In 2011 I bought a brand new, 2012 Ford Focus SEL. I love this car. Prior to owning this, I had a 2002 Jeep Liberty, which I also loved, but it got 14 MPG and was starting to have some expensive mechanical issues. I was a year out of law school, my commute was 19 miles each way, and I no longer needed 4wd because I was living and working as a baby lawyer in Las Vegas. (I definitely needed it during law school in Spokane and my clerkship in snowy northern Nevada.)
When I did the math, I was spending about $325 a month at 13% interest on a car payment, $150 in car insurance and roughly $400 a month on gas. This isn’t including the several hundred dollars I’d had to shell out two months in a row. When I did the math on the Focus, I would be spending $515 a month at 4% interest on a car payment, $125 a month in car insurance, and $100 a month on gas. The cost of daily expenses were so much lower + the peace of mind of having a brand new car with a warranty and the knowledge that it was properly cared for made it worth making a switch to me. Or so I thought.
My Salary Had Substantially Increased
At the time I was making very good money, especially considering I was only 25 years old. “Very good money” is relative. I had a law firm job during a major recession when most of my friends were still unemployed or seriously underemployed. I didn’t have a gap of employment from law school to clerkship or clerkship to associate. It was more money than I’d made in my whole life and about $20,000 more than I made as a law clerk. All of that to say, it was also 25,000-30,000 less than the baby lawyers at the exact same firm, doing the exact same job, made a few years prior, but such is life when you graduated in 2010.
I was sitting in the car lot next to my step dad as I was doing the math on my budget. $515 was a lot of money, but buying a new car would actually save me money every month. The car I was interested in buying had all of the features I could dream of wanting except a sun roof and these words came out of my mouth, “Well, I’ll never make less than I do right now.”
Oh, 25 year old Brittany… If you only knew. But, for the next year or so, that was true.
At first thought I’d pay a little extra every month, but Ford’s computer system wouldn’t let me. When I paid more than the principle balance, it would reduce the next month’s payment. I also had about $5,000 in credit card debt, and at that time (because compound interest hadn’t royally screwed me yet, $90,000 in student loans). I told myself that for my first year as an associate, I would spend my money however I wanted and then I would get serious about debt repayment.
Don’t be like me.
Then I Changed Jobs and My Salary Dropped 50%
Toward the end of that first year, some things came up that made me want a change. It wasn’t the work, I loved the work, and the atmosphere of working at a “big” firm. But there were some things about the firm that I couldn’t live with and I needed to make a change. The change ended up being a small law firm in Small Town where I’d done my clerkship, and where my ex-boyfriend (then current) lived. I could have tried harder to stay in Vegas, but I would have been limited at that time to the same area of law and probably trapped in Vegas after that. I never liked living there, even as a child, and going back as an adult didn’t change my opinion of the city. Leaving seemed like the right choice for me.
The worst part? I took a 43% pay cut to do so. It was worth my peace of mind at the time, and I had been able to save quite a bit of money despite not making progress on my debt, but it was still a shock. Apparently when you spend a year spending whatever you want without watching your bank account balance, it is SHOCKING to suddenly need to go back to having a budget.
My car payment went from completely within my means, to a major burden. This was in 2012. Spoiler alert, I paid the car off four years later in 2016. It was HARD to be on a tight budget for several years and watch $515 a month go down the drain when I was struggling to pay off my credit cards and buy healthy groceries.
At the end of 2012 I also went through a major, emotionally charged, breakup and got the opportunity to move back to Washington, but this time on the west side. I do think that taking the major pay cut was worth my long term happiness, because if I didn’t already feel broke, I would have never been brave enough to take a risk, move states, take a new bar exam, and do it all for the same price as what I was making in Small Town (43% less than my first year as an associate).
From 2012-2014 I made basically the same salary. I had some small increases, but in the end I spent most of those years stagnant, earning only $10,000 more than 2012. The economy was still horrible and jobs were hard to find. So I chugged along, moved into a cheaper apartment than the first one I found when I moved here, refocused my snowball payment plan after a great sermon series, and then small group study at my church, and decided that even if I was barely making any money, I wasn’t going to continue to live life maxed out. It also helped having my accountability partner Alicia on my side. We would talk nearly every day about our financial and life goals. So when I wanted Chinese food for lunch, but had a PB&J in the fridge, it was easier to eat the sandwich and dream about what it would be like to travel guilt (and credit card) free.
I focused my attention on my credit cards, and kept automatically making car payments. By this time I was so used to the huge payment that it was a mindless part of life. The bonus of having such a high monthly payment at a low interest rate is that progress did happen “quickly” compared to my Jeep. While I wish I had the ability to make more than the minimum payment, the minimum payment took care of itself and truly, it was my cheapest debt, including student loans. Don’t get me started on the interest rate of graduate level student loans. It’s ridiculous.
The Economy Began to Recover
At the very end of 2014 I started my dream job and my salary finally started to correct itself and match the proper level for a 4th year attorney. Rather than give myself another year of fun, I figured out how much money I’d bring home after taxes, and gave myself $150 extra each month to replenish the things I hadn’t been able to buy in the last several years (new suits, new shoes, home goods, etc). The rest went to my debt snowball. I then took it a step further and figured out the difference in paychecks. I used the snowball money from my first paycheck to buy a flight home to see my parents and best friend. Then I went online and scheduled out four months of snowball payments to my credit cards, starting with the lowest balance.
This method was perfect and I paid off $8,000 in debt in 6 months. I only made about $6,000 in progress from the debt I had at the end of 2014, but that’s because every so often I did charge expenses.
The car continued to pay for itself. Each month it would go down $515 a month, and with only a year left on my payment plan, the progress actually felt real. My thought was to keep aggressively paying off my credit cards and let my car run its course. But then, when I began the Home Buying Process, the high monthly payment hurt me
A Change in the Snowball Focus
Even though it wouldn’t impact my loan approval anymore, I decided to switch my snowball payment to my car. I had to manually make the payments because my car still would take all of the money I paid above the minimum payment would simply reduce next month’s payment. I found out that I could add my car payment to my checking account and could go right into my account and schedule payments that way, since Ford didn’t provide an automated, easy to use, payment scheduler.
It’s a good thing I did that too, because I really would have rather had the $515 for Christmas presents. By automating the payments, I took the emotions out of the process. It was easier to keep my eye on the prize of paying off my car when the payment came out automatically and I couldn’t be tempted to use the money for presents instead.
On January 8th I paid my standard snowball payment. My monthly payment date is the 15th. But I couldn’t wait! I did the math, subtracted my snowball payment, and saw what my final pay off amount would be. Then I made that on the 8th as well.
But then I had to wait until Monday to see the updated balance. It was torture!
I refreshed my account no less than 10 times in the four days after January 8th, in hopes that the payment posted and I could have the satisfaction of seeing the zero dollar balance. No such luck.
But then, that Monday morning I woke up, refreshed my account while still laying in bed, and there it was!! No more payments remaining. No payment scheduled!
I can’t even tell you how exciting it was to see this! All of the hard word, all of the sacrifices, all of the fun plans I turned down and restaurant meals I didn’t eat… it was all worth it.
The final payment says May 2016 because that’s when it would have been paid off if I hadn’t paid it off early. I’m so excited!
As much as I’ve lusted after a new Jeep or even a Hybrid Ford Fusion (they’re so pretty!), I don’t think any new car will feel as good as knowing that my February budget has opened up an extra $515!!
Then, while I was writing this post to tell you guys about how it feels to know I no longer have a car payment, I logged into my bank account to start scheduling my snowball payments to my remaining credit cards. I don’t want to get lazy and I don’t want to get used to my “raise.” The only way I have come this far is by automating everything and not letting myself think of the snowball payments as extra money. It took about 15 minutes to figure out the payment pattern and schedule them out for several months. It feels so good to know that I’m taking debt by the horns and showing it who’s boss!
So to recap:
- I bought a car that fit a temporary budget without considering my long term needs or what would happen if I lost that salary;
- I switched jobs and took a huge pay cut that was worth the peace of mind, but you can’t make a car payment in peace of mind;
- Because the interest rate was, thankfully, so low, I was able to make the minimum payment without interest putting me super far behind;
- I increased my salary and did not let myself “realize” the raise except for a small amount to stop living paycheck-to-paycheck (or credit card), and replenish items I had not bought in 3 years;
- My Snowball Payments went to credit cards until I started the home buying process, and the large monthly car payment hurt my approval process;
- I switched my Snowball Payments to the car payment, and paid off the last $3,068 in two months (forcing me to use self control during Christmas shopping and apply my Christmas bonus to debt rather than something more commonly considered to be “fun”);
- I now have $515 extra in my budget, and spent 15 minutes setting up automatic payments that will roll $415 into my Snowball and $100 into my home-emergency savings account each month so that I don’t get used to the money;
- And I can truly say I own a car!