couple of dental appts, some long overdue haircuts, birthday gifts for my daughter, and a couple of other things that it was waaaayy too easy to use plastic for. Next month’s bill is going to be a bugger, but while I’m still contracting, I can pay it off while I forego the bigger debt-reduction pmt on the one card I have left. BUTTT *drum roll please* the HUGE loan is going to have it’s final roar on May 1st! I’m so excited I could cry…but then I’d have to go buy more kleenex and I’m on a tight budget next month so I’ll save my tears for June!
April 21, 2009 at 9:49 am
Michelle – congratulations. Please dont’ hit me with your car! (Just kidding)
April 21, 2009 at 10:48 am
About the car: It is 10 years old with 352,000 km on it and the body has rusted holes that went through it like crazy this winter. I took it to the body shop and he basically said that the import steel cannot handle salt and it is unsavable. I will slap some bondo and paint on myself, but it is just getting too beat up to drive anymore. I drive approx 200 km every day to get to and from work, so I need a good reliable car that won’t fall apart every 500 km. A $3500 car would be fine for my hubby, who drives 10 km each way to work, and around town, but I need one in much better shape. So, $3500 probably isn’t going to do it for me. And I won’t use his car, because it’s a gas-guzzling SUV that he uses to tow trailers-full of stuff for us and for other people. I would be spending more on gas than I would on a car payment. I figure if I can get a two-year-old car with less than 80,000 km on it for about $10,000, that will do me for another five or six years. But, like I said, I don’t know that we’ll ever be debt free as long as I have to work that far away. And the money I make there more than outweighs the costs to get there, and nothing like that is available closer to me. Oh well, hopefully my next next car will have a much bigger down payment and I can start working my way toward paying cash for a car I can rely on!
April 21, 2009 at 12:05 pm
Sorry – that was 358,000 km on the car. Just looked at the odometer! That baby doesn’t owe me a thing.
April 21, 2009 at 12:13 pm
Sandy, I’d be more concerned about the psychological impact that driving 1000 kms a week must be taking on your psyche. Have you considered moving closer? I’m sure you have I just want to make sure that you are considering the impact it must be having. Even if there’s no traffic it’s still quite wearing I would think. Best of luck, Geoff.
April 21, 2009 at 1:25 pm
Gail, the reason I don’t follow the “debt-free” = “consumer debt-free” is because people can become complacent. They’re told repeatedly a mortgage is a good debt, which it is, but then they believe it’s an excuse to not tackle it as hard as they do consumer debt. I see too many people around me with 20-, 25-year mortgages, with very little equity in their home, and when a financial crisis hits (e.g. losing a job), they end up losing their home.
April 21, 2009 at 3:26 pm
Hi Ann
I do see where you are coming from but respectfully disagree and am going to defend my opinion to the death. Well, maybe not quite to the death. Feeling very mellow today since the sun is shining and finally starting to melt the snow.
You believe that if we do not keep thinking of our mortgage and car loan in the same way as we think of other debts we will not aggressively pay them down. I think it will depend on the person and how well they have learned the Gail Lessons. I fully expect to continue to have some debt in my life but I am going to be very particular about the type of debt. I know for sure that I will no longer ever have foolish debt in my life. And I know for sure that we will continue to save and to plan for future purchases and only spend when we have the cash.
But as far as I am concerned a mortgage, a car loan, a student loan and debt incurred for medical reasons is all acceptable debt and no way in the same category of debt as the purchase of a dozen sweaters just because they were on sale or taking a vacation on the fly now, pay forever plan.
No one I know has ever been able to pay cash for a house. Mortgages are great as long as they are sensible ones. We had a 10% down payment and although we were pre-approved for a $210,000 mortgage we only spent $156,000 which kept us well within the 35% of our net income. Our mortgage allows us to pay down the principle once a year. After paying off all consumer debt, student loans and family debt and aggressively creating a savings plan we now – for the first time – are able to take advantage of this. Having started late we will finish late but with the intention of being mortgage free in time for retirement. I don’t think of this mortgage as a debt. I think of it as a means to an end which we would never have been able to achieve otherwise.
There is no way, no how we could ever be without a dependable car. Not where we live and work. So we will owe. For a while. Every car that we have owned we have kept for years after the final loan payment. Our last vehicle was paid off in 4 years and we ran it for an additional 10 years. Basically 10 years for free except for basic maintenance. It was a great vehicle and we still see the old rust bucket running around town 2 years later. Our new car will be paid off in 2 years (we stayed within the 15% of our net income) – sooner if they will accept an early buy out – and we will keep it until it dies of old age as well. The difference this time is that the day we make the last loan payment we will open a new savings account and continue to “pay” our car loan every month but pay it to ourselves instead of the dealer. By the time we need a new car we will be able to pay for most of it in cash.
To go into debt for education is also a means to an end – to build a better life and future – but you have to pay student loans off before you can get to that better life and future. Some are lucky enough to have education savings created for them or talented and clever enough to receive scholarships. Others are not so fortunate but to struggle isn’t going to kill you. In our case we both had to work from the age of 17 but we both had education dreams and we fulfilled them and paid for them. No regrets that we had to borrow the money. Happy that we learned how to pay them off aggressively.
Sometimes medical debt is unavoidable if you plan on staying alive. No matter how well covered you think you are and how much in emergency funds you have saved illness tends to catch you unprepared because it always costs a lot more than you think it will and you never know how long it will last.
Every time I read a post where someone is saying that they are soon going to be debt free I just get all mushy and gooey inside because I know that they now have the chance to live a different life than they ever thought they would be living.
April 21, 2009 at 4:44 pm
Hey Geoff, Thanks for your concern but until we are mortgage free, I drive. And that’s 9 years down the road. I’m the main breadwinner and there just isn’t anywhere else that I can make enough to support us. The fam is happy where we are; there are lots of benefits for them living here, and I just can’t get work in my field here, so unless I want to be away from my child all week and pay rent plus a mortgage (which I don’t) me and my car are welded at the hip.
April 21, 2009 at 4:44 pm
Except the weld is starting to rust
April 21, 2009 at 6:57 pm
Hi Maureen,
I guess we will have to agree to disagree.
I do believe incurring debt for a home or education is acceptable because the majority (80%?) of people I know can’t afford cash for a house. (The medical thing isn’t much of an issue in Canada, so I’m going to guess you live in the US.) However, we obviously differ greatly because my aversion to debt–all kinds of debt–is driving me to pay off the mortgage on my primary residence before I hit 30. (At which point I’m going to celebrate by booking my first REAL vacation in 7 years.)
From your comments, I assume you’re implying a loan is necessary for a car. I have to disagree. I saved to pay cash for my first car and my second car. My second car is going on 11 years and for the entire 11 years, I only had to pay for maintenance.
April 22, 2009 at 9:27 am
Umm Ann? Medical thing is an issue in Canada. Many people work contract jobs that don’t provide full coverage and the government coverage doesn’t extend to most drugs and many treatments anyway (dental!) , it’s difficult to just ignore them.
Also many people, ie Sandy, require a car in order to get to work (to earn the money they need). You’re young and doing great but it doesn’t take much to get derailed in life and you should consider this. Factor in a child or a divorce or even a marriage and it’s easy to get plans that once seemed so clear all jumbled up.
The demands on most people in their 30s and 40s are considerable; it’s not just debt management but resp and and rrsp investing as well as life insurance, disability insurance adn other obligations. You should also consider that while I think it’s amazing that you want your house paid off by your 30s, that most people can not do that – possibly because of student loans and other obligations acquired earlier. Also not everyone is in a position to buy the house in their 20s that will serve them for the rest of their lives as well.
In short, while I think debt elimination is a worthy goal, you have to balance that with what’s really important to you. For me I could suspend all resp and rrsp and employe stock purchases and funnel that into my mortgage payments, but I know in my 50s I won’t be able to ‘eat my house’ either.
Best, -Geoff.
April 22, 2009 at 12:17 pm
Hi Ann
First off I think it is really wonderful if you can pay off your mortgage by the time you are thirty and your youth and money smarts are obviously going to serve you very well. Great job. If only we had known then what we know now. But we were too busy surviving, being silly, having a very good time and living up to our sense of entitlement.
I too paid cash for my first car -sooooo verrry proud of it – so I do know that you don’t have to have a loan to buy a car. It was yellow in colour and unfortunately it was a lemon and gas guzzler by nature. It cost me more than double what I paid for it in repairs during the 2 years I had it. Not to mention all the lost work hours whilst it was in the shop. And not to mention the cost of treatment for post traumatic stress disorder incurred when she broke down during a blizzard on our country road twenty miles from nowhere at midnight. No cell phones in those days. The poor farmer and his rosy cheeked wife who stumbled across me and offered assistance are probably still wondering why I pelted them with snow balls while screaming and sobbing hysterically. Sorry. One too many horror films in my youth.
Second car was brand, spanking, shiny new (nothing like that new car smell!) super fuel efficient and bought with a loan. It was the original Honda Civic. I wanted and needed something dependable and with a full warranty. Sadly just as she was paid off she got traded for a van for my husband so that he could work two jobs. I got to drive his old clunker and worked a second job to be able to get rid of it and get a down payment for a new dependable car for me. After that our cars were bought with loans but when paid off they died of old age and more than paid for them selves.
I am so pleased to meet another medically innocent Canadian patient. Was feeling that I was the only one. I too thought that because I am Canadian the medical thing wasn’t much of an issue. Wrong. So very wrong.
Our national health care system takes care of us and we can even have auxiliary private insurance but every thing has a limit, everything is changing and the terrible thing about illness is that you never know how long it will last. You can prepare but most will never be prepared enough and you really have to hope that your luck holds. Being consumer debt free is a great way to be start being prepared. So is having emergency savings. BUT. The old superstition is that bad luck comes in threes. Well, what if it comes in 4 or 5? You use up all your emergency savings for the first one and are just starting to financially recover when 2 and 3 hit. Then when you are down and out 4 and 5 come along to put the boot in.
You never know what is going to happen and can never save enough but you cannot stop living and advancing your life either. Lots of emergency savings is far more important than paying off your mortgage. If you can do both, grea, but your mortgage isn’t going anywhere whereas if you have the emergency savings you won’t have to re-mortgage your house.
When we paid off all our consumer debt we decided to do just what Gail recommended. Reward ourselves with the first vacation we had had in 10 years. We saved and booked the flight and the 2 week resort and fortunately paid for cancellation insurance.
You see we had just paid off our consumer debts, student loans and family debts when I got sick. And medical debt isn’t just about the cost of the medical treatment. You have to live even while you are sick. We had an emergency fund – but had not yet reached a comfortable 6 months worth – and as a self employed person I did not qualify for medical EI. Sadly I was disqualified from the disability part of our mortgage insurance because I was honest and told them that 27 years earlier I had had a sever case of pneumonia that had hospitalized me for weeks. Should have kept my big mouth shut.
Fortunately we had already started to adjust to living only on my husband’s income so we managed to survive on the emergency savings we had. But we did incur medical treatment debt. The Hubster’s auxiliary insurance covered some drugs and physiotherapy up to $1000. Well, when you are having physio 3 times a week that gets eaten up pretty quickly and then at $65 a treatment that’s $195 a week out of your own pocket and when it goes on for months – well you get the idea.
Most insurance will not cover what they deem to be experimental drugs or medical treatment. Funny how something can be used for years on thousands of patients and in dozens of hospitals and still be counted as experimental and funny how the insurance companies just don’t want to move quickly with medical advances. You’d think they didn’t want to pay out on your insurance policy or something.
I wrote that things under the Canadian medical system are changing. I had a choice. Go in right away for treatment but on an out patient basis or wait 6-8 months to get a hospital bed. Since the Docs had given me only a couple months without treatment we picked door number one.
This is actually a way that doctors are getting to more patients more quickly so it isn’t a bad idea. However as an out patient YOU get to pay for a lot of things that would be covered under a hospital stay by the government. I had to have injections twice a day for a week which cost $1300 per shot. Enough to buy that car. These shots were not covered by our auxiliary insurance. Fortunately (ha!)I got so sick that I ended up in hospital so the second round of injections was paid for by the taxpayer.
Unfortunately my recovery did not go to plan so everything lasted much longer. My husband used up all of his 5 years of accumulated sick leave pay and all of his 3 years of accumulated vacation pay to be with me but that only lasted for part of my treatment. After that we drained the emergency fund. Hoping our luck holds and he doesn’t get sick and need to use his sick benefits which are no longer there. And although we now have another 2 years of vacation pay and time accumulated we are gun shy about using it.
If you have to go for treatment to a different city from where you live you are pretty much on your own as far as lodgings, food and transportation goes. Not covered by the Canadian Health system. Hotels at $100 plus per night plus food for 2 months? Yeah. Not a pretty picture. Thank God for the Canadian Cancer Society and their lodges but you still have to pay. A fellow patient had to sell his retirement RV and his boat and second car in order to come for treatment and their house was on the market just in case. In many cases when you go for out of town out patient treatment you have to have a companion to care for you or they will not take you because there is no nursing provided so you have to double all the costs. And if you need daily nursing when you get home only a part of that expense is covered.
Two years down the road and I am still only half back to being the earner I was so things are tight but having graduated from the University of Gail we are doing very well and are debt free, have been re-building the emergency fund, paying down the mortgage and saving to pay off the car loan early. In other words getting ready for the next unexpected disaster. Thank God there are no kids at home depending on us. Oh yeah. I forgot to mention two months worth of expenses for boarding the cats and dog and then a years worth of psychiatric treatment for their post traumatic stress disorder and abandonment issues.
April 22, 2009 at 12:53 pm
Wow Maureen, I’m glad I got the disability and critical illness coverage a week before I signed the dotted line to become a contractor! I’m good for about $100K, which would cover some treatment and some of the bills at least. Better that than nothing, but I’m sure it would get used up quite rapidly.
Glad to hear you’re on the mend and coming along.
April 22, 2009 at 2:11 pm
Maureen, OMG! We had major medical issues in my family, but somehow our insurance always covered everything. I can’t picture US medical issues happening in Canada.
Geoff, I do have an emergency fund, I do max out my RRSP every year, and while I may be single, I have been helping put 2 sisters through university. Also, my parents have been laid off, so I will have to adjust my budget to help them out…probably for the rest of their lives because they’re close to retirement age and I don’t want them to work anymore. I will, however, still pay off the mortgage at the end of this year because I have mad budgeting skills.
I’m not sacrificing everything for debt repayment. A new MacBook and a new Dell Mini 10 are on the shopping list for this year.
April 22, 2009 at 2:23 pm
Maureen, funny thing about the cars. My first car was a lemon, too. It left me stranded twice: once on the highway and once in an insanely busy intersection. Both times at night. It was a GM.
My next and current car is a 1998 Honda Civic. I love it. It still runs beautifully and is incredibly fuel efficient. If my mom didn’t need my car, I’d drive it for another 10 years. I’ll be getting a Honda Fit fall of next year (need the time to save up) and I’ll know what it’s like to finally have A/C in a vehicle…and be able to listen to something other than the radio while driving.
April 22, 2009 at 3:47 pm
Hi Michelle
Oh for sure! If you have the chance to get the disability and critical illness coverage go for it. When you are young you have a limited medical past so it is much easier to get the coverage. And it is worth the expense ‘cause you never know. A few years ago a big meteorite landed in the Yukon. It actually flew right over my husband’s head. He and his co-worker dived face first into the snow so missed seeing where it landed. Someone else found it and was paid a quarter of a million dollars for it by NASA. I told him he should have taken the hit.
Thank you for the good wishes and I am doing very well. Am determined to be one of those medical miracles who gets to dance on her pessimistic doctor’s grave. Am also determined to get back some of the tax dollars I have paid into Old Age and CPP benefits. My dad was a mathematician and he actually calculated the exact day when he had used up all the money that he had paid into his pensions and when his pensions flipped over and were being paid exclusively by the pension fund and government money. He was thrilled that he lived for 7 years for “free”. Revenge is sweet.
April 22, 2009 at 3:49 pm
OMG ANN
You are every mother-in-laws dream!!! I would introduce you to some of the lovely young men I know but they are even bigger idiots about money than my husband was at their age. Lovely boys but idiots.
I predict that you are going to be a very successful and happy young woman. When I look back at our financial past I shudder and then laugh. No point crying over spilt milk. I always had it in my mind to retire at age 55 but never actually thought about how to do it and certainly never planned for it.
I think (and hope) that once your mortgage is paid off and you have had some vacation adventures your next big goal will be to retire early. My oldest and dearest friend retired from the Military at age 45 and has been living a fantastic life ever since. What a bitch. I hate her. She had no debts, tons of savings, her house was paid for and she bought a new car for cash so her pension lets her be completely free. Now she travels the world and only works on projects that interest her. Some are paid but a lot are volunteer. And she just got married.
It is a wonderful thing you are doing for your family (my friend also always helped her siblings and looked out for her parents) but never let your heart rule your head to the point that you put your financial future into jeopardy. My friend did this about 20 years ago and it took her years to recover. And of course the sibling she helped didn’t learn her lesson and was right back in trouble. Dr. Phil once said on his show that you cannot solve money problems with money. At first I thought he was just being silly but now I know that what he meant is that people have to figure out why they are financially irresponsible first. When others throw money at your problem it just enables you to go on being an idiot.
Funny about the AC and radio. The Hubster insisted that this time we were getting a car with AC and a CD player. I personally did not see the need for AC since we live in the Far North but he said he was tired of getting hit with bugs and having to hum to himself because of all the dead zones up here.
April 22, 2009 at 8:51 pm
Thanks for the thought, Maureen, but my significant other wouldn’t appreciate the introductions.
I hear what you and Dr. Phil are saying about other people and their money problems, but I consider helping my sisters through university (and maybe a few years more) to be an investment in MY future. I’m hoping that they’ll get good jobs so they won’t end up living with me for the rest of my life after they move out of our parents’ house. (But they can if they want.)
As for my parents…well, they spent the best years of their lives sheltering, clothing, and feeding me. The least I can do is return the favour.
Also, I do plan on early retirement, but I’m not putting off the travel until then. Instead, I work my travel in with employment. My goal is to live on five continents. I’ve done three (Asia, North America, and Europe) so far. Australia’s next on my list. The fifth continent is still up in the air.
April 22, 2009 at 8:55 pm
I should add the vacation I’m planning to celebrate mortgage freedom will be a REAL vacation where I do nothing but eat and site-see.
May 28, 2009 at 12:28 pm
Excellent article. I have always agreed with this and am glad to see it showing up on blogs. You have definitely earned a repeat reader! Take care.