An Epiphany! How I plan to be debt free by Halloween

Truth time: Since I paid off my student loans, I’ve felt like a bit of a debt destruction fraud.

I slayed my student loans, yes, but I’ve had a car loan for the last 2.5 years.  I’ve justified the loan for two reasons. 1) I didn’t have the cash flow or the savings to buy the car when I needed to make the decision. Taking out a loan was my safe option living where I live, working where I work. 2) I was okay with the concept because the interest rate is incredibly low. 1%. I could easily justify putting my money elsewhere when my savings account was earning what my loan was charging me.

I’ve accepted that decision and I’m okay with it.

Today, I face a different decision. Hubs has leased his car for the last 3 years. He likes the car and we plan to keep it. If we follow the same path as last time, we’d take out a loan for the balance, the interest rate is still good and we’d ride that for the next 3 years.

But what if we did something different?

Since I got my car, I’ve been setting aside, $50/month to cover car expenses. My car is still relatively new, and we haven’t had to use this money. The account grows every month.

On top of that, we have an emergency fund. We’ve never had to use the money in this account. We’ve had it for years and the money sits there. We save a large portion of our take home pay and in that time, we’ve never had to touch this money. We’ve been able to cash flow any expenses that come. *Knock on wood*

What if we used this money to pay cash for Hubs’ car?

Between the two accounts as the accounts sit today, I’m $1500 short of being able to pay cash to cover the cost of the car and the estimated taxes and fees. I have 2 months to save and next month is a 3 paycheck month. That seems incredibly doable.

Then his car would be paid for, and my loan would be done in October.

Here is where things get extra exciting. My last scheduled payment is October. With just a little bit of effort, my favorite birthday milestone is only 3 weeks earlier. Debt free by my 31st birthday? HECK YES! (minus the mortgage of course!)

SWEET! Right?

The biggest down side of this plan is that it would leave us cash poor in the short term. Potentially, “I don’t even want to look at my bank account” cash poor. I’m a little nervous about the cash levels, but we still have a good buffer in our checking. I wouldn’t have my emergency fund and my car fund would be $0. But if we do this, we’ll have an extra $200 to save immediately plus an additional $400 in October. I can use that surplus to fill up the Emergency Fund back to a safer level. In addition, I’ll continue to put aside $50/month for car expenses.

This feels like the best thing to do right now.  I haven’t felt this excited about a financial plan in a long time.

Debt free is to be the way to be. Right?

Am I missing anything? Please poke holes in my plan.


12 thoughts on “An Epiphany! How I plan to be debt free by Halloween

  1. I’m similarly tempted with my non-student-loan debt. But wiping out cash is too stressful for me. I assume that the worst would happen.

    • It’s pretty stressful, but it’s made me be incredibly open with finances and opportunities. I’ve had a lot of worst case scenarios running through my head. Not fun, but potentially awesome if we can get through to the other side safely!

  2. Coming from someone who paid off his car in February (a year early), I highly recommend doing everything you can to do it! I’d made an extra payment or two in the few years since I bought the car, but I’d never gotten too serious about paying it off. Everything changed when I switched jobs and had no income for a month; that car payment felt HUGE and I made a vow to pay it off ASAP. Used a moderate tax refund and cash-flowed the rest and paid it off a couple months later. I know all about being cash-poor right now, we’re making massive debt payments (about $6,000 in May alone) and besides a small emergency fund, there’s hardly a penny to be found around our house.

    • Awesome job killing the car loan! I’d rationalize this debt for a while because it was low interest, or locked into a lease, so it wasn’t a priority. Now that the lease is up, I’m so excited to get it paid off. ALMOST DEBT FREE!!

  3. Be sure to compare the buy out price on the lease vs private party. They typically do not price them in favor of the customer as you would guess.

    Personally I don’t think you should deplete your funds to buy a car. Maybe buy a cheaper car. Or possibly just take the loan with the plan of paying it off in six months.

    • We priced it out and due to being unexpectedly way under miles, the car is worth more than it should be. I know it rarely works out, but it worked out for us due to dramatic changes in driving habits!

  4. Do you have a line of credit or other source of funds you can draw on in the event of an emergency? I’ve personally never felt the need to have a large amount of cash in an emergency fund as long as I have another non-credit card source of extra money in case of emergency.

  5. If I had the opportunity to pay for something in cash and not take out new debt I’d do it. I just despise debt. I currently have two car loans at 1.99% and I’m itching to pay them off as soon as our house sells. I won’t get rid of our emergency fund, though, because we are down to 1 income right now.

    • My feelings mostly stem from being ready to be done, but also boo to debt! I want the cash flow!

      With 1 income, I wouldn’t clear out the emergency fund either! It’s scary enough clearing it out with 2 incomes!

  6. Pingback: #10Things (Personal Finance Bloggers Have Taught Me) - brokeGIRLrich

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