Quarantine Paydown: Prioritizing debt management

When an unprecedented global lock down was imposed on the world, did you use the time and money wisely to get rid of unwanted debt? It's crazy how much debt we may find ourselves in during a lockdown because all the plans we had are suddenly on hold or cancelled and now your sitting on extra cash. Have you ever had to choose between paying off debt and saving for the future? Well now there is no future! Just kidding, of course there is, it's just now uncertain. Now, you can empty your savings to pay off debt and it will feel like weight has been lifted off your shoulders because you weren't planning on using that money anyway. The downside is that losing all your savings will leave you with very little protection in case of an emergency or you lose your job during the global recession. Debt Management is a skill, and in a sense, an art that everyone should learn. I remember hearing a story from a personal banker about a man who had more than $100,000 in assets but was in so much debt that he could not even qualify for a loan to consolidate it all. It just shows that no matter how much money you earn, you still have to make smart decisions about how you manage it all.

Baby Lioness and Her Journey with Money

Saving money in a jar

Back in 2010, I graduated from college with no debt. There was no student loans, no car note, or huge outstanding credit card debt. The few credit cards I had, usually had less than $200 balances and always paid them off within 30 days. Almost 9 years later, the same rules I followed then, I adhere to today. I have always set money aside for rainy days and also believed in never spending more than I earned or could afford to pay back. I remember how I planned my finances when it was time for me to move out from my mother’s home. I had already saved $5,000 on my own before using an online budget tool to save even more. I realized that my salary of $48,000 (minus taxes of course) was more than enough to support my expenses. Keep in mind that during this time, the nation was at the bottom of the housing crisis. Rent was relatively cheap and even my car loan, was quite affordable at a little over $200. After calculating in the after-tax dollars in the budget tool, I realized I could increase my monthly savings from $300 to a whopping $550 after paying all my bills.

Comfortable home life living

While living at home I was able to furnish my future apartment with money most people would use on rent. I didn’t even have to touch my savings when I moved into my new place. Life was good or so I thought. Well of course $550 works when you planned everything to a tee but it doesn’t account for unexpected costs. Within my first year of living on my own, my car brakes needed to be replaced and I took a few vacations. I also met my soon-to-be husband and we started planning for a wedding within a year of meeting each other. My lifestyle had changed which inflated the amount of money I was spending. I still had a savings account, but the debt I use to not have, began to pile up. I was spending more than I was earning. Not to mention how much a wedding costs! We paid for everything under the sun. Although we had two incomes, we were not the best when it came to managing our finances together. We loved to travel but budgeting was not a priority for all the trips we were taking. We never really thought about making a plan for our trip. We had a ‘charge first and pay off later’ mentality. So I came up with a rule for myself to keep my spending in check.

Never Spend More Than What You Have in Savings

Benjamin Franklin's face on money

Being Type A has its perks. Most Type A people are strict and disciplined with themselves. They are usually not procrastinators but instead forecasters and planners. That trait has come in handy for me while navigating through my personal finance journey. Early on I learned to save a portion of my paycheck which has become a habit. I made up a rule for spending money that would force me to be fiscally responsible. Never spend as much as you have in your savings. If I ever needed to use my credit card, and didn’t have that amount in my savings, I wouldn’t charge it. No matter the reason. Now you can imagine this should allow a person to really think twice about using their credit card. It also encourages the practice keeping a large buffer in your savings account. I would always have 1-2K in my savings as a starting point. It seems like a difficult task when you are starting out, but you just need to figure out what how much you can afford to save first and commit to it. However, most people go into lifestyle inflation when they start to make more money instead of increasing their savings. The point of this rule is to help restrict those urges to run up your credit card debt on a trendy outfit or a new piece of jewelry that you can’t truly afford.

All Debt is Not Bad Debt

Calculating your expenses

Remember all debt is not bad debt, some debt can actually help you to save, build equity or even boost up your credit score. One of things that I’ve always told myself, is that debt is all about risk and how you leverage it. Today many Americans are stuck with the rising cost of healthcare, living costs, student loans and credit card debt. Most savings aren't even up to $1,000 because so many people rely on the credit cards or loans, or worse live paycheck to paycheck. Paying off debt can become a vicious cycle that many people can’t break, because let’s face it folks, stuff happens! Your child gets sick and you need to get to the doctor, leaving you with a bill of $175. You are driving your car and you hear loud grinding and squeaking as you come to a stop, you now need new brakes that costs $400. You are washing your dishes and you notice the water keeps building and when you put on the garbage disposal there is no sound, that’s a $350 plumber bill. Adding these expenses to credit cards is understandable. It only becomes an issue when you don’t have a safety net. It’s important for all Americans, especially those of low-income to figure out ways to save and ultimately invest their