We Got Out of (Car) Debt: Our Story

In January 2013, John and I resolved that this would be the year we'd take major strives towards getting out of debt.

We find encouragement in the stories of others, and so we thought it would be appropriate to share our current journey with you, while highlighting the success of friends and family we know. So far, our friends Chris & Keeleah have shared how they removed $30 000 of debt in less than 2 years. Whaaaat.

I'm going to avoid giving you a figure of our debt until we're nearly finished, because I know figures can provide more opportunity for comparison. "They have way less debt than I do. What they did won't work for me." vs. "They have way more debt than I do. My situation isn't so bad." Poppycock.

Our four major debt sources, in order of size, as of January 2013 were:

1. Credit Card
2. Car Loan
3. John's OSAP (2 year education)
4. Sam's OSAP (4 year education)

On the advice of some wise mentors in our lives (all of them over the age of 50, might I add. We need more 50+ friends. The older, the wiser, the better), we evaluated our debt in order of interest accumulation. The most "expensive" debt was our car debt at $14 500 and a whopping 6.9% interest. (We're young & self employed; 0% financing isn't a possibility for us quite yet.) 

You might be wondering why we didn't tackle the credit card first. Well, we did. And then it got racked up again. So we thought we'd leave it for a bit and tackle non-revolving credit/debt.

When we purchased the car, we thought we were in good standing because it was used: a 2009 Toyota Matrix, good family car, and with a 2-day-old baby we needed to find something that would fit our car seat.

Prior to the Matrix we had another car we were paying off on a loan, and it was essentially a clown car. (One time, at the Ranch, three guys picked it up and moved it from one parking spot to another as a practical joke.)

 It was time for the clown car to go, so we thought we'd better get something that would last. We also thought....we're always going to be making car payments. So why not get something a little pricier?

Crazy kids. Out of your limits!

Our payments were $270 a month, which we thought was reasonable at a bi-weekly rate of $135.

What we didn't consider was how much $270 a month could get us! If we saved that $270 monthly for other purposes (savings, or future cars), we'd have an extra $3240 a year to have some freedom with!

So we began saving, and we bit some very foul tasting bullets.

1. First, we had to figure out the value of our $14 500 car to a new buyer. We found a local dealership to buy the car for $10 500. It was still in really good condition, and 2009 model.

2. Second, we needed to calculate the remaining balance on the loan & incidental costs. That meant we still needed $4 500 to pay off the car, plus about $1000 extra for penalties (you have to pay to get out of a loan) and other incidentals.

3. Third, we needed to set a reasonable and realistic cash budget for a new car. We need a car that will be safe for a baby to ride in, able travel to Toronto and home around 3 times a week (that's 260 KMs a trip), plus town driving, and is good on gas. Our budget was originally $3000 but we upped it to $4500. (If you are doing this, and aren't doing a trade-in, remember to factor in taxes on your new vehicle.)

4. Fourth, we needed to save. Between the remaining balance after we sold the car & the cost for a new car, we needed to save $10 000 to get out of our debt. That's a-freaking-lot of money. 

5. That meant we needed to trust God and have patience. Like I said when we first started this journey: God won't call you to do something you won't be able to do. John had to remind me of that, like, all the time. Good on ya, honey. This part took a little while.

6. We then had to pay off the loan in full. In Ontario, you can't sell a car that has a lien on it - that means the full $14 500 + + + had to be paid off before even getting the sale price for the car. Overwhelming much? This was why we chose to work with a local dealership: they had the flexibility to give us the $10 500 cheque in advance, which meant we could pay off our lien in advance. In reality, it was a same-day process so we weren't without a vehicle.

7. We completed a trade-in (which meant saving tax!) We traded in our Matrix and purchased a Legacy from the same dealership who was buying the Matrix. This is likely why they were so flexible and happy to help us out: it was a good deal for everyone. We all worked together. The benefit here is that we saved the tax on the "purchase" of the new car, because it was technically a trade-in. Otherwise the costs were the same.

8. And we drove away with $14 500+ 6.9% interest off of our shoulders. All the waiting, the planning, the saving... worth it.

9. Now, we're snowballing our debt. The $270 monthly payments are going into other debt! Wahooo!

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Keep following us on our get-out-of-debt journey! 

Next, our goal is to tackle the credit card & decide which steps to take to stay out of  and keep out of credit card debt.

Please pray with us that God will provide us with the opportunities & resources we need to get out of debt so we can give more and save more.

If you're looking for resources to help you on your journey, check out CAP Canada courses and Dave Ramsey's resources, including the bestseller Total Money Makeover. With these two simple tools, we're changing our lives!