How Soon Could We Be Debt Free if We Went All Out?

Over the past few years we’ve not only experimented with making money, but also saving it.

We cancelled cable. We stopped getting our shirts laundered. We cut back on eating out. We lost our sense of entitlement that was causing us to spend money we didn’t have.

All of these are small steps that, over time, led to bigger savings.

But each one of these steps, though miniscule, didn’t come so easily. With clenched fists we held on to them until the bitter end, until the logical sides of us slightly outweighed the emotional ones.

After all was said and done, the changes we made were never as bad as we originally feared, but it was pretty hard to convince ourselves to take these tiny hops.

Though we’ve chosen a gradual approach to cutting our spending, I’ve always admired those who have taken the more drastic routes.

Like Adam and Courtney of Man vs. Debt, who sold everything they owned to pay off their debt and travel the world. Or Anna of And Then She Saved, who went on a spending fast and paid off $23,000 in 15 months. Or Sarah from The 60K Project, who paid off $60,000 in student loans within one year.

If you think about it, a year of hard work and sacrifice is a such a small price to pay for a life of debt freedom. Though I’m sure it doesn’t feel so small when you’re going through it.

I’ve often wondered what would happen if we took a “balls to the wall” approach to debt conquering. What would it look like? How quickly could we pay off our debt? What would we gain in the end? And most importantly, how much would it hurt?

If, starting today, we set aside all emotion and only did what made logical sense for paying off debt as quickly as possible, how would our lives change?

This should be fun to find out.

First off, let’s look at some numbers.

If I make my debt numbers happy colors, maybe they won’t look so bad.

Our student loan, car payment, and home equity loan stand at about $93,300.

We’re paying $919 in minimum payments each month for all of these combined.

With budgeting and making a little on the side, we’re able to come up with an extra $400 to throw at debt each month. Often it’s more, but $400 is a modest amount for this example.

Okay, now we’re ready to start cutting. Might as well start with the biggest owies first.

1. Our House

Our current house is grossly underwater. Unless we can convince the bank to do a short-sale, we’re stuck with it for the time being. Plus, we have a lot of actual money sunk into this house, so it doesn’t make sense financially to walk away now. Our mortgage has always been manageable with our income, but it hasn’t done wonders for our debt reduction.

The rental market is strong here, and the going rate for a house in our neighborhood is a little more than our mortgage payment. So the logical thing to do is find a renter for our current house, and find a cheaper place to live for ourselves.

With the housing market being what it is, and interest rates being as low as they are, we could potentially buy an older, smaller, foreclosed house in a not-as-nice neighborhood for about $75,000. We could scrape up a down payment by selling some gear and using all of our emergency fund. Our new mortgage would by tiny.

Potential Savings: $650 per month

Pain threshold (on a scale of 1 to 5, with five being the highest): 4

I like our house. I’ve put a lot of love into it. It’s perfect for us right now. Moving right now would be difficult, emotionally and logistically.

2. Our Car

Since we’ve been throwing every extra penny at my husband’s car debt to wipe it out first, our loan amount is significantly lower than the car’s value. We could potentially sell it right now and walk away with $7500. Since our hometown and our jobs don’t allow us to be a one-car family, we’d use that $7500 to purchase and older used car.

‘Poof’ goes car loan.

Amount saved per month: $380

Threshold of pain according to husband (since it’s his car): 3.5 to  4

Being a gigging musician, he spends roughly 1/3 of his day driving. He hates driving in general, and having a nicer car (that fits all of his gear) is a big plus.

3. Aftercare

My son EeBee (2nd grade) goes to aftercare at his school every day. This has largely been dictated by my work schedule.

Having him in aftercare also adds a comforting dose of balance to my life. It allows me the flexibility to run a quick errand before I pick him up, or even get in a 30-minute workout. If I need to stay late at work to meet a deadline, I don’t have to stress about rushing out the door.

EeBee does his homework at aftercare, which if you’re a working parent, you know is a HUGE benefit. He also gets a lot of exercise playing sports there, and the staff is really great about having fun crafts and activities for the kids to do.

But if my husband and I switched things around a bit, and he dropped the kids off at school every morning instead of me, I could go into the office earlier, and end my day earlier so aftercare wouldn’t be needed.

Amount saved: $265

Threshold of pain: 3

Let’s face it, I’m not one of those moms who likes to take her kids out to throw a football. I’ll even go as far as to say I’m not a very fun mom. I could do it, but it would be a big adjustment for me to replace the stimulating experiences that aftercare provides. And I might just be making excuses to keep my cushy schedule.

4. Security

Right now we pay for a monitored security system for our house, which also requires us to have a telephone land line. We could give those up, balls to the wall style, and save $60.

Threshold of pain: 3

I like the peace of mind that the security system gives.

5. Consumption

We could stand to tighten up our food and stuff consumption a bit more. This would mean:

• No Starbucks ever
• Limit eating out to once a month (I could say never, but we need some balance)
• A-Rob would have to brown-bag it to work every day
• Tighten up our fun money – no house projects, no books, no movies out, even less clothes buying.

Potential Savings: $425

Threshold of pain: 3

This number represents an average pain threshold between my husband and I. His work schedule is such that meals and coffee are often had on the run, so he’d suffer the bigger adjustment between the two of us.

So with all of these cuts, we’ve increased our extra debt repayment amount to $2180 monthly. Add that to our minimums on the student loan and home equity loan (remember, the car loan went poof), and we have a total payment of $2719.

Using this handy debt snowball calculator, and accounting for an extra $515 that we’ll gain when our younger son, Baby Rock, is old enough for Kindergarten, it would take us 33 months to pay off all of our debt.

And the total interest we’d pay would be $6251.

Average threshold of pain on a scale of 1 to 5, with 5 being the highest: 3.35

If we keep the status quo, how long will it take us to pay off our debt?

66 months, and we’ll pay $12,800 in interest when it’s all said and done.

We’ll also live a happy and relatively balanced life for those 5.5 years. But unless we kick our side income into super high gear or get substantial raises, we won’t really be any closer to our long-term financial goals.

Damn those emotions.

Would you (or have you) taken the dramatic route to pay off debt? I’d love to hear your thoughts.

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Lindy

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