- At the beginning of 2020, I decided to buy a house, but to do so I had to improve my finances.
- I took out a personal loan to consolidate my debt, but I had no intention of paying it off years earlier.
- But as I searched for a house in vain, I realized that paying off my debt was what I really needed to do.
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I entered 2020 with five-figure credit card debt. Just under 18 months later, in mid-June 2021, I fully repaid it.
This was not really my original intention when I embarked on the project to improve my financial situation. My goal was undoubtedly to put myself in the best possible position to get into even more debt – six figures instead of five: I had decided, at the beginning of 2020, to finally buy a house.
By then I had lived in Philadelphia for almost nine years and worked in the same place for more than seven; I had a strong community of friends and neighbors around me, I was in a city that I was mostly pretty happy with, and I couldn’t see myself going anywhere anytime soon.
So it made sense both financially and personally to start converting my rent payments into mortgage payments. I would both build tangible roots in Philadelphia and invest in my long-term financial future at the same time, and if ever the time came for Philadelphia and I to part ways, I would still have a home to return to if I did. wanted.
I consolidated my credit card debt with a personal loan
The first thing I knew I had to do was change the nature of my debt so I could increase my credit score and reduce the burden of my credit card payments on my paycheck each month. So I took out a personal loan from my bank for five years to consolidate my debt at a lower interest rate than any of my credit cards.
It converted my debt into a permanent installment loan rather than revolving debt – which was better for my credit rating – instantly reduced my debt to income ratio to a fraction of what it was and lowered my monthly debt payments at a sufficiently low level. point that I had a lot more at the end of each month to invest in my savings. I also applied for a loan slightly larger than the amount needed to consolidate my credit card debt so I could put money aside for my house down payment.
From there, I decided to stack as much as I could into the bank from as many coins as I could manage. And I did – between the extra writing and teaching work I undertook, the stimulus payments I left untouched, and a possibly embarrassing amount of money saved from quitting. from my usual social and travel activities due to the pandemic shutdown, I have accumulated a much larger down payment than I had planned at the start of my house hunting.
It was “helped”, as such, by the fact that the search for the house ended up taking much longer than expected – almost a year instead of two months, so long that I ended up by putting a pause on research, especially as the market started to heat up towards the end of 2020 and more and more homes started to move out of my price range quickly.
I realized I could pay off my personal loan long before the term expired
My late 2020 hiatus continued into early 2021, then solidly into spring. My savings continued to accumulate at a steady pace, and by mid-spring I realized I was able to pay off my loan over five years while maintaining the initial minimum down payment I had. scheduled for early 2020.
I had specifically requested a personal loan product without prepayment penalties in order to leave this option open at no additional cost – but I did not expect this possibility to arise so soon. Honestly, it upset me a bit, like reaching any goal earlier than expected: this debt had been part of my life for so long that I almost had no idea how to design my life without my foot on it. my neck.
But as the year progressed, with the destabilizing realities of the pandemic continuing to erode my understanding of what it even means to move on in my life, I realized that I wanted – in fact, needed – to erase my credit card debt and be freed from this burden for the first time in my adult life. Also, as the housing market continued its rapid ascent, I wondered if I really wanted a house right now – or at least a house at the prices and terms currently being advertised – and realized that, right now at least I didn’t.
And so, in early June, I went to my online banking portal, nervously entered the full loan amount as my next payment, and pressed send. The letter informing me of the end of my debt arrived the day before my birthday. My 2020 self was thrilled to have achieved a complete financial transformation in my life – it happened in ways I never imagined at the start of this journey, and although I did not reach the original goal of a house, I’m happier for it turned out that way.