Over the weekend I did a little personal finance housekeeping, sorting and filing statements and other paperwork. My “To-Be-Filed” stack was growing rather large, and I recently had two occasions to hunt for a receipt and warranty card and instead of going right to the folder, I had to dig through the stack of stuff.
While sorting and shredding, I ran across something interesting – an old credit card statement dated June 2009. I scanned the statement, remembering this credit card still carried a balance of a few thousand dollars representing all that was left of my school debt. That is, the tuition and books I billed to my Visa for a couple years after returning to school to complete my undergraduate degree (after giving up several years before that).
This particular credit card had a decent interest rate – 9% fixed, and I thought I was doing well to whittle away the balance over time. In June 2009 that balance cost me $29.58 in interest, or roughly $355 a year.
Doesn’t sound like much? Consider the amount of savings at today’s rates it would require to spin off nearly $30 a month interest. About $20,000 yielding 2% annually.
The last statement I received from that card was January 2010, just after making my last payment. Paying off debt is a great feeling, but it takes a few months for “the switch” to really sink in. “The switch” is the cross-over point where you know longer pay interest, but begin to earn it. Of course, you quickly discover that it much more difficult to earn interest than to pay it, but it underscores the saying, “The borrower is slave to the lender.”
Those lenders were making 9% interest off of me. Of course, I allowed it, mostly because I was overly ambitious about finishing school and rather than saving and paying cash, I tried to hurry the process along by running up student debt. Looking back, I do regret that decision, but it helped get me to where I am today.
Had I not graduated from college with debt, and been locked into making payments for those first couple years after school, I may not appreciate being debt free as much as I do now (and I may not have been as strongly opposed to taking on new debt as I am today).
Debt Freedom is Great, but Not Without Anxiety
Back when we were deep in debt, I used to daydream about what life would be like without debt. I envisioned a care-free existence, or at least not a care about anything related money. And for a couple months after paying off our last debt (except the house), we were sort of floating on the financial clouds. It felt great not sending part of my paycheck to banks and credit card issuers. But then a cold realization set in. I was simply back to zero.
For the last couple years of our get out of debt plan we basically stopped everything to making giant payments on debt. This meant we had very little in the way of savings – for retirement, college, emergencies, and even everyday sinking funds for those things that happen every now and then (car tag renewals, vacations, etc.). What used to have anxiety over debt, but now we were feeling anxious because of all the ground we had to make up.
I almost immediately began reading investment books, subscribed to new blogs, new magazines, etc. I tried to soak up as much about saving and investing as possible. I scoured the Internet for the best saving rates, learned all I could about CD rates and bonds and stocks, and moved my tiny savings pile from bank to bank looking for a better deal. I realized I was obsessing over saving in much the same way I obsessed over our debt. Neither form of obsession was healthy.
We eventually settled into a more realistic approach to our money, recognizing that yes, we missed a few years worth of compounding growth to pay down debt. Would we do it over again? Absolutely. Without debt, it should be easier to save and invest going forward. The freedom of living without non-mortgage debt is plenty worth the sacrifices we made. For those buried in debt for such a long time, it turns out just “getting back to zero” is victory enough; everything else is gravy.