The decision to stop contributing to our retirement accounts went against everything my husband and I had been taught. We had both begun investing 10% of our gross pay early in our careers and always took advantage of any matching programs with our employers. We knew that for the mathematical explosion of compound interest to take effect, we needed decades of time. Ignoring these teachings was akin to sinning with our money.
After reading Dave Ramsey’s Total Money Makeover, and spending a few months in our Baby Step Two Debt Snowball, we understood that we wouldn’t get the traction we needed to retire $55,000 of debt without adding more income. At the end of the day, we decided we needed to make more and spend less. Spending less at this stage of the Ramsey Plan meant to follow Dave’s advice and stop our retirement investing until we retired our non-mortgage debt and built a three to six month emergency fund.
The steps of Ramsey’s Debt Snowball solution are to list all non-mortgage debts from smallest to largest, make minimum payments on all of the debts but the smallest. Throw all extra money at the smallest debt until it is paid off, and then apply that money to the next smallest debt. The theory is that paying off the small debts rapidly will reinforce behavior and cause people to to believe they can win and eventually become debt free.
Using the income that had been spent on retirement investing allowed us to retire several of our little debts quickly and address some of the bigger loans with more fervor. Personal finances have less to do with math and more about attitude, and with this single decision we began to see a dramatic shift. We started to see debt as a thief robbing us of our freedom and future. The anger and disgust we had towards our past choices and the lenders who were willing to finance the decisions compelled us to sacrifice deeply. Our focus sharpened, and we began to win with money.
We stopped our retirement investing for about three years. In that time we were able to repay consumer, medical, personal, and vehicle debt. We were also able to pay off the ridiculous ARM that covered our down -payment on our home (I should mention we actually borrowed 103% against our house back in 2004, bringing zero to the closing table). Eliminating this debt has created contentment in our home that has allowed us to take take advantage of financial opportunities in areas that we would have been reluctant to take carrying around a bunch of debt.
Investing and earning the company match for those three years would have had some advantages, but we probably would still be struggling to find a way to get out from under our debt. Paying off those debts afforded us the financial freedom to make other solid choices.
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