Now that I have no debt other than a mortgage, I have a lot more money that I can spend or save. I used to devote a large portion of my paycheck to paying off high-interest credit card debt as well as student loans. After years of austerity, I was finally able to loosen up my spending habits and indulge myself. I estimate I've saved about $50,000 in interest charges by paying off my credit card and student loan debt early. It's exciting to see how my cash flow has improved as I've disposed of my consumer debt.
Saving money for a down payment
The first thing I did with the money I used to spend on credit card debt was save up for a down payment on a house. After I purchased my home, I continued to devote a large chunk of change toward paying down my mortgage. A customer service person from my mortgage company told me I've already saved $50,000 in interest charges by paying extra on my mortgage in the past 8 years. If I continue to pay extra, I'll save an additional $8,000 in the next 8 years. What's more, the house will be paid off.
Paying cash for a car
With zero credit cards, I didn't want to get back into debt. About 10 years ago, I started saving about $300 a month toward a new car purchase until I had enough cash. I still have a "new car fund" that I contribute to every month so that I can always purchase a car with cash. Each year, I increase the amount by asking family members how much they spend on making car payments every month. Instead of saving $300 a month as I did years ago, I now save $500 a month since the prices of cars are much higher than it used to be.
Going on family vacations
When I was struggling to pay off my credit card debt, I didn't have any wiggle room in my budget for vacations. I feel a lot happier now that I can afford to take several mini-vacations every year. I've been able to fly out and visit relatives as well as enjoy getaways with my husband.
Building up my retirement fund
Saving for retirement is another major financial priority now that I have no debt other than my mortgage debt of about $100,000. Instead of paying the bank money in the form of interest charges, I enjoy a small return on my investments. Although my retirement account went down during the recession, it bounced back. One of my close friends with $20,000 worth of credit card debt asked me if she should pay off her credit cards before saving for retirement. I told her that I'd take advantage of the company match in a 401(k), but then would wipe out the debt.
While some people don't like to have to rough it, especially when they are older and in debt, I preferred the fast approach to getting out of debt. I would rather reduce my spending dramatically and get out of debt more quickly than take my time. Most of my friends who say they are going to gradually get out of debt, just seem to keep a revolving credit balance for years that turn into decades.
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- credit card debt