The day I paid off my debt

Today I made the final payment on my credit card. It felt scary to do it. I had all kinds of anxiety thinking things like “I’m going on holiday at the end of the month, do I have enough?” Well, the answer is yes, I do have enough. It’s a feeling I’m not used to having, but I have enough because I’ve sorted out my financial life.

 

There have been so many times in the past 6-7years where I’ve been struggling to get through the month, or worse just spending recklessly It’s deeply ingrained anxiety that I’ve lived with for years and now, finally, I have managed to break out.

 

Maybe the magnitude of what I have achieved has not sunk in yet, but I was expecting to feel different. People say it is like a weight being lifted. I agree it does feel that way. However, today the weight on my back was very light compared to the one in January of this year. I have been breaking chunks off every month since then and the weight of debt has been lightening. Today was the last piece and one I’ve been looking forward obliterating for a long long time.

 

Now I have done it and, yes it feels great. I must be 100% honest and state I am not debt free. I still have my car loan and at this point, I’m happy paying that out until it ends in Feb 2020 (I love the car too much) and the car is now worth more than the loan. But all the other debt is gone.

 

The road into debt

 

To mark the occasion, I would like to reflect on how I got myself into the mess I found myself in. As with any story or struggle, it is not one that happened suddenly, but gradually over time.

 

I took out loans for sensible things like education to pay for my law conversion course. I then borrowed a lot to take 10 months out of work to study for the Bar. All worthy endeavours, but expensive. Add to that a general issue with not saving enough because there was always pressure to spend to go to weddings, holidays, drinks and meals out with friends resulting in me struggling to save any money.  I’m glad to say that those days are in the past.

 

Additionally, I had to take out loans to fund a project in the building I live in which is a leasehold property. Of course, the project overran and increased in cost. That has been a struggle and a drain on my resources, however, it looks like I won’t have to pay anything for a while now thanks to a court ruling. That has cancelled £7000 of money that was demanded by my landlord but I refused to pay. I’m only kicking myself that I paid anything at all as I could have not paid at all and been about £10000 better off.

 

In 2016, I lost my father and grandmother within 2 months. That also led to a spiral of spending pointlessly – I bought, or rather entered a PCP agreement to get a BMW to cheer myself up. It did cheer me up and gave me great freedom as I had not previously owned a car for 6 years. Sometimes you have to live a little… but yes I could get a cheaper car.

 

After completing my studies last year, and I started earning again in September 2018, I began to think about the debt. I couldn’t see a way out. I got a tax refund and paid off the rest of my government student loan (£2400) before I started the new job so it wouldn’t come out of my salary.

 

I then came across an article on FIRE in the NY Times which really inspired me. I heard about all these people, some younger than me, who had retired. I couldn’t believe it. How would I ever get there?

 

I started in earnest and made some rookie mistakes. I wrongly started investing in the stock market around November 2018. This was a mistake I realised when reading Mr Moneymustache’s post about debt emergency. The debt should have been my priority. https://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/. I cannot agree more with his philosophy here and urge you to do the same.

 

His philosophy changed my mindset completely. This was a blazing emergency and I needed to change my life no matter what. Over the course of a month, I started to add up all the cards, loans and overdrafts I had. It was frightening. I was about £39,000 in debt (£15,000 car loans, £16,500 unsecured, £1500 overdraft). This was unsustainable. I was paying around £800/month on loan payments alone.

 

I used the tools at my disposal and paid off one of the loans with my savings, then paid off a loan with a 0% credit card offer to save around £500 of interest a year. I also made a stretch plan to pay that card off by June. I cut my expenses back by hundreds a month. https://playingwithfire.uk/2019/02/

 

Every time I got paid, I put the money into the credit card (£1500-1800 a month) so I couldn’t spend it and held on tight for the rest of the month. There were some dark days as I had only a few pounds left in my account at the month’s end. I stopped going out, eating out and skipped holidays. I cooked meals at home (turns out I love cooking). It was not the best fun I have to admit. I viewed it as a sacrifice to get me out of the hole I had dug myself over the years. When things got tough I looked toward the day I would be free and that kept me going. The first few months were the hardest as they were during winter. Lots of PS4 games were played and thank God for Red Dead Redemption 2. As things got easier I allowed myself the odd meal out and the odd pub visit.

You probably want to know about the numbers. Well, I get £4005 a month after tax in salary, another £500 in rent from renting my spare room out (tax-free), and £500 to cover expenses from my girlfriend (she lives with me in London).  My monthly expenses are about £2700 all in (and could be less, to be honest). I tried to put every spare pound into paying my debt. I never could find the full £2300 as I always overspent but I got close each month and maybe with the Emma app I will!

Here I am, still in June having achieved it. I have paid off £16,600 in 5 months and had a further £6400 of debt cancelled as it was unlawful. Gone. Done.

Screenshot 2019-06-30 at 14.05.22

debt graph jul19

I thought it would take literally years to do this. But treating paying my debt off as a blazing emergency worked. All my efforts for these 5 months have gone into saving money and paying it down as soon as I got my paycheck.

 

It’s been an incredible journey and one I’m glad to have shared and held myself accountable to by writing this blog. It had kept me focused on the goal.

 

I couldn’t end this post without thanking my girlfriend who has taught me so much about frugality and self-discipline these past few months. She has supported me through this period of change and now we can have a healthier and happier life together.

 

What now?

 

The next stage could be to sell my car. Then I genuinely would have no debt (other than my mortgage). But I do like that car… no, I love it.. but selling it is the sensible thing to do. Let us see.

 

Next month I shall start building a buffer of savings of around 3 month’s worth of expenses. On my current budget that is around £7000-8000. I will target about 4 months to get there.

 

 

 

Some anxiety

anxiety.jpg

The past three weeks have been rather difficult for me. Despite my genuine excitement at being able to ‘see the light at the end of the tunnel’ for my debts, some external forces have upset this happy FIRE ship.

On Tuesday shortly before Easter, when I arrived at my company’s office, there was a bouncer on the door and a notice saying we could not go in. Rather perturbed, myself, the Chairman and other employees didn’t really know what was going on.

I work for a small consultancy business with big ambitions, and one that has taken some big risks. Apparently, historic projects had lost some money and the company had not paid the rent in a misguided attempt to juggle cash flow. Big mistake; the landlord had kicked us out.

After several days of working from home, we were allowed back in at greatly unfavourable terms and I believe the company had to pay rent in advance.

Clearly, this caused a great deal of anxiety and stress for myself and everyone else. The kind of thoughts running through everyone’s head were did the company have enough money to pay bills? Would we be paid? Was the company going bust? They assured us it would be fine. I wasn’t convinced.

I am delighted to say that I got paid on the 30 April and I am feeling a bit better about it all. I may still look elsewhere for a job, but as I have just won my first new client, I am reluctant to pack in all that hard work. I left the security of big corporates to experience risk and reward and while I never expected to hit these lows, it is not always going to be plain sailing.

This remains an ongoing saga.

The fall out

What does this mean for my journey to financial independence? The answer to that question is threefold.

Firstly, It has somewhat knocked my confidence in what I am doing. The aggressive approach to paying off my debts effectively is pushing me to my limit. By the end of the month, I had £5 left in my account. I am refusing to spend on a credit card or take an overdraft. I made it to the end without breaking or missing any bills, but it didn’t feel great. I desperately needed the paycheck to stay afloat.

Secondly, I knew that using all my savings to pay off my debts was risky as it left no room for manoeuvre. I only have £200 in my savings which is not very much at all. I was feeling good as I was making such fine progress in paying off my debts, but it is a stark reminder to leave enough for emergencies. I had thought about this and reasoned that if something bad happened, I could use my credit card. However, my mentality has changed so much since starting FIRE that the thought of adding to my credit card and undoing the good work so far almost made me feel ill.  Perhaps leaving a months salary in the bank may have been smarter and letting the process take a couple months longer might have been a better move.

Thirdly, and most importantly, the whole episode has made me more determined to succeed at FIRE. The timing of this event was particularly bad as I have taken a big risk to clear debt leaving me with no reserves, but if this happened in 12 months time, I would have a large cushion of savings and investments on which to fall back. That thought alone is motivation for me to keep going. It is the quintessential reason that I am doing this so that I don’t need to rely on my job and other people who may be inept at running a business, for my livelihood.

To conclude, it seems that in taking a risk to clear my debts, I’ve accidentally put myself in the exact position that FIRE aims to get me out of. I always viewed this phase as the most painful part of gaining FI and it has been more painful than expected for reasons both within and outside of my control. I will persevere, but perhaps with more caution until I have a significant buffer behind me.

Why am I doing FIRE?

I am in my mid-thirties. I didn’t really think much about the future when I was in my twenties and I think my interest in FIRE is part of a realisation that life is rather short and there is a limited time to do what you want. Of course, I thought of the future, but it was perhaps a fantasy future which was what we were taught to aspire to, rather than the reality.

I have led a fairly interesting life and have experienced things that the majority of people my age may not have (marriage, divorce, living overseas, loss of a parent). I have also had some extremely positive things happen to me such as returning to university to follow my dream of becoming a barrister (that is an ongoing dream!).

By stopping work for a year, I stepped off the treadmill that so many people my age are on. That feeling of constant pressure to get to the next stage of life. The route set out for us which is seen as a success (school, university, job, marriage, house, car, kids… then what? slow death?).

I was blown off course by becoming divorced at age 30. I won’t dwell on that, but at the time, it felt like a massive step backwards in what had until that point, been a life that felt like I was boosting forwards. I was depressed for some time, but as they say, it made me stronger and a better more compassionate person.

I think realising that taking a step backwards wasn’t the worst thing that could happen was a real eye-opener for me. I realised that I could recover from it, and come back stronger. I also believe it gave me the confidence to take action and pursue an alternative career at a later stage in life.

More recently, finding out about FIRE, which is essentially a movement that encourages people to minimise expenses and live frugally, was appealing as I had given up a well-paid job to return to University.  I had no money and had become used to living the frugal life. When I got a job, I thought, what if I keep living this way? I have kept things under check and found that I am not missing out at all. Most of my friends these days have bought houses and are mortgaged to the hilt with kids in tow.

In the past, I would be eating out 5 times a week, going to the pub and spending £50 a time 2-3 times a week. Did I have an alcohol problem? I may have, but if I did, I don’t now.

I have a mortgage, but no kids, and feel my salary is more than ample to live off. I don’t eat out that much anymore. I don’t eat takeaways. I learned to cook and eat reasonably healthily. I go to the pub and drink moderately. All these subtle changes have reduced spending compared to what I shall call ‘pre-university’.

So I am not doing a full FIRE thing yet, but I am attempting to follow its philosophy. The basics of minimising spending and saving as much as possible are no-brainers.

I’m at the beginning of the journey, but find it has given me a more disciplined outlook. I am looking forward to paying off my debts, followed by building up savings and investments. That is the way forwards!