If you’ve read any of my other posts, then you know I’m on Baby Step Four. Ergo, I will only be covering Baby Steps One through Four.
I admit that I don’t put the emphasis on retirement that a lot of people do. At the same time, I don’t want to live in a box and subsist on garbage when I’m 85, though I’ve heard of perfectly healthy people who get a good portion of their food out of the garbage. Apparently, you can find some good stuff in there sometimes. 😀
Anyway, if in three years, I’m still struggling to save for retirement, I might have a real problem, but right now, I don’t think missing one or two years of investing is going to ruin my entire life. But that is just my opinion. After battling debt and being terrible with money for 12 years, I guess I just wanted to push pause on some things and catch my breath.
In building off of last week, I wanted to talk a bit more about my experiences with the Baby Steps.
In a much, much earlier post I talked about how I had to do the Debt Snowball twice. The first time, I did everything exactly right. I saved my $1000, and I paid off my too many credit cards smallest to largest.
After this, however, I took my foot completely off the break and threw caution (and money) to the wind. I was worn out, that is true. I wanted to buy stuff. I wanted to just stop calculating every single purchase that I made. To make sure I didn’t go over budget, I would literally go off to the side, in the grocery store or wherever, pull out a calculator and add up my total to the very last red cent, including tax.
Yes, I’m OCD, we’ve talked about this, maybe, but this was a whole other level of obsessing. After a year of this, I just wanted a break. But that’s not a good excuse for losing my mind. And really, why was I complaining? Some people working Dave’s plan have to sacrifice a lot longer than that. So wracking up debt again was entirely my fault. I completely threw out the rest of Dave’s plan and went back to my old ways, thinking it would be better this time because I got a fresh start.
Long story short, I had to do it again. (Haha) This time, I more or less ignored Baby Step One. This isn’t because it’s not important. It’s mainly because I had my parent’s help, should I need it, and also because my debt to income ratio had gotten so high that I had to sell stuff just to keep my head above water. In order to make traction, some people weren’t going to get paid. When you don’t pay people, they sue you. So I had a short frame of time in which to work this plan if I didn’t want to tempt some creditors to drag my delinquent butt to court. Court is scary. I had traffic court once, and it was very scary. I didn’t want to go to debtor’s court.
So, I got my savings up to $300 to stop the fees on my savings account, and then I moved on to Baby Step Two and attacked my debt with a vengeance, the smallest two first, smallest to largest: $200 and $390. I don’t know what the interest rates were – it didn’t matter. They were costing me $50 in minimum payments – that’s all I knew.
After this is when I started deviating. My next smallest round of debts before the student loan, which was around $2500, and my biggest debt, which was close to $9000, were two credit cards of about $1300 and $1500, and then I had a line of credit of $2000. I paid off the line of credit next, not because of interest rate, but because the minimum payment was so much higher than the others, and I just wanted to free up that money.
Then I paid off the $1500 card because my promotional APR had just ended, and I not only wanted to pay as little interest as possible, the minimum payment on this was also higher than the $1300 debt, which I paid off next. That just left the big one, that I was being charged over $100 a month in interest on. It was also my lowest interest rate (and exactly why I think the Debt Avalanche method is a bunch of hooey. Because obviously, the debt that is costing you the most money isn’t the one with the highest interest, it’s the one with the highest BALANCE! Plus, all my interest rates were within a few percentage points of each other, wouldn’t have made a big difference anyway. And I actually did use a calculator to determine if the Avalanche method would have been faster, and all things being equal, it wouldn’t have saved me a single week. Literally. End Mini Rant.)
When that was taken care of, I stock-piled money and dealt with the three accounts I went delinquent on – totaling around $13k that I settled for around $8.5k, and settling was pretty much the only option I had at that point. They might would have given me a few more weeks to pile up more money if I had asked, but you don’t ask questions at this stage, you just get out as fast as you can, and when they called, that was all the money I had to work with – it was very stressful!
Last, I piled up some more money and paid off the remaining balance of the student loan. FREEDOM! This was last because my parents had taken it over the first time I got into debt, and there wasn’t another payment due on that for months. And of course I was going to finish it off. It was my problem, and I wanted it out of my life. No more stupid debt hanging over this girl’s head! Ever.
There was no real reason to flip my snowball around like I did. I was throwing large amounts of money at my debt at this point (and wearing out my paypal account to the point where I don’t even like to sign into my account anymore, but that’s okay), so it probably didn’t save me any time overall. I was just more sick of looking at some debts than others. Also during this time, I was sneaking a few dollars into my savings account here and there, so by the time I finished Baby Step Two, I had a little bit of head start on the next baby step.
Unlike the first time, I took Dave’s plan seriously this second time around and continued on to Baby Step Three, running around like a crazy person in order to finish up my emergency fund by the end of the year, which was about 6 months after I paid off the student loan.
A couple of months later, I transferred some of the excess in my Emergency Fund into a Roth IRA (because I had gotten carried away – haha), and I was officially on Baby Step Four. One year and some months later, I am still on Baby Step Four.
According to Dave, you can do Baby Steps Four, Five, and Six simultaneously, but I barely have enough wiggle room to do Baby Step Four, I have nothing left to pay extra on my condo (Baby Step 6), at all. Hence why I’m stuck.
But that is also okay. I rather be stuck on Baby Step Four than cycling back into debt. 🙂