Debt Free Kiwi #3

How much debt have you paid off?: $677,000. Please note: I am answering this questionnaire on behalf of my godmother, whose financial and emotional journey over the past 18 months has been revelatory to manage and watch.

What was it for?: Reverse equity mortgage. Consumer debt. Unpaid bills.

From deciding to become debt free to making the last payment, how long did it take you?: 18 months.

What age did you take on your first debt, and how old are you now?: Age at debt commencement: 70. Age now: 83.

Did you do it alone or as a family?: Family/group effort. 

Did you pay off debt from your regular income, take on extra work, or change jobs to speed it up?: Regular income from the lease of farmland, plus superannuation.

Did you sell anything or receive cash gifts to contribute towards your debt payoff?: Land. Partial land sale to a neighbouring farmer, meaning the land remains as working farmland.

What people, books, websites, podcasts, budgeting tools, debt trackers and resources helped you?: Family, who micromanaged fortnightly budget, created a debt tracker and helped her explore options when deciding to sell either part of all of her property. She has now gone from being asset-rich, cash-poor, with no fiscal management skills, to having a balanced financial life (no debt and enough money to pay the bills and indulge herself from time to time). She has a much clearer understanding of how money works.

Did you keep an emergency fund while you paid off debt? If so, how much?: This was tricky at first because of outstanding bills. About six months in, however, a savings account was set up, and funds were transferred in from fortnightly income when possible. That account's balance tends to sit between $500 and $1,500, depending on emergencies.

Did you have any setbacks along the way, and how did you overcome them?: Several. Discovering three years of unpaid income taxes - we set up a repayment arrangement with IRD. Having overgrown trees on the property interfering with service lines and the integrity of the house roof - the emergency fund helped here to pay for an arborist. And some setbacks were dealt with by the family. Such as pulling down a garage that had been wrecked in a storm or fixing a shed roof damaged by the same storm - both times negating the need to pay someone to fix it.

What tips/hacks could you share?: Educate yourself about how money works - make an honest list of expenses, and make a budget. Talk to your creditors - any effort to pay the debt is far better than ignoring it. Talk to your family or support network about your money management - they may have ideas to share, or they may have challenges that you can help them with. No one learns anything in a void.

Shop around for services. Get someone else to check things with you - do you actually need that huge data allowance on your devices? Do you need the insurance company's super-platinum-shiny policy, or will a simpler one do?

Was there a structure to your debt payoff? i.e. paying smallest to largest, or highest interest rate to lowest?: Initially, no. Given the number of unpaid debts, everyone got something every payday. Once the bank overdraft was cleared, we attacked the smaller, faster-to-pay-off debt. This was mostly local businesses. Following that, the focus moved to the debt with the highest interest rate. Other debts were still being paid, but any extra went towards the highest-interest one.

How did you stay motivated, and what was the most challenging part of paying off your debt?: Motivation came from family - every month or so, a conversation along the lines of “you've paid off X% of the debt, so you have this much more available for fun each fortnight”. It also came from a lack of guilt when out and about - so much of a relief to be able to walk into a business with my head held high.

The most challenging would have been the initial conversations with the family. The admission that help was required and that the problem wouldn't solve itself. And the struggle to be honest with yourself when itemising all your spending and debt.

How did you celebrate making your final payment?: That will occur next Thursday. At the age of 83, with health conditions that preclude having a celebratory champagne, it is more likely to be a meal out with family.

Was getting out of debt worth it, and what have you learned about yourself?: Yes. The removal of the background anxiety relating to matters financial, which has been invisibly there for my entire adult life, is huge. I've learned that talking to people about money matters is not a dark and shameful subject.

Will you ever go back into debt again?: NO.

Debt Free Kiwi #4

Debt Free Kiwi #2