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The painful way to pay off debt

Drastic debt reduction requires tough decisions. Are the extra savings worth the cost?

By MSN Money Partner Feb 20, 2012 3:31PM

This guest post comes from Lindy at Minting Nickels.


Over the past few years we've not only experimented with making money, but also saving it.


We canceled cable. We stopped getting our shirts laundered. We cut back on eating out. We lost our sense of entitlement that was causing us to spend money we didn't have.


All of these are small steps that, over time, led to bigger savings. But each one of these steps, though minuscule, didn't come so easily. With clenched fists we held on to them until the bitter end, until the logical sides of us slightly outweighed the emotional ones.


After all was said and done, the changes we made were never as bad as we had originally feared, but it was pretty hard to convince ourselves to take these tiny hops.


Though we've chosen a gradual approach to cutting our spending, I've always admired those who have taken the more drastic routes. Like Adam and Courtney of Man vs. Debt, who sold everything they owned to pay off their debt and travel the world. Or Anna of And Then She Saved, who went on a spending fast and paid off $23,000 in 15 months. Or Sarah from The 60K Project, who paid off $60,000 in student loans within one year.


If you think about it, a year of hard work and sacrifice is a such a small price to pay for a life of debt freedom -- though I'm sure it doesn't feel so small when you're going through it. I've often wondered what would happen if we took a full speed ahead approach to conquering debt. What would it look like? How quickly could we pay off our debt? What would we gain in the end? And most importantly, how much would it hurt?


If, starting today, we set aside all emotion and only did what made logical sense for paying off debt as quickly as possible, how would our lives change?


This should be fun to find out. (Post continues below.)

First off, let's look at some numbers.

  • Our student loan, car payment, and home equity loan stand at about $93,300.
  • We're paying $919 in minimum payments each month for all of these combined.
  • With budgeting and making a little on the side, we're able to come up with an extra $400 to throw at debt each month. Often it's more, but $400 is a modest amount for this example.

OK, now we're ready to start cutting. Might as well start with the biggest owies first.


Our house

Our house is grossly underwater. Unless we can convince the bank to do a short sale, we're stuck with it for the time being. Plus, we have a lot of actual money sunk into this house, so it doesn't make sense financially to walk away now. Our mortgage has always been manageable with our income, but it hasn't done wonders for our debt reduction.


The rental market is strong here, and the going rate for a house in our neighborhood is a little more than our mortgage payment. So the logical thing to do is find a renter for our current house, and find a cheaper place to live for ourselves.


With the housing market being what it is, and interest rates being as low as they are, we could potentially buy an older, smaller, foreclosed house in a not-as-nice neighborhood for about $75,000. We could scrape up a down payment by selling some gear and using all of our emergency fund. Our new mortgage would by tiny.


Potential savings: $650 per month.

Pain threshold (on a scale of 1 to 5, with 5 being the highest): 4. I like our house. I've put a lot of love into it. It's perfect for us right now. Moving would be hard.


Our car

Since we've been throwing everything we have at A-Rob's car debt to wipe it out first, our loan amount is significantly lower than the car's value. We could potentially sell it right now and walk away with $7,500. Since our hometown and our jobs don't allow us to be a one-car family, we'd use that $7,500 to purchase an older used car. Poof goes the car loan.


Amount saved per month: $380.

Threshold of pain according to A-Rob (since it's his car): 3.5 to 4. Being a gigging musician, he spends roughly a third of his day driving. He hates driving in general, and having a nicer car (that fits all of his gear) is a big plus.



EeBee (2nd grade) goes to aftercare at his school every day. This has largely been dictated by my work schedule. Having him in aftercare also adds a comforting dose of balance to my life. If I need to, I'm able to run a quick errand before I pick him up, or even get in a 30-minute workout. If I need to stay late at work to meet a deadline, I don't have to stress about rushing out the door.


EeBee does his homework at aftercare, which, if you're a working parent, you know is a huge benefit. He gets a lot of exercise playing sports there, and the staff is really great about having fun crafts and activities for the kids to do. But if A-Rob and I switched things around a bit, and he dropped the kids off at school every morning instead of me, I could go into the office earlier, and end my day earlier so aftercare wouldn't be needed.


Amount saved: $265 a month.

Threshold of pain: 3. Let's face it, I'm not one of those moms who likes to take her kids out to throw a football. I'll even go as far as to say I'm not a very fun mom. I could do it, but it would be a big adjustment for me to replace the stimulating experiences that aftercare provides. (This might be me making huge excuses to keep my cushy schedule.)



Right now we pay for a monitored security system for our house, which also requires us to have a telephone land line. We could give those up.


Amount saved: $60 a month.

Threshold of pain: 3.I like the peace of mind that the security system gives.



We could stand to tighten up our food and stuff consumption a bit more. This would mean:

  • No Starbucks, ever.
  • Limiting eating out to once a month (I could say never, but we have to have some balance).
  • A-Rob would have to brown-bag it every day.
  • Tightening up our fun money -- no house projects, no books, no movies out, even fewer clothes.

Potential savings: $425 a month.

Threshold of pain: 3. My pain level for these things would be about a 1, but A-Rob's would be more like a 4. His work schedule is such that meals and coffee are often had on the run.


So, with all of these cuts, we've increased our extra debt repayment amount to $2,180 monthly. Add that to our minimums on the student loan and home equity loan (remember, the car loan went poof), and we have a total payment of $2,719.


Using this handy debt snowball calculator, and accounting for an extra $515 that we'll gain when Baby Rock is old enough for kindergarten, it would take us 33 months to pay off all of our debt. And the total interest we'd pay would be $6,251.


Average threshold of pain on a scale of 1 to 5, with 5 being the highest: 3.35.


If we keep the status quo, how long will it take us to pay off our debt? Sixty-six months. And we'll pay $12,800 in interest when it's all said and done. We'll also live a happy and relatively balanced life for those 5.5 years. But unless we kick our side income into superhigh gear or get substantial raises, we won't really be any closer to our long-term financial goals.


Darn those emotions.


Would you take (or have you taken) the dramatic route to pay off debt?I'd love to hear your thoughts.


More on Minting Nickels and MSN Money:

Feb 20, 2012 10:44PM
my income was 12K last yr i moved twice, stopped internt  then got net zero dial up had to get a second job. but will have my student loan and car loan both paid off next march. it isn't much but i have managed to go from -200/month in the hole each month to saving $50 per paycheck.  
Feb 21, 2012 6:12PM
Suck it up buttercup, Pay your way out of debt. Your life will be better and you will be way better off down the road. Been there, done that, worked our way out of debt. It is the best.
Apr 17, 2012 12:52PM

This is great and may I encourage you... keep going.  You are inspiring...  being willing to sacrifice now in order to be ahead later takes a lot of telling ourselves no, doesn't it?  It's not easy...  Go for it!!  Thanks so much for writing about it, too... I need to inspiration to keep moving along on our journey to be completely debt free.

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