My 12 New Things

Wednesday, July 14, 2010

New Thing #7- June 2010- Eliminate Debt

Dave Ramsey should be proud. For New Thing #7, I eliminated debt by selling my gas guzzling, loan-financed SUV and replaced it with what he refers to as a "cash car."

In other words, I sold a car that I owed money on, paid off the loan and bought an older one I could afford to pay cash for upfront, resulting in no ongoing car payment. Wahoo!

This month we were also able to pay off the credit card debt that we've been diligently working for years to pay off. Double wahoo! No car payment plus no credit card debt= freedom!

(In full disclosure, we did get a small boost this month by receiving an insurance settlement for a theft this spring. However, we are very proud of ourselves because we've been working very hard to chip away at the debt for years AND in younger, more stupid times we might have squandered the extra money and could have stayed in the exact same indebted position).

Deciding to sell my car was a little painful, but my strong feeling is that when you have debt, debt has you. There are so many things that we tell ourselves that we need. But, what does it cost you to own those things? If you have to give away every single moment in your day and sacrifice time spent doing things that you want to, are those things worth it? At the end of the day, do you own your stuff or does it own you? What can you live without in order to do the things that you want with your life? These are the questions I have asked myself.

My husband and I came to this realization several years ago and we made some changes. We cut up the credit cards and created a plan to pay off all debt,  and since then have tried to be very careful about expenses that aren't necessary. At that point, though, I was still categorizing my car as a necessity. This month I decided that a car is a necessity, but a fairly new and somewhat expensive (in my opinion) SUV is not a necessity. Thus, I decided to sell it. The prospect of not having a car payment meant more to me than the vehicle.
Years ago, I started out my car purchasing on the right track. Let me take you back a few years...

I bought my first "cash car" the month after I turned 15. I was working as a waitress (we were called waitresses back then) and saved all my money for a car. I paid $1200 for a 1985 silver Mercury Cougar and I was stoked.

When I totaled it a couple years later, I didn't have the cash to buy another car outright. My dad made a deal with me. He would co-sign for a small loan with me at the beginning of the summer, but only if I could pay it off by the end of the same summer. He instructed me to write out a cash flow plan and present it to the loan officer at the bank.  I did this on purple paper with a purple pen, outlining the multiple jobs I had secured, the hours I would work and the amount of money I anticipated earning with a date that I could pay the money back. I'm sure that the loan officer thought my presentation was amusing, though he was nice about it and seemed to take me very seriously.

I got the loan and I bought a teal 1994 Geo Prizm for $5,125. I still remember the exact price because it was the largest check I had ever written. I remember the date because my loan was due in full 12 weeks later in September.

I had three jobs that summer. I worked the day shift at a deli, the evening shift at a restaurant, and cleaned a church in the time between. I  worked 70 to 80+ hours a week that whole summer. But, it was worth it because after 8 weeks, I paid the balance of my car loan in full, with 4 full weeks to spare.

I'm glad my parents had me go through the process I did because that lesson taught me far more about life than if they had just bought me a car and handed me the keys. They taught me how to manage money by making me manage money.

I made a few mistakes after college, though. At that time, I was tired of the Prizm's dented hood and the air conditioner knobs falling off. I told myself I deserved a nice new(er) car and that a car payment would be no problem at all because I was making $26,000/ year. It was my first job out of college and I thought I was on my way. That seemed like a lot of money to me at the time. Obviously it wasn't, but, I didn't let that stop me. I bought a (relatively) sporty 2003 two door Civic. I thought that if I was ever going to have a cute sports car, that was the time. So, I went for it, even though deep down I knew I probably shouldn't. The same goes for buying the SUV later. I thought I needed an SUV.

When I sold it, I made a little more than I owed and had a some cash saved up, so I bought a 2003 Toyota Camry sedan. That's the car I should have bought back when I bought the Civic. But, I was young and stupid and now I've learned my lesson. I plan on driving my Camry until the wheels fall off.

If you're interested in learning more about managing personal finances, here are some resources I've found to be interesting and helpful:
  • Dave Ramsey
  • On the Money with Carmen Wong Ulrich
  • Clark Howard- Save More, Spend Less and Avoid Getting Ripped Off
  • Suze Orman
  • Oprah recently aired a series on her show called the Debt Diet which she enlisted financial experts David Bach, Jean Chatzky and Glinda Bridgforth to offer a step-by-step action plan. If you can find the Oprah episodes, go back and watch them as they help 3 families through a financial makeover. The families that are walked through the Debt Diet are a hoot and it's much easier to recognize other people mistakes than recognize your own. You'll also learn something in the process.
  • If you want to go ├╝ber old school and conservative, look for a book called Living More with Less by Doris Janzen Longacre. The book was published in 1980 and was given to me by my ever frugal father. (He always drives well below the speed limit to better his gas mileage. If that's not commitment to saving a buck, I don't know what is. I'm not quite that hardcore, but I can respect the determination). I found the book to be an interesting compilation of money saving tips. Some are submitted by missionaries living overseas and others are from regular folks who've found ways to pinch pennies- some in ways that you'll want to do yourself and some that you may not be willing to do. Either way, it'll help you prioritize. Don't believe me? Page 113 describes how to make Rubber Tire Sandals with an old car tire in six easy steps. Or if you ask me, you could save yourself the trouble and just buy shoes on clearance or at a garage sale. But, how far you take the money saving strategies are up to you!
New Thing #7 down. I don't miss my SUV and I definitely won't miss making the payments on the car or the credit cards!

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