*The following is part 3 of a year-long series. If you want to start from the beginning, learn about who Lindsay is, and check out how much debt she started with… check out PART 1.
Hello again, friends! I can’t believe two whole months have gone by since I started. Time flies!
Today I wanted to talk a bit about my debt paying strategy, why personal finance is personal, and why I’m breaking the rules. I feel like a bit of a debt paying bandit!
Somewhere out there, Dave Ramsey just had a chill up his spine, but has no idea why…
Anyway! Let’s start from way back at the beginning, because to me it’s extremely important that if you ARE going to break rules, you need to know:
- that you’re breaking them, and
- why you’re breaking them.
Why I’m breaking the rules:
When I first graduated from university and realized that I was going to need to start paying off debt in order to survive, I felt really lost. I tried so 
hard to make the numbers add up – how I was going to make loan payments and rent and eat and live… it just wasn’t happening.
My solution was to educate myself. I took out every personal finance book I could find and devoured each one. I read blogs. I researched. I did as much as I could to understand as much as I could about personal finance and debt payment. (Note: Reading books does not actually pay your debt for you. Ugh.)
There are so many great tips and so much great advice out there on how to approach paying your debt. I tried a bunch of different ways which totally made sense – but as mentioned, personal finance is personal. There’s no “one-size-fits-all” way to go about debt payment, as much as many of these writers try and convince you otherwise. There are ways that worked for them and have worked for thousands of others, but those ways aren’t necessarily going to work for me.
Credit card VS Credit Line
So here we go. The debt that I’m trying to pay off this year is in two different places. The larger amount (more than 2/3 of the debt) is in a “Student Line of Credit” with my bank, which is currently in repayment. The rest is made up of a balance on my credit card that I racked up while at a summer program/on vacation last year.
- Credit Line: Lower interest, larger amount, not “good debt,” but not nearly as bad as credit card debt.
- Credit Card: As we are (probably correctly) made to believe, THE WORST DEBT EVER! High interest. Lower amount of my debt. Lame.
It makes sense to pay my credit card off first, right? I mean, that’s what EVERY financial writer would suggest. Higher interest first. Lower dollar amount first. I can get rid of it faster, I’ll save money on interest payments once it’s paid off, and credit card debt is just all around bad.
BUT, my friends, I (GASP!!) have decided to tackle my credit line debt first.
Why would I do this, as someone who is seemingly sound of mind? For me, the reason is simple, and again, personal. Yes – I understand that paying my credit card first is the logical choice. It’ll save me money, I’ll reach the goal of having it paid off faster, and it’s the worse of two evils.
But here’s the thing – my credit line is in repayment. That means that once I’ve paid it off, I can’t access that money anymore. It’s gone. It belongs to the bank.
If I pay off my credit card, I can go ahead and use that credit for anything that I deem important at the time. I would LOVE to think that I’m responsible enough to pay off that credit card and keep it at a $0 balance at all times, but if I look at my history, that’s not quite the case. I’m the one that put that balance on it, and I’m the one that got myself into almost $50,000 of debt during my time in school.
Am I ready to trust myself with the responsibility of having access to that credit? I know that history has a way of repeating itself, and as much as I’d love to think that I’m ready to have free reign over my finances, I believe it’s safer for me to start off by putting my payments somewhere where I can’t “re-access” that money. This way, I’ll have the majority of my debt paid off by the end stretch of my challenge, and the credit card will be a quick finish in the last couple of months.
Sometimes illogical just seems logical…
Along those same logical lines, I personally choose to contribute to an RRSP rather than a TSFA, because I think about RRSPs in a much different way than I do a regular savings account. When I feel in a place that I’m ready to trust myself as financially responsible, I’ll happily switch over to a TSFA – but when the urge is still there to use that money on whatever whim I may have, I feel like it’s safer in my RRSP.
Sometimes, rules need to be broken. Sometimes, I know myself better than any personal finance writer may think they know me. And sometimes, the illogical answer may just be the right answer.
So, how did I do this month?
This month I paid off $750 of my debt, so I’m now at a total of -$10,842.79. That means I’ve paid off just over 12% of my debt since I started! If I want to reach my goal, I need to step it up a bit, so next month I’m going to aim to pay off over $1000. Wish me luck!
What do you think of my financial “bad girl” attitude? Are there any big financial rules that you choose to break?
Want to know how all that rule breaking worked out? Check out Part Four (spoiler: Lindsay takes a trip to a magical island….)
