Today’s Debt Free Story comes from Sarah in the UK. Sarah blogs over Tortoisehappy.com where she writes about generosity, health, consuming less and achieving financial independence with a focus on “happy”! Who doesn’t want more happiness!? Take it away, Sarah.
Tell us about yourself.
I’m Sarah, I live in the UK with my husband we can proudly, finally say that we are homeowners!! We didn’t really start out with debt, but we did start by renting one of the cheapest homes we could find in our area.
It was cheap for a reason; the single glazed sash windows had gaps in the frame and during a bitter winter, ice formed on the inside of the bedroom window and we could see our breath when we woke in the morning.
The central heating system was old and the pipes too narrow, and though the boiler system was going at full pelt, the radiators were never more than lukewarm. No amount of the landlord sending people out changed anything.
It was small, we had to breathe in to fit past each other in the kitchen, the ceiling above the stairs was too low meaning you had to dip your head slightly to avoid hitting it, the bathroom was big enough for only a shower, the yard big enough to store only our bins (well, there was standing room next to the bins, but it was fairly unappealing).
It was the best place we could have lived. Our home, the one we bought, feels like a palace. It’s not, far from it. But whenever we complain about the size of the bathroom or having nowhere to fit a dishwasher in our kitchen, we always remind ourselves of the ice on the window in the house we rented.
How much debt did you have ?
We took out a mortgage of £103,000, so about $134,000. It’s easy to think it’s not a lot of money, especially considering average house prices in the UK are over £200k. But we treated it like a debt to get rid of, not one to merrily pay back for 25 years or more.
What was the defining moment that made you decide to tackle your debt?
Our defining moment wasn’t about tackling our debt, although this was the result.
We bought our house and took out a mortgage in 2011. The bite of the credit crunch and the pain of job losses across the country were fresh in our minds. From the moment we bought our house (and slightly before), we wanted to get to the point of being able to survive on one income if it became necessary. Our largest monthly expense would be the mortgage by far. We deliberately chose a house well within the limits of what we could borrow and we set about reducing the balance, aiming to get to the point that we could survive if either of us lost our job.
To be able to survive on one income, we had to reduce or debt as much as possible.
What was your plan for paying off the debt?
You know how Warren Buffett says “Don’t save what is left after spending; spend what is left after saving”? Well, we kind of did that, but with the mortgage. Straight away, we set up a £250 per month over payment. Of course, £250 per month isn’t enough to pay off a £100,000 mortgage in 5 years, but it was the foundation from which we built.
In the first year, we decided to set a balance reduction target for that year. We’d mentally prepared ourselves for a frugal first year in our new home, and this focus meant that extra cash got thrown on the mortgage, rather than leaking out of our bank on frivolities.
The thing was, we got addicted to having a balance reduction target, and it continued for each year afterwards. We didn’t always hit the target, but we certainly paid off more than we would have without it.
Where did you find the extra money to put toward the debt?
For us, it wasn’t a case of feeling as though we had to “find” extra money, it was how we used our money to best effect.
One of my key rules for making a budget is to overestimate, rather than underestimate, where possible.
In some areas, you might have to spend more than expected (like when something goes wrong on the car), in which case, categories with a surplus can be used to supplement your emergency fund. If you consistently spend less than your budget, you end up with more available money to send to the mortgage (or whatever your debt is).
For example, our budget for home insurance is £200 per year, but our most recent premium was less than £150. The £50 surplus was paid off the mortgage.
How long did it take you to pay off the debt?
It took 5 years and 3 months to pay off our mortgage. Compared to some incredible stories with larger debts paid off in a fraction of the time, it might not seem that impressive, but on the other hand, if you’re sitting at home, looking at your debts and they have years left to run, it may seem impossible. I certainly know that feeling.
I used to feel frustrated reading other people’s stories; in the early stages of your journey, success seems impossibly far away.
But then I started to learn from other people’s tips and tricks, and it made me read more and more. 5 years ago I thought I knew how to handle money well… And 5 years from now I’ll probably look back and say the same, because there’s always something new to try.
How did you stay motivated to continue on your path to debt freedom?
In the early days, the daily cost of interest was a big motivator. Just knowing this number made us think twice (or three or four times) before spending on non-essential items. Our mortgage provider was charging about the equivalent of 7 takeaway coffees PER DAY. Quite frankly, it put me off spending the amount of a coffee, having already spent that amount several times over before I’d even got out of bed.
The other motivator was the knowledge that we wouldn’t have been able to cover all our bills and monthly essentials if one of us was out of work for any reason.
Once our balance began to reduce, we were charged less, and it made it easier to reduce the balance by more each year.
We never had our goal written down. But neither of us were in any doubt about what our goal was.
Did you make any mistakes or hit obstacles that slowed or stopped your progress? If so, how did you deal with them?
We’ve learned a lot over the last 5 years. You could see those lessons as mistakes but it is better to consider how you can use them to improve the future rather than dwelling on the past.
It’s incredibly easy to say this with my rose tinted spectacles of our debt free journey; there were times when I wanted to tear my hair out or curl up in a ball and cry, like on the week that our fridge freezer gave up, ruining £50 of food and being beyond repair, coinciding with a tap on the door from our neighbour to let us know our chimney was falling down.
One important lesson we learned was how much we could save on eating out. Rather than having a 2 course meal and expensive bottle of wine, we’d just have a main meal and drink each, or save even more and eat out for breakfast rather than in the evening. We switched the occasional takeaways for occasional convenience food or more expensive food to eat at home that we wouldn’t usually buy but would cost less than a takeaway.
How is your life different now that you are debt free?
When I get asked for my residential status, I have to suppress a big grin when I respond that I own my home outright, it’s such an incredible feeling!
My final mortgage payment was made using a redundancy pay-out that I received. No longer having debt means I’ve been lucky enough to spend time with my new niece, travel, do some volunteering and start my own blog (tortoisehappy.com) before starting to look for the job I want to do next. I wouldn’t have had this luxury if we hadn’t decided, 5.5 years ago, to design our finances in the way that we did.
What advice or actionable tips can you give people who want to pay off their debt?
If you’re trying to pay off debt, work out how much interest you’re being charged every day. Before you buy anything today (or tomorrow, if you’re reading this in the evening!), think about whether you can do without or can get a cheaper alternative, and use any money saved to reduce your debt, even if it’s just a small amount.
Most people have a job on their to do list that they know would save them money but it just seems like too much hassle. It could be switching to a better savings account, reducing (or cancelling!) cable TV, switching to a cheaper energy supply, selling a camera on ebay or anything else. Whatever it is, do it this week! And if you have a few things on that list, work your way through all of them. I don’t think you need me to tell you where that extra cash should go…
Finally, I would always advise you make some space in your budget to allow you to be generous. It might seem counter intuitive to have budget for a non-essential category like this, but on the days it seems you’re fighting a losing battle, if feels good to be able to help, even in just a small way, those whose battle is tougher than yours.
Sarah and her husband Alex live in the middle(ish) of England. After paying off the mortgage, the blog tortoisehappy.com was born, where Sarah tries to balance money saving advice with enjoying the journey. Their journey is towards financial independence, helped by their natural tendencies towards enjoying the great outdoors and reducing the ‘cost per use’ of their board game collection… And merciless budgeting, of course.
Have a debt free story of your own? Please share! Your story helps to inspire others. Contact me for more information!