My No-Debt Plan

At the end of 2019, I had zero credit card debt. On September 1^st, 2020, I owed $15,000! What happened!?

I had no debt, was renting and had a stable job, but I also had no life plan. After much consideration, I made the conscious decision to acquire more debt, in the form of purchasing a home. I wanted to have more control in my life, and after renting in three different cities over the last 8 years, I got tired of landlords’ decisions affecting my long-term plans.

I decided to purchase a townhouse at a price range that would not stretch my paycheck and would let me live in a neighborhood that had activities that I enjoy, such as parks, restaurants, bookstores, etc. However, because I was set on the mortgage price I was willing to end up with (I even wrote it on my white board so I can stare at it every day), that meant I would have to do some renovations to the place. I finally closed in mid-February and hired someone to start working on my newly acquired townhouse.

But then, Covid-19 hit and it hit hard! Businesses were shut down and renovations stopped. I had to make an executive decision, whether to cancel the project and move in as it was or be patient and push through the pandemic shut down and renovations. After spending some time working from home, I had a gut feeling that this new working condition would last longer than most thought, even after a vaccine was found. A few weeks into it, I noticed the mindset of people and companies had shifted, and remote work moved from a possibility to a reality.

If was then that I decided to not only renovate my new townhouse, but also enhance it. I did not think of this property as an investment which I could hold on for some time and then flip later for financial gain. No, this would be my first ever home base, my Batcave, my Fortress of Solitude, my HQ, from where I would plan my future from now on. This essentially morphed into an investment of Myself!  

I decided to invest long term in my home and that required short-time debt but long-term vision. I will not go into all details of what was done to the original property, but suffice it to say, I decided to get a loan from my 401-k account (I could have taken money out of the account because it was for my home, but decided against it in order to benefit from the Market’s high point in February).

At the start of this month, 09-01-20, I had almost $15,000 in debt. I have a balance on a Home Depot credit card, which I used for materials and appliances. This is split between two promotional offers: 0% interest for 6 months (expires 10-25-20), and 0% interest for one year (expires 06-25-21). Make sure to always know the exact date promotional offers expire to avoid being charged with retroactive interest!

My other debt is from a balance on a Discover credit card, which I used to acquire other construction materials. I usually don’t recommend using credit cards unless you have to, but I use this one for its cashback incentives. In 2019, I was able to pay it in full before its due date to avoid any interest fees. Again, always know the exact date your credit card payments are due, and if necessary, modify it to match your paycheck dates.   

I believe that in order to reach your goals, you must track them consistently. I am tracking debt every two weeks, so between September 1^st and September 15^th, I have paid $2000 to Home Depot card, eliminating the balance that was due in October. Then I have 9 months to pay off the balance expiring next June. From now until then, my goal will be to eliminate the Discover balance to avoid monthly fees.  As of this moment, my total current debt balance is $13,000. I will update again on 09-30-20.

I should also mention that these are very uncertain times. Covid-19 has impacted a lot of us in many horrible ways, whether they are related to our physical or mental health, our financial situation, our relationships, etc. In terms of financial situation, I believe that at this moment it’s prudent to have cash on hand, even more so than having zero debt. So, if your choice is between paying your credit card balance or raiding your savings or emergency fund, it’s a no brainer that credit cards are not getting paid in full as before. Jobs are not as secure as they once were, and companies are laying off employees more frequently. So, it’s preferable to pay interest on a credit card than depleting your savings.     

In any Debt elimination plan, there must be objectives, deadlines, and strategy. Mine are to enhance my home, to pay off my debt by June 2021 or earlier, and to attack debt in this order: pay Home Depot short-term promotional balance, then Discover card, and finally Home Depot long-term promotion. When one debt is eliminated, I will use the money that I was sending to that debt plus additional amount, to the second debt. And then to the next one, and so on. Instead of trying to lower all of them in parallel, which will lead to frustration, tackle them one at a time. The momentum of knocking down one will spread to the next.

I hope sharing my Debt elimination story will encourage some of you to do the same. Don’t be afraid or ashamed of having debt. We can’t do anything about the past, or our current Covid situation. We can only learn about it and change our future. It’s not an easy path, but with patience and consistency, it can be accomplished. Being free to make your own choices is worthwhile!