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

by Lindy on January 20, 2013

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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.

Debt Yay!

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.

Debt Yay! (2)

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.

Debt Yay! (3)

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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  • We did back in graduate school to pay DH’s student loans on a teeny graduate stipend in one of the US’s most expensive cities. I’m sure we have a post somewhere about that. The bottom line is that I lost my ability to digest red meat and it took a while to get it back. That was unpleasant.

    I’ve done a number of these kinds of calculations for our mortgage. If we sold all our taxable stocks, we could pay it off now. If we stopped contributing to retirement and buttoned down, I think it would be gone in 4 years. I’m happier with the gradual approach right now. We have a lot more responsibilities than we did when we were graduate students… our kids have to eat meat, and it just doesn’t seem worth it given our situation and likely future situation. (We could also sell the house and buy a cheaper one with cash, but that would take a lot of time and effort, which is more valuable to us right now than money would be.)

    • Lindy

      There’s definitely something to be said for time and effort…and kids for that matter.

  • I hear ya. We had similar discussions as we were paying of $82,000 in debt. We did it in under 2 years. We sold stuff (you’re already doing it), cut bills (the ones you have already cut) and stopped buying stuff (you’re already doing that too). We sold our car and rented out our parking space too. That was about $40,000 in savings/earnings over almost 2 years.

    How did we pay off the rest of it? We got a small inheritance and we cashed out savings.

    Luck + a hard decision.

    It’s been five months and I still don’t regret cashing out the savings. Being out of consumer debt feels awesome. Saving each month feels great. Not paying interest on lines of credit and credit cards and student loans feels great.

    We have a new frame of mind from being out of consumer/student loan debt.

    That’s my story.

    Unfortunately, I don’t have a lot of advice on your current decisions. Cutting aftercare sounds painful for you and your son. I’m a mostly SAHM but my son goes to daycare 3 times a week for a few hours so I can go to the gym, blog and work on freelance writing. I make just a little bit more than the daycare costs right now. Still worth it to me.

    Tough call. Interested to read what other PF bloggers and frugalistas will say.

    • Lindy

      Thanks for sharing your story. I love hearing about those who made the tough decisions and came out fine on the other side. :)

  • I love how you not only made a list but put the potential pain threshold next to it. Almost 3 years ago we did this. We paid off $35,000 in 7 months. In the following two months we went on to pay off our car loan off and then started to build an emergency fund. We cut our expenses in 1/2 to accomplish this. It was painful at time but exhilarating and so satisfying.
    Our income is about 30% of what it was then. Part of being able to do it was there was so much ‘waste’.

    • Lindy

      You guys certainly have done a great job cutting the waste. Can I be you when I grow up? No really, can I? :P

  • Love your discussion about pain threshold. My husband and I will be a one car family soon, which I am sure will be interesting. We purposefully chose to live in an area with plentiful public transportation and a short commute to facilitate this transition. Fingers crossed it will work :-)

    • Lindy

      It will work. Public transportation makes all the difference. Good luck!

  • I truly admire people that can cut their expenses so much that they pay off thousands of dollars in a relatively short amount of time. They are awesome! I think what you said about “pain threshold” factors into it. You have to truly be okay with the deprivation while paying off such large amounts and many of us are unwilling to go that route. I wish I could do that! :)

    • Lindy

      It’s a constant balance of the pain factor. That’s how we make every decision related to money. ;)

  • We’ve paid off something like $7500 in credit card debt the past two years, and my whole car loan, which was probably like $12000? we definitely made sacrifices but we weren’t balls to the wall.

    on april 1st, we’ll only have my student loans left (about $20,000) and while it’s still a huge amount, I don’t think we’re willing to make anymore sacrifices than we already are to pay it off faster. Plus we want to save up for a down payment. We’ll figure it out, we don’t feel any need to be gazelle intense anymore.

    • Lindy

      You bring up a good point about being gazelle intense up to a certain amount. It seems very plausible that once your minimum payments are down to a reasonable amount, you can start to split some of your effort to saving and other goals.

  • We haven’t gone all out, all out. I don’t really know that we have that much we can cut though. I’d be careful with that car thing…you might lose payments but gain maintenance fees! We do what we can and when we have extra money…guess where it goes?! Do you think you’ll do it? Or is it not worth the toll?

    • Lindy

      I think this exercise gives us a starting place. It tells us where we’d need to be if we really wanted to get serious. Like anything, no decision is taken quickly around here. It has to stew and sit with us until we can take the plunge. So I can’t really answer which actions we’ll be taking right now.

    • Very cool. We’re not all about snap decisions either. Especially ones that big.

  • LB

    Of all of those options, I’d be most reluctant to rent out your house. $650 a month sounds optimistic since it would rely on consistent tenants who always pay on time, minimal extra house maintenance costs and minimal gaps between tenants.

    • Lindy

      Don’t forget the headache of being a landlord. I’ve always envisioned us holding onto this house as a rental, but not until later down the road. It’s an interesting exercise to think outside of my box though. Thanks for your comment.

  • Love your graphics! I’m going to weigh in on #1. I wouldn’t rent out the house. If you have any trouble at all getting or keeping tenants, the numbers become less attractive and your pain threshold goes way up.

    • Lindy

      I definitely wouldn’t be that comfortable going into the situation without a savings cushion. But if we did run into a tenant gap, I imagine we just wouldn’t be able to contribute to our debt that month (or months). It would be painful, but still doable, theoretically.

  • Alycia

    I loved this post! While I am not currently paying down debt, I will have a lot of student loan debt to come to terms with when I graduate in 2 years. I’m constantly thinking of ways that I can pair down my expenses now in hopes of paying them off quickly. This post was very thoughtfully written and gave me a lot of think about in my own situation!

    • Lindy

      Do it while you’re young and don’t have kids. Just my two cents. ;) Have you read about my post-college spending fast?

  • I wouldnt sweat too much about something like this. Even though your debt level is high, you’re not struggling with it (from what it seems) and the things that you’ve listen on there have a very high pain factor for either you, your husband or your family in some form or another. Finances arent about making yourself totally miserable, stressed, less secure and uncomfortable in your own home – which it sounds like you may end up if you do some or all of these things.

    • Lindy

      Thanks Jeff. I agree that life is too short for being miserable, but short term pain, long term gain?

  • This post was senior-thesis level worthy! Really good stuff. $400 extra per month is good, but you should aim for a little bit more because 66 months is a long time. What would it take to get it all paid in 48 months? 4 years isn’t too bad.

    My goal is to pay off all my debt in the next 16 months (when I turn 30 ahh). So where do I stand? I pay about $780/month in minimum payments, which reduces my debt by $580 each month (interest). This means I need to pay an extra $1520/month to get it all paid off by June 2013. Well, I definitely pay an extra $300 to $400 in debt payments each month. I need to find an extra $1100 to $1200 per month in extra payments!

    Is that possible for me? It is if I cut out ALL entertainment AND increase my income by say $700/month. I’ve got a big expense in being a bridesmaid in April, I’m dropping at least $1100 on that. But I have no other trips planned and I’m paying the highest interest account now (15.99%). The next highest are 9.24%, 6.25% and 4.9 %. So they are not going to eat as much interest once this high-interest credit card is paid.

    Thanks Lindy for the inspiration! I want to try to pay as much as I can but sometimes it’s hard to see the light at the end of the tunnel. Must keep going…

    • Lindy

      I like your approach of splitting it down the middle. I also like the idea of earning more money so we don’t have to give up as much. Gotta get on that. Good luck with your goals!

  • Lisa

    I think the sacrafice is harder to make once you have kids. While I was happy to drive an old beater car for several years after college, I just don’t feel like that is a good choice now that I tote around two toddlers in the back seat. Sure, I could save some money in that arena, but having side impact air bags and brakes that work is way more important to me. Similarly I’d be wary of moving to another house that could potentially be in a sketchy neighborhood. A safe neighborhood and a good school district are excellent reasons for us to not move. We pay quite a bit to send our kids to a high quality pre-school. We could spend less on that, but the quality of the care and education are worth it to us. So in the end we cut way back on comsumption, because it was pretty much the only thing left. It will take us longer to pay off the debt, and we’ll pay more in interest, but I feel pretty confident that the choice we made was in the best interest of our family.

    • Lindy

      Kids change things, don’t they? I feel the same way about preschool. We kept our oldest son in a private Kindergarten even though he could have gone to the public one for free. We just didn’t feel he was ready for the big bad world yet, and it did make a big difference in his development. Money well spent.

    • Re private school: Us too. It won’t matter if we have 50K in 30 years rather than 10K now (or whatever the numbers will be), DC needs the better schooling experiences now. That’s worth the trade-off.

  • Jackie P

    Hi Lindy- Has Jim told you about our house and becoming debt free? Well, we have been in the process of eliminating debt.

    #1 The house. So we lost our almost 4,000 sq ft house due to the economy and thought we would have to rent. In my mind I’m still thiking of renting a nice sized place, cute and in a good neighborhood.

    However, after doing some math and much soul searching, I had the crazy thought of buying a house for $40k which was all the money we had left in a 401k. (Why rent for $1500-$2k/month just to have a nice house…in the end we are just paying someone elses mortgage) Anyway, we started looking for cheap houses to buy and were surprised at what we found. I thought we would have to move an hour outside of town. Instead,we found a mobile home near Union Hills and 32nd st. So our 2010 motto was “Swallow your pride, buy a double wide”! We put in an offer and had to wait on the bank as it was a short sale.

    In the meantime, I kept looking and long story short found the house we are in now. Turns out we love the neighborhood,its a “real” home with block construction,has a pool and only 5 min from where we used to be! It might be 50 years old and only 1100 sq feet, but its OURS….free and clear. ($55k)

    #2 The Cars- As you said this is a 2-car town. Jim’s car is old and paid off, but we still have a car payment on the other car. However, it is at 0% interest and we would only break even if we sold it. So, we have a little less than 2 years and it will be paid off. We have already decided we will not have any car payments again.

    #3 The Credit Cards- Also as a result of the economy, we racked up credit card debt. Each month we try and pay at least double the minimum payment.

    I have not had great success with craigslist, I will have to get some pointers from you! I cannot tell you how liberating it is not to have a house payment, come check out my neighborhood, there are more houses for sale ;)

    • Lindy

      Yes, I love the story of your house! And I LOVE your slogan. “swallow your pride, buy a double wide!” That is awesome. I don’t know if I would be able to swallow my pride that easily. You guys are a huge inspiration, and I’m so glad you’re debt free!

  • It seems to me the difference between 33 months and 66 months is not that bad when you figure in the convenience and happiness factors. You are talking about paying an extra $6549 in interest over 33 months. Weighed against your home (its not just a house for you, its a home), your peace of mind and your occasional indulgences does it seem worth it? You aren’t struggling to service the debt, in fact you have $400 extra each month to throw at it. Instead of attacking the problem from the expense side of the equation why not attack it from the income side?

    • Lindy

      Thanks for your perspective. I think that 66 months can easily shrink with more income and a little more spending cuts. A sort of meeting in the middle on all accounts.

  • I agree with Money Infant above. Is that $6549 interest really worth the work?
    Don’t get burn out with this.
    You might think about the house again though. It can be a good start to your real estate empire. :)

    • Lindy

      Oh yes, we will have a real estate empire. ;)

  • I think burning out wouldn’t achieve anything. Stay on the moderate path.

    Honestly, $6549 extra is not that huge of a number. It isn’t $65,549!

    That said, I did that crazed, aggressive approach to clear $60k in 18 months, so…. I can tell you I was on fire and BF was scared at how debt-crazed I was (frothing at the mouth near the end).

    He said I was intense. :P

  • I don’t think I could do it. I like my house and my perks in life, even though it means I have a mortgage and other debts hanging over my head to pay off. I prefer the moderate approach, but I really admire those people who can go “balls-to-the-walls”!

  • bax

    The wife-unti and I know we wouldn’t make it through an all out approach, as tempting as it is. We’re sticking to our 300,000 worth of debt in 7 years plan.

    We just got back from a vacation, and I know we wouldn’t be hammering away at the debt without it.

  • LOVE this post, Lindy. Yes, you could reduce your debt quicker through draconian measures, but how you feel about your life day to day IS important. Only by looking at all expenses thoroughly can we figure out just what is most important to us, what can go. Well done! (And if the stuff ever hits the fan, you could kick several of these measures into place right away. Gotta be peace of mind in knowing that.) We became debt free in our forties by living without things like disposable diapers, cable and Starbucks. Debt free feels goood no matter how long it takes to get there!

  • I like the pain threshhold factor. We also have debt to pay, and things we want to do/save for, and figuring out which is more important has been challenging. Making extra cuts has been slow, as each of us has a different pain level (I could live without cable, husband and kids will not).

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  • We did the moderate approach from 2000-2008, then did the drastic approach from 2009-2011. I got scared into paying off debt due to a close call of almost losing our jobs. After that I swore I’d not take my salary for granted. I have lived on next to nothing for a long time and can do it again if it ever came to that. At present though we are trying to be more balanced with our approach. Even if you don’t go all out, those little extra payment here and there do add up over time.

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