How we are paying off our entire car loan in only 2 months!
This is not your usual blog post. This is a live look at how we’re going to pay off our $7,000 car loan in only two months with a monthly salary of $3,000. Sounds impossible? Yup, that’s why there’s a whole blog post :)
Background:
My husband was in the Air Force and got medically discharged, so he gets a $605 disability check every month and he uses his GI Bill for school. The GI Bill covers the housing costs of full-time students, so he also gets $2171 per month while in school full time. Last fall he quit his job to do school full time and take care of our daughter, but now, summer is coming and he's going to take summer courses so we are going to have to rely on only my income and his disability.
We knew we needed to save up to cover for these few months of a huge income cut, so we've been building up our sinking funds and paying off his car as quickly as possible. We realized it would actually be more financially beneficial to use our sinking funds and pay off his car BEFORE the summer. His car payments were $567 per month, so having that paid off would take our a huge bit of our monthly expenses.
We decided that from March to May of 2020, we would go crazy on our debt payments and side hustles. We wanted to cut back expenses to the bare necessities, use virtually all of our savings and make as much extra income as possible to get our last car payment sent in by May 1st, 2020.
This is our documentation of this plan unfolding and the challenges that came along with it.
TL;DR We need to pay off our $7,017.59 car loan in two months on a $3,060 salary.
The Budget
If you're a numbers nerd, this is our plan for paying off the debt. If you're not a numbers person, you can skip this section :)
As of March 1st, 2020 the remaining balance on the car is going to be $7,017.59
We have our monthly payments set up at 567, so, to pay off the balance in 2 months, we need to make an extra payment of $5,883.59 (that's a balance of $7,017.59 minus $567 in march and $567 in April).
March 1st we were expecting our tax refund to come in at $789.00. We also figured out we could pull out $1,830.00 from our sinking funds to put toward the car. On top of that, we decided to cut out our personal spending budgets, our eating out and drink budget, and cut our grocery budget in half. I also pulled out money from my business sinking funds and paid myself an extra check of $900.
With the minimum payment (567), the tax refund (789), my extra check (900), our sinking fund money (1800) and other expense cuts (944), we are able to make a payment of $5,000 toward the car in March. That leaves us with $1450.59 to pay in April.
This is where it gets more difficult. In April, we will be making our normal salary with no extra income, tax refunds, grants or sinking funds to pull from. If we cut our expenses back as far as possible, we would only be able to pay an extra $990. That means we had to find a way to make an extra $461 in two months.
(PS. We also need to take into account 2 months’ worth of interest payments which should be right around the $35 mark. This is if all the payments arrive when we plan, so we're just going to add an extra $39 to that total for simplicity sake.)
TL;DR We used all our sinking funds and extra income to pay off $6,556.59 but we need to make $500 in income in the next two months to meet our goal.
Make More Money
$500 doesn't seem like that much money in the grand scheme of things. The problem is, I'm working full time on a salary job, and I have my daughter at work with me on two days per week. My husband is going to school full time (all day & night Tuesday and Thursday) and has my daughter at home with him on the other 3 days of the week. Weekends we volunteer and I work on this little business. It's also when we do homework and take a sabbath day.
We had a few ideas:
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Doug could work at my job one day per week and I'll just keep my daughter with me on those days. Two problems with that: it's HARD to work with a baby, and we would need to actually get my boss to agree to this arrangement. This would be a great option though. At minimum wage ($11.10), for one day a week for 6 hours on average, for 9 weeks, that would be $599.40 of pre-tax income. That should get us just over $480. That gets us just a couple bucks shy of our goal.
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The other plan was for ME to earn more money from my business. The problem is that my income in my business right now is really inconsistent and very tiny. I've been paying myself $100 per month and I'd need to do something major to bump up that income. We started thinking of ways to publish extra content, add new products or course content to the shop and work on boosting sales or even running a one-time special for some web design services. All of them could work but we wanted a backup plan in case I didn't hit my target.
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Sell stuff on craigslist, donate plasma, dog sit, babysit, house sit, use survey sites, pull the money out of the medical sinking fund, eat nothing but beans and rice for a month, etc.
Overall, we decided to take the safest approach and go for all three options. My husband set up a time to talk to my boss, my sister-in-law offered to babysit one day a week so I didn't need to have the baby at work as much, I got to work making extra content for my business and we did everything in our hustle-power to make a few extra bucks here and there. The emergency plan was to use the last of our sinking funds to make up the difference. (We have a sinking fund for medical expenses since I'm self-insured but we realllllyyyy didn't want to touch that since one medical incident could be really costly).
TL;DR We decided to try to get extra jobs and make extra content to earn a minimum of $500 for two months and hit out goal.
Reality Check
I realize that this post might not be helpful or realistic for some of you seeing this. You might not have $5000 tucked away in sinking funds and unnecessary expenses. I get it. I've been there. Literally, two years ago. Part of the reason we have this money today is because I never wanted to be in a position like we were in when we couldn't afford the rent of our brand new apartment.
We have worked our butts off for two years to be in the position that we are in now. We also know we're blessed to be able to pay off debt at the rate we've been moving. I want to encourage you that no matter where your finances are right now, there's a light at the end of the tunnel. If you haven't yet checked out the Dave Ramsey plan, I cannot urge you enough. It changed our lives and it can change yours if you're willing to work the baby steps and put in the effort.
When we started this plan, we were newlyweds making $23,000 a year in combined income, living in the 8th fastest-growing state in the country. Our rent was going up, we had $90,000 in debt, no college degrees, no health insurance, one broken-down car and no hope of getting out of the mess we made. But we are living proof that it can be done. It's not easy, but it's possible. We had a car totaled, a baby born and a pet have major surgery during this time.
This is our reality, yours might look different, but I share this story to give you hope and give you a real glimpse into how we're making this all work.
TL;DR I'm not posting this to brag, so don't leave mean comments 😘
Our Plan in Action
All of this sounds good and possible but actually sticking to our super tight budget and giving up the security we spent a year building is going to be tough. I wanted to be as transparent as possible with this process, so we decided the best way to share this was to post the breakdown of the plan on the blog first, and do weekly or bi-weekly updates on the YouTube channel over the next two months.
As we do more updates, I'll be adding them below. Hopefully by May 1st, we'll have a photo of that last check being sent to the bank!
UPDATE:
We did it. Covid threw us off plan a tiny bit but we still did it in two months :)
