How I Paid off a Huge 7 year Personal Loan in less than 20 months, with a Mortgage and NO Child Support
The Back Story…
When my son’s father left us when my boy was just 3 years old, I had the fortunate opportunity to live in a small 2 bedroom cottage on a friend’s property and pay a tiny $50 per week in rent! I was also left with a huge debt after my ex took all of our savings and “borrowed” even more money from me to go overseas. The $50 per week rent allowed me to pay off debt, build my savings and begin to dream of saving enough for a deposit for a home of my very own. I lived in this cottage for 3 years, saving hard while working full time and eventually I had saved enough for a deposit for a home. At the time that I was applying for a home loan, the banks had cracked down hard on lending and did not approve me for the amount I required to buy the apartment I had my eye on. I made the decision to take out a personal loan from a different bank, which was something that my broker did not necessarily recommend, but I was determined to make this purchase and so I got a $50k personal loan approved, followed by my home loan approval. While I was extremely excited to get into my first home and I had been warned that the first couple of years would, financially be the hardest, I don’t think I realised just HOW hard. I had budgeted for the expected bills such as strata bills, council rates, loan repayments and all other bills but when something unexpected came up, I was not prepared and began relying on my credit cards.
I knew that this was a trap and that credit card interest (as well as my personal loan interest of 14%) was making everything harder so I knew something had to change for me to change my situation and get my head above water. I certainly didn’t want to fall into any bad habits that I had I certainly didn’t want to fall into any bad habits that I had observed as a child. First step was to get those credit cards paid off, followed by the personal loan.
So, How Did I Do It?
I treated these debts like a financial EMERGENCY!!
I started selling any items I had which I didn’t really need, online. First 2 things, then 10, 20, 50, 100, 200. Items ranged from books, mine and my son’s clothing items, unused appliances, household decor, tools, furniture, toys and jewellery. I even started flipping items; finding free or discounted items online or being thrown out in my community, cleaning them up and selling those too.
I started selling items that belonged to other people too; selling them for a 25% or 50% commission, which was quite lucrative when the items were worth hundreds. While I continued to list items, I was making anywhere between $50 – $500 per week. This made a huge difference to my situation, as some weeks the cash I was making paid for groceries as well as some of my bills, allowing me to smash more of my debt.
I ate frugally. Eating out and ordering in became a rare occurrence. Friday nights used to be our treat night of takeaway but not anymore! We planned yummy meals instead and made them ourselves. Our treats were supermarket desserts on special. Groceries were bought on clearance or fruit & veg in season. I did batch cooking and froze meals for later.
EARLY RELEASE OF SUPER
I took out $20k early Superannuation which never would have been available if it weren’t for COVID. This was an amazing opportunity and saved me more than $15k in interest on my personal loan. My intention was to pay this Super back as soon as I could afford it but I have now decided to do some salary sacrifice, rather than paying back a lump sum.
I asked my boss for a pay rise. I referred to my job description, detailing all the reasons I thought I deserved it and how I had exceeded my job description, so we negotiated a figure somewhere in between what I was getting and what I was requesting. I did however manage to get my boss to agree to pay for all of my fuel, due to the travel I make in between various child care services.
CHANGING HOW WE EXERCISE
I cancelled some expensive extra curricular activities my son was involved in such as dance class, tennis and music. He was more than happy to replace these classes with more quality time just the two of us doing bushwalks, bike rides and swimming in our apartment complex pool; also fun exercise, yet free. He has continued playing soccer with his local club. I also quit the gym, opting for free workouts such as walking/jogging, swimming, dancing in my loungeroom and bike rides (after purchasing a $20 second hand bike online).
My Last Payment
Making the last payment on my personal loan after only 20 months was a very proud moment. This saved me thousands in interest and gave me even more confidence to manage my money, build my financial knowledge and make further finance goals including building my Emergency fund and starting my investing journey. I started using Self Wealth and have now switched to Pearler.
So What Now?
I am now almost 2 years into my home loan. I have paid off all of my consumer debt which I am hugely proud of, and I am currently trying to refinance my home loan. At the time I took out my loan, I went for a fixed interest rate of 3.79% which I am trying so hard to get out of considering the record low interest rates around at the moment! (January 2021). Update: (Sep 2021) – I have now refinanced with a split 50/50 loan – 1.78% fixed for 2 years for 50% of the loan, the other 50% is on variable. This has saved me $1200 PER MONTH!! Yes, that’s right, a saving of $1200 per month in lower repayments and keeping my Emergency fund in my mortgage offset account reduces the interest charged, SIGNIFICANTLY!
I have built my Emergency Fund to $12,000 and I have worked out a budget for my regular expenses and plan on building my sinking fund next.
I began my Investing journey shortly after becoming consumer debt free, starting an account with Self Wealth and purchasing $500 worth of Betashares A200 ETF’s. I have now switched to Pearler and LOVE the option to automate the investments, love the user friendly App and the customer service is excellent! I am also in the process of opening up a minor account for my son, Andy.
I plan on putting extra money towards my mortgage as well as continuing on my investing journey.
I have now calculated my Net Worth to be $350,000 which includes my Super, the equity I have in my apartment, my Emergency fund, my shares, car and belongings.
I am a single mother with an average Australian wage. I have always been very determined and when I decide I want to do something, I put all of my efforts on achieving that goal, no matter what it takes. I have been inspired by so many others around me and I have had some wonderful friends and family members who have helped me along the way. My finance journey has been one of highs and lows but I am so proud of how far I have come and I am so excited about the prospect of improving my sitaution even further.
I only recently discovered the FI/RE community (Financial Independence/Retire Early) and I have been amazed, educated and inspired by so many in this community.
I no longer believe that single mums are destined for a life of financial struggle. In the past 7 years since my break up, I have changed my financial situation dramatically, and I now know that wealth is more about healthy financial habits such as living below your means, saving and investing, and mindset, more than anything else. You can read more about my story as a single mum, as well as tips for thriving, not just surviving, here.
I would love to hear from any fellow single mums out there and your financial journeys too!