This is a guest post by Amanda L. Grossman, a personal finance writer and the creator of FrugalConfessions.com. If you missed Part 1, check out this post where she discusses how she and her husband, Paul, accumulated and attempted to pay off their debts individually.
Things were going pretty well for each of us individually with paying down our debts. Even though I had lost my job after one year of employment, because I was frugal and living like a college student I had saved up a sizable emergency fund to tide me over the three months it took to find another job. Paul moved out of his brother’s house and into his first apartment, switching jobs along the way as well. And then things got interesting.
High Cost of Living
The new job that I found after three months of unemployment was in beautiful South Florida near my aunt and uncle. So, I moved. Surrounded by palm trees, beaches, and happy people, I felt as if every weekend was a tropical vacation for me! The two years that I spent there were wonderful and eye-opening to say the least. However, the cost of living was a shock to my finances. I was hired at a lower salary than my first job but because there was no state income tax in Florida, I was actually bringing home more net pay. Still, my rent had almost tripled and other areas of my spending had increased as well. I had two different roommates for 8 months, and then after that I was on my own with a $950 monthly rent bill.
But I guess this all did not matter much, because of what was about to happen.
Being Laid Off Together
Paul and I had originally met and dated in college, but his service made it difficult for us to continue on with our relationship. After his service ended we rekindled an old flame and realized how very much we were still in love. This time, however, we vowed to not have to go through a long distance relationship again. I guess the universe heard our pleas, because within two weeks of each other we were both laid off at our jobs (you read that right; I was laid off of both of my first two jobs out of college).
My aunt and uncle had already moved away from Florida, so I had no family or friends to keep me there (and with the high cost of living, I was looking forward to moving somewhere else). We decided on three acceptable locations in the United States to live, and whoever received the best job offer in one of these locations where the other had great job prospects, we would move there. Paul found the first job within two months in Houston near where he had grown up. So I packed up my life in Florida and moved there with him.
Fusing Our Personal and Financial Lives Into One
Fortunately for us, our leap of faith paid off big time. Within a year we were happily engaged and thinking about our future lives together. We did not want a long engagement, and quickly found out that we would need to pay for most of our wedding. Not only that, but we were looking to put down some roots and purchase our first home together. I knew that we needed a big plan, and so it was time to sit down and talk about our finances.
When we first sat down to discuss our finances, we laid our debts out on the table. Here’s what they looked like in 2009 after several years of paying on them individually:
- Student Loans: $10,000 at 1.25% interest (my interest rate had been reduced an entire percentage point after 36 consecutive, on-time payments)
- Car: $12,000 at 6.325% interest
- Engagement Ring: $3,000 at 0% interest (if paid off within 12 months)
Combined we owed precisely $25,000, which equated to $950 in payments each month ($75 of which was to interest). I had saved up $14,000 at this point and Paul had a few thousand dollars in his bank account. On that July day in 2009, we decided that we wanted to be non-mortgage debt free by the day of our wedding (April 17th, 2010). This meant that we also needed to come up with a down payment on a home, as well as pay for our wedding and honeymoon in cash.
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Our Debt Pay-off Strategy
We were fortunate to have decided all of this during the era of the first-time homebuyer’s tax credit. This was a credit of up to $8,000 the government was giving to first-time homebuyers in an attempt to stimulate the housing market. Fortunately for us, it was free money that did not need to be paid back. In order to take full advantage of this to help with our big plan, I used most of my $14,000 to put the down payment on our home. Paul’s few thousand dollars went towards the closing costs. We filed for the first-time homebuyer’s tax credit right away, and received it within a month. We took $7,000 of that money and put it towards the car loan, and the remaining $1,000 was used as a lifeline for our savings account.
In the meantime we cut costs wherever we could in order to continue working towards our lofty goals. Paychecks were used for debt repayment or to pay for wedding costs as they came up (one month flowers, the next month the wedding dress, the next month the invitations/thank you notes, etc.). We paid $300 per month towards the engagement ring to have it paid off by the date of our wedding. I saved up $2334.78 for our honeymoon through online surveys, market research studies, rebates, bank offers, pawning old boyfriend’s jewelry (sorry guys!), carpooling, freelance income, etc. We each received a tax return due to student loan interest for me and purchasing a home for Paul, and used this to cover most of the cost of the reception.
Our deadline of April 17th, 2010 came and went. Even though we did not pay off all of our debts by then, we did have them all paid off just four and a half months later without having taken on any additional debts from getting married, paying for our honeymoon, or purchasing a home. In my book, this was a huge win! On top of that, we had learned how to combine our finances, and how to work as a team. Our life together was, and is, looking bright.