Journey to $25K

Hi all. In my last post I explained how I found myself $151K in the red last end of July. In this post I will bring you up to speed on how I paid off $26K in nine months. I put $25K in the title because it sounds better. Like one of those long-distance races.

As a reminder, here is what I owed last July:

Name Amount Interest Rate
Mastercard $6,123 CAD 19.99%
Visa $8,653 CAD 15.75%
B-school loan $96,800 USD ($105,503 CAD) 8.25%
Ontario Student Assistance Program (OSAP) loan $20,931 CAD 5.5%
Student Line of Credit (LOC) $9,678 CAD 4.5%
TOTAL $150,888 CAD

My general strategy in life is to enjoy it as much as I can but set low expectations. This way I get to enjoy life but I am hardly ever disappointed and more often than not I get to be ecstatic by the smallest of achievements or things that happen in my life. I am a peachy overachiever, aren’t I? Anyways, since I have that outlook on life, I try not to count on money too far in advance. This includes salaries and contracts. So when I signed the first contract mentioned in my last post and set about planning out my money, I only counted on a little money at a time and tried not to count too much on money I did not actually have in hand.

The First Contract

That two-and-a-half month first contract had an initial deposit, a midpoint payment and a final payment. I was to work as a strategic consultant for the client. A few days before the first payment (and for each one thereafter), I wrote out how I would allocate that payment. With the first payment, I only allocated money to paying the minimum payments on the line of credit and credit cards and the monthly amount for the loans. The extra was set aside to save towards the next month’s b-school loan payment, by far the biggest fixed expense at $745USD per month. In my mind, the client could theoretically end the agreement whenever they wanted and I wanted to ensure that if that happened I would at least be able to survive a month.

Thank God for my parents and my live-free situation with them! My family immigrated to Canada eleven years ago. Living at home with the ‘rents is not unusual for people of my background and, in general, for many immigrants where I live in Canada. In fact, most of my unmarried friends here (who are friends from undergrad) are like me and still live at home with their parents, although we are all nearing or past 30 years old and we all have decent or well-paying jobs. So I have little-to-no shame from living at home, the opposite feeling from many North Americans I’m sure.

Ok, so as I was saying, the first payment was allocated mainly towards meeting the minimum monthly payments on my debt. With the second payment, I was a little more adventurous. I allocated a few hundred dollars more than the minimums to both credit cards and set aside money for the next OSAP payment. I also put some money in savings.

Just before the deadline for the third payment, the client asked me to continue on for some more months and do more work. Lady Luck or God was smiling down on me! This development was amazing. Especially since, what with my low expectations and all, I had been thinking I’d get fired. But I guess they were happy with the work I was doing for them. Happiness abounded on my end with that request for a new engagement with that client!

With the third payment from main client I set aside some more money towards future b-school loan payments. I was determined to eventually have at least six months of b-school loan payments put aside. I also put aside some money in savings and allocated a little money to give to my parents. Once I knew I had a couple more months of money coming in with a new contract I felt it was my responsibility to give at least a tiny bit back to my parents (a couple hundred per month), especially given my family’s financial position (Mum with lower-paying job, Dad unable to work since shortly after we immigrated, an unemployed sibling, two other siblings working minimum wage and two kids).

I also put aside money in my monthly budget to order biweekly takeout for our family of eight. I should be giving my parents way more but my parents completely support my goal of paying off as much of my debt as possible. They agree that I should do this while I am earning decent money because they also advocate a debt-free life (except for a mortgage) and who knows how long I will be earning decent money? They are also pretty frugal too. When it comes to financial outlook on life sometimes, despite me calling them out on being too cheap sometimes, I have to admit that in my case the apple did not fall far from the tree.

The Next Couple Contracts

Alright, back to paying off my debt!

The second contract from my first lovely client would take me to the beginning of November. Near the end of that second contract I got a second client. It was a pretty small programming job (I’m a developer too) but that meant a couple thousand dollars more, i.e. more money! Joy!

In those first months to November, I continued my strategy of putting some money aside for the b-school loan payments, paying the minimums for the OSAP loan and student line of credit (LOC) AND putting more than the minimum payments towards the two credit cards. At some point, I decided to throw more effort into paying off the Mastercard since it had the higher interest rate. So, for instance, there were times I’d pay $300 towards my Visa bill and $1000 towards the Mastercard. With that strategy, I paid off my Mastercard balance by the beginning of November when I got that last payment for the second contract from the main client!

mastercard paid

The Fun, Frugal Lifestyle

In addition, in those summer months to November (and the final payment for that second contract from the client) I also continued to limit my spending. I am a pretty frugal person in general especially when it comes to spending money on myself. However, in those months I took my frugality to another level and continued operating as if I was unemployed. I was razor-focused on getting rid of my credit card debt. As I mentioned in my last post, I’d never really carried a credit card balance before (except on a few occasions in the past when I forgot to pay). At the same time I do love to socialize and one of my goals last summer, being back in Canada, was to make new friends. To serve both these desires. I mostly attended only free or low-cost events.

Thankfully, the city I live in has many free events in the summer. I was (and still am) living with my family in a working-class suburb with no access to a reliable car. Once I started telling friends that I was getting clients, many asked me about plans to get a car or move out on my own. My answer was always the same. I feel no pressure to move out and by delaying gratification and staying home longer I can save money. In addition, owning a car, even the cheapest of the cheap, is more expensive than public transportation. Also, why get a car when I live in a city with perfectly fine public transportation?

So I had to take public transportation to the free or low-cost events I usually attended, all of which were usually downtown, 1.5hrs away. I often waited until my Mum was home before I left to attend an event. I did this so I could use her metropass. She usually has a monthly metropass that allows for unlimited travel using public transportation. By borrowing her pass, I saved money on a roundtrip, i.e. $6. It seems little but every little adds up when you are trying to save! Also, by saving money on transportation, I could buy a coffee or a drink at an event and not feel so bad about the spending. With my socializing strategy, I mostly did evening and weekend events.

I like going out and meeting new people but I am a pretty low-key person. I don’t need to have bottle service when I go out. I will buy drinks for friends when I’m making money or if it is somebody’s birthday I will buy the person a drink or present. In those days of extreme frugality though, I never overspent on alcohol. Never more than two drinks when out. And, while I love dancing and like to dress up sometimes, I generally have zero desire to attend clubs/lounges/events where I HAVE TO dress to the nines to get in. I don’t crave material possessions. I also don’t snack often or get urges for fast food or takeout and I could eat the same meal many days in a row without getting tired. So I am content with the food I get at home. In fact, I don’t eat out often, only for one or two of those aforementioned social events to meet new people and one or so nights a month with my friends. Probably a total of three times a month on average. This is in contrast to the things that are common with the business school crowd post-graduation.

Luckily, none of my former business school classmates live in my city, my friends here are also pretty frugal and my new friends understand my situation of trying to lower my debt. So I have zero pressure to keep up with the Joneses. (EDIT: OK, I won’t say zero pressure since many of the people with whom I interact for work are in the top 1%. I just focus on being professional and maintaining some distance with them. I have never been one to become good friends with colleagues. My personal life never mixes with my professional life.)

All in all, I don’t feel like my social life suffered much.

The great thing too is that since I started out self-employed right off the bat, I didn’t have to worry about buying clothes for work or money for transportation. I also work mainly in the tech industry and, lucky for me, the tech industry in general has a pretty casual dress code. And I only met with clients in-person once a week on average. Plus, I am good with working from my bed so I didn’t need to frequent a coffee shop to get work done (coffee shops meant unnecessary spending). If I got stir-crazy from being home too much or I needed a break from my always noisy home environment, I went to the public library down the road where wi-fi was free.

I was also a little worried that carrying a credit card balance especially in relation to my limits would negatively affect my credit rating. So I called my card companies and asked for credit limit increases to ensure that my utilization would be below 50% on each card and in total. They gave me the increases as requested, when one would think that my high utilization and month-to-month high balances would have signaled red flags for them. The credit card world is really something! I guess my good record in the years prior helped.

The Third Contract From Main Client

Anyways, God and luck came calling a third time. Towards the end of that second contract with my main client (sometime near November), they again decided to rehire me! This time we set up a recurring engagement. If all went well, I’d be on a monthly retainer for 6 months to the end of April.

Then I got a couple more clients!

I continued to map out exactly how I would allocate each payment. With the third longer contract from my main client, I started planning a couple payments in advance. I also increased the monthly amount I was giving to my parents. It was still just a tiny fraction of what I was earning. But I think that the quicker I am out of debt the quicker I will be able to help them more. After paying off the Mastercard, I focused on the Visa. I got that paid off at the end of last year.

visa paid

At one point, I calculated that from July to January I spent an average of $347 per month on non-debt expenses and that included me taking two 2-week trips to see friends (b-school friends) in the US!

Current Financial Situation

Ever since I paid off the credit cards at the end of last year, I’ve been focusing on the student line of credit (LOC). I know it has the lowest interest rate but an extended family member co-signed that line of credit for me eleven years ago. I hate being indebted to people in general, including family members, so the line of credit was my next target because I don’t want someone to have one of my debts on their credit record. It also seemed like an easy target since it was the next lowest debt after the credit cards. As of today, I am just under $900 away from paying it off!

Actually, I would have paid off the LOC more quickly. However, I was also focused on saving a significant amount to carry me for a few months of unemployment, just in case my main contract wasn’t renewed, my other clients dried up and it took me a while to find more clients (you’re looking at a real optimist right here!). I was also determined to save for living expenses for 3 months downtown on my own this summer. Come hell or high water I will be taking that break from living at home. Because, I might be frugal but, I firmly believe in enjoying life to the fullest as much as possible. We are only young once and I AM making a little money. Thus, I made the effort to save to have the experience of living downtown, even if only for a short period of time (I am BIG on experiences!). So, yeah, it is taking a little longer to pay off the LOC than it should have taken.

I have also loosened up a little with my spending. Now, instead of living like I am unemployed, I live like a college student. Big change!

On the brighter side of things, I’ve saved almost $14,000 CAD and $2,000 USD, on top of what I had in the bank last July. The $2,000 USD saved added to the $2,000 USD I had in the bank before ($4,000 USD total) is for future b-school loan payments (almost 6 months worth!), while the nearly $14,000 CAD plus the little CAD dollars I had before is a contingency fund for my next bout of unemployment.

Furthermore, altogether, including interest, I have dumped way more than $25K towards paying off my debt. However, if we compare the amounts owing last year to the amounts currently owing (9.5mths) here is the sitch:

Name July 31, 2013 May 15, 2014
Mastercard $6,123 CAD $0
Visa $8,653 CAD $0
B-school loan $96,800 USD ($105,503 CAD) $95,909 USD ($104,532 CAD)
Ontario Student Assistance Program (OSAP) loan $20,931 CAD $19,501 CAD
Student Line of Credit (LOC) $9,678 CAD $886 CAD
TOTAL $150,888 CAD $124,919 CAD

As you can see my total debt has reduced by $25,969! As I mentioned earlier, in that same period, I also increased my savings by just over $16K!!!

All of this was made possible with gross earnings of somewhere around $60K in these nine months (obviously I don’t want to give away my exact income here). Of the money I spent in that time, i.e. the $18K difference (income – [debt paid + savings]), much of it was towards interest payment expenses, including $6,300 towards the b-school loan interest payments alone. Another big expense was the couple thousand in taxes I had to pay for my net earnings from the second half of last year.

I still have a long way to go but I feel good about my $26K reduction and my $16K savings. My goal is to have at least $30K paid off by the end of July this year, the one year mark of when I got my first client.

I think I can do it!

And with that, I end the everlasting story of how I made the journey to paying off more than $25K of my debt in nine months. I am super thankful for all that I have been given this year. Main client has renewed my contract indefinitely too. And I have other clients at the moment. So yeah, suuuuper thankful!

What a difference nine months makes, eh? 😀

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And Miles To Go

Hi everyone!

Five years ago when I first got the idea to attend business school I knew that undertaking that journey would lead to a lot of debt on my part. I already had significant debt from undergrad and, being that I was only 2 years out from undergrad and earning a salary of $42K in Canadian dollars, I did not have much savings to use towards business school. However, I had weighed my options. Business school was going to be my ticket out of a lower income. I would also use my expected high salary post-graduation to easily pay off my debts and then get to work on helping my family out of the working class.

I was lucky. I got into a top 20 business school in the US and, not only that, but I also got a $50K fellowship! That $50K was approximately equal to half tuition for b-school. I was beyond grateful for it. I still needed to borrow $83K though to cover living expenses and the rest of tuition for the two years.

My 2012 graduation date approached and I must confess that, unlike my few classmates who still didn’t have offers, I totally slacked off on trying to find a position. Most of the jobs that were coming to me (read: interviews I got) were jobs I wasn’t really interested in and the jobs I wanted I couldn’t get interviews for, mainly due to my lack of experience in the functional role I was trying to get.

Shortly after graduation, armed with my MBA, I changed cities to go live in a city I always wanted to live in. That city is also one of the most expensive cities in the US. There, with very little effort on my part, I managed to get a brief, part-time contract with an early-stage startup. The startup had little money so pay was meager. Rent alone ate up my earnings and more. Furthermore, brilliant me had decided to rent through Airbnb, i.e. using my credit card, and not pay off most of the balance. I did this because I wasn’t sure when next I would be employed and I wanted to ensure I had cash on hand for day-to-day expenses. I had never been one to carry a balance on my credit card but my unpaid credit card balances rose sharply in those months.

My contract ended in a couple months and it was back to the grind of the job search. To be honest, I wasn’t happy in that great American city. Actually, that entire first year post-graduation was stressful. I was also in the midst of an existential/personal crisis which had started pre-graduation and I wasn’t looking for a full-time job (or any job) even half as hard as I should have been looking during that time.

In December 2012, when I should have started paying off my b-school student loan AND restarted the payments on my undergraduate loan IN ADDITION TO continuing to make the monthly payments on my student line of credit from undergrad, I realized I couldn’t comfortably do so. So I called up the two student loan lenders and asked for a six-month extension for the repayment start date. What was another 6 months of accumulated interest when I was already six figures in debt, right?

Close to six months later I was nowhere closer to finding a job. However, it was the approach of that 6-month deadline that spurred me into action. I had to start focusing again! I moved back to Canada to live with my parents and decided to work for myself. A few weeks after that decision I landed my first decent-paying client. I was properly self-employed! Almost just in time too. I signed the contract just a couple weeks after my first loan payments were due.

I made the first loan payments with the money I had left in my savings account for that very purpose (to the detriment of my credit card balances of course). With a contract signed, my next step was to make a plan to start paying off my debt with the earnings I expected from that first contract.

Here was where things were last end of July:

Name Amount Interest Rate
Mastercard $6,123 CAD 19.99%
Visa $8,653 CAD 15.75%
B-school loan $96,800 USD* ($105,503 CAD) 8.25%
Ontario Student Assistance Program (OSAP) loan $20,931 CAD 5.5%
Student Line of Credit (LOC) $9,678 CAD 4.5%

*The US total is an estimate as I didn’t start noting the balance until the end of August. It is likely a slight underestimate. And the amount I listed includes the accumulated interest up to that point (the principal balance was $92, 865, almost $10K more than I borrowed, thanks to the interest during deferment being capitalized). I used the current exchange rate for the conversion.

If you total that all up you will see that the total is $150,888 CAD. Rounded up that is $151K.

De-press-ing.

As a sidenote, I feel like during my entire three years in the US the Canadian dollar was, on average, higher than or at par with the US dollar. However, as soon as I came back and started earning actual Canadian dollars, it fell. Just my luck.

Anyways, I have a very strong motivation for paying off my debt. I want to be able to help my parents before they get too old. They have made countless sacrifices for me and my siblings and I want my mother especially, who is in her very late 50s, to not have to continue working at a physically exhausting job well into her 60s. Also, I want to be debt-free by the time I am 35 years old (I am 30 years old now). Partly because I may decide to have children and my biological clock is ticking. But mainly because I just want to ensure that I can enjoy my life (while I still have a little bit of youth in me) and not have to constantly be worrying about money, as I have done my entire life.

In my next post I will explain how I paid off more than $25K in the nine months since last end of July.

Stay tuned!