MAJOR UPDATE: This week (October 1, 2024) I withdrew enough money from my inherited IRA to pay off all my consumer debt, leaving only a few payments on my student loan, my car loan, and mortgage debt! But if you would like to read about how I had “planned” to pay off this debt in the next 8-12 months, read on!
Today I took the first step to reaching financial independence – putting together my debt payoff plan. But that’s not all I did.
I would love to say I also made a huge payment on a credit card, or paid off a student loan, but what I did do (aside from creating my debt payoff plan) was actually much bigger than that.
I said goodbye to a relationship that was holding me back.
My wife and I signed separation paperwork that effectively terminated our financial lives together. I haven’t moved out yet, that will happen in the coming weeks. But this was a huge step none-the-less.
Fortunately, this was a relatively amicable split, but certainly not easy.
To my children that may read this someday, I want you to know that your Mom and I did everything we could to save our relationship. But at the end of the day we are just really good friends who are not meant to be married. Unfortunately, it took us over 20 years to realize what we probably already knew just a couple of years into our relationship. But fortunately, we have three beautiful children to show for it that we both love more than anything.
Your Life Partner Will Play a Huge Role in Your Financial Future
If you are in a committed relationship or even a marriage, and your spouse or partner does not share the same vision as you regarding your financial future, then you probably don’t want to hear what I have to say.
Don’t get me wrong, my Wife and I didn’t see eye to eye on a lot of issues. She is a vegetarian and I want to eat meat. She is a night owl and I like to get up early. We have different parenting styles.
But more than anything else, we don’t want the same thing out of life. I want to sacrifice material possessions for a few years so that we can retire early, travel, and spend more time with family and friends. She is a spender and lives in the moment, failing to consider the implications of everyday choices on our financial futures.
She is like a lot of Americans who have not yet drunk the financial independence kool-aid. They live for the moment and enjoy spending all, nearly all, or even more than their paycheck each month and then wonder why they can’t get ahead.
I tried for 17 years of marriage to get my partner to see a different path. We tried weekly financial meetings, I tried to get her to do the bills, I made spreadsheets… but none of it worked. She is set in her ways and nothing I can do will change her.
Again, to my kids that might be reading this, I want you to know that I will always love your Mom. We just aren’t a good match. And someday when I leave you a nice inheritance, you will thank me for this decision.
Ok, so now that we have legally separated our finances (which doesn’t yet seem real to me), it is time to start chipping away at our marital debt, all of which I took on in the financial settlement.
My Debt Payoff Plan
For purposes of this exercise, I’m not counting our my mortgage, HELOC, or the personal loan to my Wife because all of these debts will be paid when I sell our my house next year. The mortgage and HELOC payments are covered by my current tenant.
As of right now, I have a personal loan, 3 4 credit cards (this doesn’t count two credit cards that I have for my business that I pay off monthly), and a small student loan. The additional credit card is for BJ’s and I only use it for groceries and gas – it is paid off each month.
Here is where I started in June, and where I stand as of this update.
My updated debt-payoff plan has me paying off all credit cards by April of next year, and my personal loan by July of next year.
Here’s the plan.
How I Plan to Payoff My Debt in 8 Months
Many people would advocate using a 401k to payoff your debt. This can be done by taking a loan against your 401k and then paying the loan back (with interest to yourself) through payroll deductions. If you can keep from going back into debt and have a 401k that will let you take a loan against it, this could be a good strategy.
Unfortunately, I only have a solo 401k, and I am not permitted to take loans against it or I would be using this strategy for sure.
However, I have a few taxable investment accounts that I can tap into.
If you are wondering why I haven’t used these accounts to pay off debt previously, it is because the only way I could keep our family from running up more debt was to keep the balances high such that there was no credit for more purchases.
A stupid strategy to be sure – but it worked. I was able to save up money in a Schwab account through payroll deductions that I can now use to pay off my credit cards. And since I am now the only person in control of what goes on the credit cards, I don’t have to worry about them being used on random purchases anymore – or at least on purchases that I haven’t planned for in advance.
While I had to give half of this account to my wife in our financial settlement, I’m still left with approximately $11,000.
In addition, I have an investment account worth approximately $16,000.
I also have about $5,000 in my business savings account that I will leave untouched. These funds are earmarked for taxes later this year. But I can also tap into these accounts if necessary. So in terms of an emergency fund, I feel comfortable with the cash in place in my business.
Within the next week, I plan to use this $27,000 in savings to pay off my smallest balance, highest interest rate credit card. With the remainder, I will pay off all but $5,000 of my largest balance and second highest interest rate card.
This will leave me with only 2 credit cards with a total balance of about $18,000, my personal loan, and the student loan.
Moving forward, my goal is to apply a minimum of $5,000 towards debt service each month (not counting my car loan). As a result, I should have my credit cards paid off by October, and the remainder of the debt paid off by February of next year, at which point I can tackle my car loan and start saving towards financial independence!
All of this assumes my income will stay fairly stable, or at least doesn’t fall. But my hope is that after I separate from my spouse, I will have less stress in my life and will be able to spend more focused time building my business such that my income will increase.
SEPTEMBER 2024 UPDATE: It is now almost October 2024, and I should have about $5,000 left in credit card debt. Unfortunately, because of several factors, namely, lower than expected income from my business and unanticipated expenses related to the separation, I still have $22,501 in credit card debt, which is disheartening to say the least. I’ve updated my payoff plan, and now believe I can pay off all of my credit cards by April 2025, and my personal loan by July 2025.
