I’ve Paid For This Twice Already…

Reaching Our Debt Crossover Point is Harder Than I Thought

Earlier this week I talked about what I’ve termed our debt crossover point - the point where by paying only our budgeted minimum amount towards debt, we will still reach our goal date of having our debt paid off by December 2010. Of course, our goal is to put much more than the minimum budgeted amount towards debt each and every month and ultimately pay off our debt as soon as possible, but reaching that crossover point will give us a small feeling of security in that if we have a low income month, we can still stay on track in our overall debt reduction goals.

When we started in June, we needed to pay ~$1050 to debt every month to reach the debt payoff goal of December 2010. We have had some success in the past 5+ months with generating alternative income towards debt as well as a windfall we applied towards debt, so as of now, we need to pay $895 towards debt every month to hit that same goal date. Our budgeted minimum payment is $810.40, so we are much closer to that crossover point than we were only a short time ago. So I thought I would do some calculations and see how soon we could reach that debt crossover point. I thought it wouldn’t take very long at all, but the reality is, unless we have some more large influxes in the near future, it could take a very long time.

I started out with a pretty basic calculation: how far in dollars are we away from the debt crossover point level over the entire course of our future repayment (until December 2010)? From now until December 2010 we have 36 months, and we need to pay $85/month over the budgeted minimum to stay on track. 36 x $85 is $3,060. Ouch. Well, so we’re a little farther away than I thought. $85/month doesn’t seem like so much but over 36 months it sure adds up.

I decided that a goal of paying $1000/month to debt was reasonable. It is $190 over our budgeted minimum, so it is a stretch, for I will have to generate that in alternative income every month. But I think it is possible, especially once I start my new tutoring position (which hopefully will occur before January). To figure out how many months it would take paying $190 over our budgeted minimum per month to reach that debt crossover point, I first calculated $3,060 divided by $190 extra per month to get 16.1 months as a first rough estimate. 16.1 months… that’s a long time. April 2009 to be exact. When I started thinking about this I thought I might be able to reach it by mid or late 2008, but I completely underestimated that. This was only a rough calculation, for it doesn’t take interest into account, so the actual crossover point is even further away than that. To figure that out, I used the snowball calculator and did a number of different scenarios, recalculating for each month from April 2009 on, and eventually I arrived at November 2009 as the crossover point where if all I did was pay the budgeted minimum from then until December 2010, we would still pay off our debt according to schedule. 7 months later than the rough calculation and 23 months from now. Yikes.

I hate interest when it is not working for me.

So, we have a long way to go to get to that debt crossover point unless we can do significantly better than $1000 per month for the foreseeable future. It isn’t discouraging exactly, but it is a bit eye-opening. I truly thought before I started all this calculating that it would come a lot faster than that.

But on the bright side, when I did the initial $1000/month calculations, I learned that if we can keep up paying $1000/month towards debt, we will pay our debt off by September 2010 instead of December. We are making progress! Some new goals will soon be in order, I think.

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