On Tuesday we paid off all our debt, except out house. Definitely a good feeling.
I have to admit though, it came about because we pulled some money out of our IRA accounts. I found a tax clause that allows the owner to pull out their contributions, even for a rollover to Roth conversion, so we did it. Our accounts were almost 100% in cash between a money market fund and some CDs. The interest rate return was around 3% or so. It didn’t make sense to keep that money in there while paying higher interest in other places. After I found out I could remove this money with no taxes or penalties, it was pretty much a sure bet.
But, even given this, I think there are some valuable strategies that we employed that might help others with paying down your debt.
First, I read Dave Ramsey’s book about Financial Independence. It’s a good book, although I don’t agree with all of Dave’s philosophies. But, his cash envelope system to manage your budget is spot on 100% the best way to move from a check/credit card system to a system where you can put some serious limits on what you were doing. You are required to be serious about your budget and this cash system forces you to do that. You have cash, you can spend it. You don’t, you can’t. No slipping them the plastic!
Second, if you want to do it you will have to struggle. Many times we ran out of cash, so we just didn’t do ANYTHING. Even grocery shopping. There were plenty of times where we only ate what was in the pantry or the freezer. For a while I didn’t have enough cash to restock our freezer for meat products, so we went without quite a bit. It didn’t hurt us.
But, as most of you know we buy most of our vegetables and fruit in the summer and put them up for the winter. I was able to do this with our normal weekly spending, so it’s possible to do something like this and still eat local and organic.
Third, it takes a team effort by both parties. Rachael and I have been on the same page a lot of things for most of our marriage, but this changeover was quite hard for us even. We had plenty of disagreements about the spending. You need to know that going in. But, the adjustment was worthwhile, and we are comfortable with the cash envelope system.
Fourth, the changeover from using a credit card to using cash is an extremely taxing month. We had to pay for everything with cash while also paying the previous month’s credit card bill, which was our normal spending. This was a really hard month. I dipped into just about every source of cash I could find to make it through this month.
I’m not sure if I really offered any tips here, but let me know if you have questions or anything.
By the way, if you are on Facebook look me up. I’m listed under my real name. Facebook people found this out on Tuesday.
Fat Guy on a Little Bike 
It must be something in the air … we paid off the last of our debt – except the mortgage – this month, too!
I’ve been credit card free and “cash only” for a while now, and you’re right. It was a really tough transition. The scary times were when I was out and about and realized that I had neither cash nor much gasoline in the tank. Thankfully, I never ran out (yet), but it does take some serious paying attention, and planning, and staying away from places like the used bookstore ;).
congratulations, I wish we could summon the courage to do that.
I’m so envious.
We could have paid off our credit cards if I had not spent the money on home improvements, but the home improvements are tax deductible. And I still owe shocking amounts of student loan debt from when I went to nursing school.
DH finally got a second job, and I am hoping to use the money from the second job to pay off debt while still using part of my pay to continue the home improvements/repairs needed.
I can see the light at the end of my debt tunnel. I paid off my car in February (4 months early!) and almost have my credit card debt paid off. If my friend who I lent money to last summer pays me back in full like he says he will, I will be able to pay off all my credit card debt next month, and by the end of May if he doesn’t.
I have been using my debit card almost exclusively the past several months. It helps out with my budget spreadsheet and keeps me in the cash economy, even though its technically plastic. Once I pay off the debt, I will slowly go to an all cash system.
What are you going to do with the excess money? Are you going to start paying down more on the mortgage now?
We paid off all of our credit cards this year and are working on paying off the house in the next year or so. It’s hard in this economy to know what to do…should I pay things off or stash the cash? We’ve decided to take a middle-of-the road approach with the house and use some money to pay off the mortgage and put some in savings.
If you please, what IRA clause or provision did you find that allowed you to take out money without taxes or penalty? The only ones I’m aware of involve having to use the money for medical or education expenses or for a first-time home purchase. We’d sure like to pull out some money to get a new farm well online without going into debt.
Robert-
Check with an accountant or a CPA, but apparently you are allowed to withdraw your contributions at any time, just not the earnings. I would check with a pro though on your specific situation as there are some unique rules (which we qualified for) to keep in mind.
Good luck!
Matt
Dan–
How did it go with your friend?
We are saving some of the excess funds, as well as paying down the mortgage. Also spending a little on fun stuff since we were so tight for so long, and some past due home repairs.
The LT plan with the extra cash flow each month is half saved half paid on the mortgage. However, ever day that I drag myself into my job I think more and more about using this “cushion” for a career change into something that I’m passionate about. Star haven’t aligned yet for that to work.
My friend came through and I paid off my credit card debt in April. It was a nice feeling and I celebrated by buying a new, big screen plasma TV on my credit card (just joking).
I plan to do the same thing with the excess. That is, right after I buy a few food preservation things I’ve been putting off, like an electric food dryer, grain mill and canning supplies.
I’m lucky that my wife is use to living on less, since she has never made much $ at her work . Plus she is financially savvy and for the past several years has saved her excess funds for car repairs/payments and emergency funds.
I hear you on the home repair front. We saved the cash that people gave us for our wedding in september and plan to use it on home repairs, with an eye to be more energy efficient. We plan on putting in new windows and to take advantage of the new tax benefits.
I am tossing around putting in a corn fueled stove/heater. Would it be feasible to put one in the main floor? I know you have yours in the basement and didn’t know why.
We had our corn stove downstairs because of two small children. Now that they are older we’ve moved it upstairs and it is our sole source of heat, when the temps are above about 10 below. On those days the furnace has to kick on.
We’ve been known to have slumber parties though next to the stove!
We did the same — and promptly got audited by the IRS.
The mutual fund companies (Vanguard, etc) send in a traditional ‘early withdrawal’ form so the IRS assumes you are guilty of withdrawing earnings.
I sent them a terse letter and my ROTH contributions documentation (thankfully I saved the statements) and they were fine with that.
They said I owed them $3.5 thousand, but I actually owed $80.
I hate the IRS.
Thanks for the heads up. I’ve kept my papers close for just this reason.