In order to get out of debt I had to get into it in the first place and as it turned out getting INTO debt was one of the best things that happened to me, it gave me a six year master class in “how to be good with money” and turned my financial life around. A work opportunity led my husband and I to Christchurch where I had a two week window to find us a house. The hunt was on! Finding our first house was easy because lending money for the first time felt like an enormously grown up weight to bear.
Let me explain.
Although the bank readily offered us three times what we ended up borrowing we just could not bring ourselves to do it; even when we were young and naive the thought of a 25 - 30 year mortgage didn’t sit well with us. Therefore our cash was limited which narrowed our search considerably. I chanced upon a great real estate agent and within short order had signed up for a three bed, one bath house in ‘the burbs’ that just needed a couple with some excellent DIY skills. That couple didn’t end up buying it but WE did!
We had saved up a deposit which barely got us over the minimum amount required by the bank and sitting in the bank’s nice office and signing the paperwork was exciting! Our first home, even though they owned most of it! No more ugly cold rentals for us, with grumpy landlords dictating the rules; we now had our very own ugly (but thankfully warm) house where we could do as we pleased! With double income and no kids yet we worked our jobs all day and hammered, nailed, sanded, painted and gardened into the night and all weekend. Payments that previously went on rent now went towards our own home instead.
We were living the Kiwi dream!
When we got our first mortgage I was clueless as to how they worked and on the advice of our bank we fixed 80% of our mortgage and floated 20% which seemed extremely radical at the time. We could renegotiate after two years. Heck, was that long enough, what if we couldn’t cope? What if the floating rate soared? Risky, risky, risky! We were thankful that we fixed such a large amount and therefore knew what our set payments would be, it felt just like paying rent and paying rent was always doable.
BUT as the first year rolled into the second I began to get better at math. We had made huge inroads into paying back the floating part of our mortgage because as it turned out we had landed good careers and had good money rolling in. We were big spenders but now with a dawning awareness of what paying interest actually meant we started to actively direct that money towards our debt - instead of just buying pointless “stuff”. We became pretty good at paying back debt and the floating part of our mortgage would be gone well before our two years were up. It came as a bit of a surprise to me that Julie at the bank would NOT let us then pay a bit more of the fixed part of our mortgage. Say what? I resisted the urge to spend it and began to put that ‘surplus’ cash aside until such time as I could put it towards our debt.
About ten minutes after our mortgage came up for renewal we were sitting with Julie at the bank and against her advice we restructured our loan to a Revolving Credit Loan (or Flexible Mortgage) so it would allow us to make as many payments as we could over the coming years. This came with dire warnings about how our lack of control and inability to budget could see us constantly maxing out our loan. She had a good point but by this stage I was feeling pretty confident.
Here my love of a good basic spreadsheet was born and I began to budget what we could spend in the coming month. This was a complete disaster as to this day, like most people, I’m terrible at predicting the future SO on my spreadsheet I tracked the past instead. A detailed story evolved of where we spent our money and using this information we decided where to cut, spend and pay down debt. By now I had a firm grip on how much less interest we would pay to the bank by doing this. Every payday we watched the balance inch towards zero until finally, after six years, we reached it. What a relief and an amazing feeling to actually own our own home at last. We were rightly pretty proud of ourselves.
It turns out that we would never be that young and dumb again when making such a massive financial decision. Good careers, no child at that stage and time to do up the joint - it all worked in our favour. We ended up with a home we loved. Our aversion to debt, before we even got into it, meant we bought a much cheaper house than the bank told us we could afford. Although we still had a great time over those years and probably spent more on dining out, travel and buying unnecessary consumer items than we should we still always aimed to spend less than we earned which let us put more towards our debt every single payday.
Once we understood how mortgages, interest payments and banks worked the overriding goal became to get the bank off our back as soon as we possibly could. Stumbling upon a revolving credit mortgage that gave us flexibility to kill our debt was a winner for us and Julie need not have worried as we did have the discipline to pay it down.
So what happened when we got to $0? Julie at the bank called us in and said “Hey you two, well done on paying back your loan, lets just keep that lending option there, you might go out in the weekend and see another house you really want to buy...” Ahh, no thanks Julie, our relationship ends here. We are going to the home we now own and staying put.
GOODBYE DEBT, HELLO LIFE!
Happy Saving!
Ruth
The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of New Zealand Home Loans (NZHL).
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