I’ve Paid For This Twice Already…

Archive for the ‘debt reduction’ Category

There are times for most of us when motivation is lacking.  Be it from our own internal struggles, or the pressures of the world around us, almost everyone could use a little jumpstart now and then. When I need a little more “oomph”, for whatever reason, I start treating debt elimination not just as a journey, but as an actual road trip.  I love road trips, and have taken more than my fair share of them in my life.  Just like I wouldn’t leave out my front door without an idea of where I was headed (well, I did once the summer between high school and college, but that’s another story), successful debt elimination needs a plan of attack - or in this case, a roadmap.   Start your road to debt elimination now by creating a roadmap of your own.

1.  Know where you are

This is, in a way, the easiest step as far as phyiscally completing it, but can be the scariest as well.  The activation energy (the oomph to finally do it) needed can be enormous and overwhelming.  If you are stuck here, take it one step at a time.  Gather up all your financial information into one place.  Then, one piece at a time, go through it.  it doesn’t all have to be looked at at once.  Keep a tally on a piece of paper.  What do I owe (credit cards, loans, other debts)?  What do I have (bank accounts, investments, property)?  What comes in each month?  What goes out each month?

Without a doubt, it is much harder to get to your destination without knowing your starting point.  The time invested in getting an idea of where you are will pay off down the road when creating the path to your destination.

2.  Know what your destination is

This can be very simple, but creating a “debt-free” goal versus a specific payoff amount goal is the difference between saying you want to go to California vs Los Angeles.  One is more vague and harder to create a specific plan for, while the other is more specific and more in depth.  The more specific you can be, the easier to see the steps to get there.

3.  Draw yourself a map

Just like it is harder to get where you are going without directions, reaching your debt elimination goal is tougher without a clear way to get there.  As I tell my taekwondo students, a goal without a plan is better labeled a dream.

Look at your money coming in and money going out.  Look at where you are as far as assets and liabilities, and start drawing up plans for how to accomplish the debt elimination journey.  Start with a monthly amount you can commit to debt elimination.  As you progress, you can begin to work in plans to earn extra money, or snowflakes, that can also be committed to the cause.  Every journey begins with that single step.

4.  Plan your rest stops

Every journey needs a little pit stop somewhere to regroup, refocus, and re-energize.  You can base rest stops on time, on milestones, or a combination of both.  For us, we use each passing year as a time to really examine our roadmap and determine what we need to change or tweak within it to better accomplish our goals.  And we use specific milestones, such as a certain debt paid off completely, or a certain amount of total debt paid, as a place to build in a little reward for a job well done.

5.  Budget plenty of extra time and resources

Once you know what you’ve got to throw at debt, and how much time based on that it will take you, budget in just a wee bit of wiggle room.  You can always re-evaluate later, if you are far ahead of those original plans.  But life is unpredictable, and may throw you curveballs you just never anticipated.   Leave yourself some wiggle room to deal with unexpected challenges, and you’ll be more likely to stay on course.  When we plan a road trip, we plan an “optimistic” time of arrival as well as a “realistic” one, and we do the same thing with our debt elimination plans.  Budget some room into that realistic arrival time and place.

6.  Enjoy the journey

You may not enjoy being in debt - but take time to enjoy the journey out.  Be it by recognizing milestones, looking at progress, or forecasting new plans for the future, enjoy the steps you take on your ultimate journey to debt freedom.  Each step forward is one step closer to living a debt-free life, so take the time to enjoy those steps and be proud of what you’ve accomplished so far.

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If there is one thing I’ve learned through my very public journey out of debt and towards being a financially responsible individual, it is that getting out of debt, or even just improving your financial health in general, is not a one-size-fits-all proposition.  Although there are several popular approaches, and some are more successful, on average, than others, doesn’t mean there is simply one prescribed way to go about it.

Last week I asked how the current economy is affecting people’s outlooks on paying down debt (if they have it) versus saving money.  I got a wide variety of answers, with some feeling that debt elimination was their best bet, some saving everything they could, and many in between.  Over 18 months ago, when I started blogging about getting out of debt, I was very committed to paying off debt as fast as possible, and threw every penny we had at it.  I did, grudgingly, save a $1000 emergency fund, so I wouldn’t have to create new debt to deal with an emergency.   And over time, I saw the wisdom, for us, of having that emergency fund.  We had to use it several times to deal with house, medical, and auto-related things that happened.

And now, for us, I see the necessity of an even larger emergency fund.  But I’m still not, after all this time, accustomed to the idea of saving money “just in case” without a clear defined purpose in mind.  I’ve tried to tell myself the clear defined purpose is “an emergency” but my brain isn’t accepting that.  I’m looking at our budget and trying to find the money to raise our emergency fund from $1000 to $2500 but it is making me cranky.  I want to throw that money at my student loan.  But no matter how many times I am told a $1000 emergency fund is the right thing to do while you are aggressively paying off debt, I know that isn’t working for us any more.

The idea of saving $1500 a month towards a new car (although it seems kind of impossible to accomplish) doesn’t bother me as much, for some reason.  At least, not yet (but of course I haven’t started doing that yet, so it might irritate me too).  It has a designated purpose, after all.  My brain is an odd place.

Debt elimination isn’t an exact science, and the process is not one size fits all.  With trial, error, and an open mind to evolving as things change, the path that works for you can be found.  Be open to change.  Don’t blindly follow the same path even when everything else changes, unless that path still fits your situation.

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Editor’s note:  I set this post to publish yesterday and made the classic “New Year” mistake of setting the date to 2008!  When I looked this morning at my blog, I was confused as to why yesterday’s post wasn’t showing… okay, I found it.  Heh.

When I started this blog, our #1 priority was to pay off our non-mortgage debt.  We had quite a lot of it, and the minimum payments alone were a significant amount of our monthly budget.  We saved a $1000 emergency fund to keep us from having to resort to credit card usage, and then systematically started debt-killing.  First the credit card, then one student loan, then the car loan.  Now, we’re left with a $10000+ student loan, and a minimum payment of $145 versus the over $800 minimums we were tied to just 18 months ago.

As the economy changes, and as our debt shrinks, I began to wonder if staying the course and focusing 100% on debt reduction was the wisest path.  A $1000 emergency fund, at the time we saved it, seemed like a huge amount of money.  It still does seem like a huge amount of money, as far as spending that much on one thing, but at the same time, the past few years, we’ve had several emergencies that were over $1000 out of pocket.  We’ve been able to cover the difference with budgeted money or snowflakes we hadn’t spent on debt yet, but it showed me $1000 probably wasn’t enough for an emergency fund for us.  And then my car tried to die for good (although for now we’ve stayed the inevitable), and I realized we were going to get ourselves into even more debt trying to pay off the debt we already have if we didn’t become more prepared for life happening.

Even without a specific issue looming, the economy seems more uncertain every day.  Jobs that might have seemed stable are not quite so stable.  Growth industries stagnate.   It makes me want to hoard money and hide.  Not that that is a good plan or anything, but the uncertainty around me makes me want to hoard and wait and try as much as possible to be prepared for anything.

Are you still aggressively paying off debt?  Are you increasing your emergency fund?  A bit of both, as our current course is?

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Last year, all the goals I set were based on debt elimination and how much per month we could pay to debt.  Even though last year was full of financial challenges, it also had many financial blessings.  When I set the goals, I wasn’t formally employed.  But soon after, I started tutoring chemistry online, and then a few months later, I started teaching taekwondo at night - first three nights a week and now 5 nights a week.  So the goals I set in December 2007 for 2008, that I thought at the time were a stretch based on 2007, ended up being easier than I imagined to hit.

My goal was to pay at least $1100 per month to debt, which would cause:

• Eliminate credit card debt by March 2008
• Spouse’s student loan under $5500 (snowball calculator says $5847)

I more than met both these goals - our credit card debt was paid off in February, and my spouse’s student loan was paid off completely in October, and then paid off our remaining car loan in November.  The only non-mortgage debt we have left is my student loan, which has a balance of slightly over $10000 and a $145 minimum monthly payment.

Our financial goals this year are slightly more varied than debt elimination.  Circumstances dictate that we prepare for the inevitable demise of my primary vehicle.  Our responsibilities dictate that we become more prepared for emergencies.  And we are going to try as hard as we can to do it all without adding new debt.  We’ve decided on three major goals (that even in our current financial situation, are a stretch) :

• Pay off student loan
• Save $10000 for new (to us) car
•  Save a $2500 emergency fund

Our plan is to save the $2500 emergency fund first.  I’m not sure what our starting point is yet - once the car is back here at home and the broken tree is dealt with ($200, they are coming early next week) I’ll look at our checking and figure out how much can be moved to savings.  Our emergency fund has $300 in it right now and I think, if the car behaves, we can get it up to $1000 again rather quickly.  Once we save the other $1500+ (hopefully, by February) we move on to phase 2.

Phase 2 is saving for the car and paying off student loan simultaneously.  For six months, we hope to pay $300 to the student loan and save $1500 towards a new vehicle.  Anything we have for snowflaking above that $1800 total goes towards the new vehicle saving.   This $1800 goal per month will include our budgeted minimum debt payments of $810.41.  This will be a stretch to meet every month and will necessitate us spending as little as possible and saving everything we can.  Which is how, frankly, I operate best.

(I got Walgreens and CVS gift cards for Christmas to let me continue to play my Drugstore Games so I can shop.  My goal is to make the $50 on each of them last all of 2008.  )

After 6 months of this payment schedule, we are entering phase 3 and flip-flopping them.  $1500 per month to my student loan and $300 towards a new car, with any available overage going to my student loan. At the end of twelve months, if we hit both these every month, we’ll have paid off my student loan and saved at least $10800 towards a new car.  If we could start this in January then it would be done by the end of 2009, but since it will most likely be at least February if not March we start, it will go into 2010.

If the Saturn behaves that long.

My ultimate goal is to have the student loan completely paid off in 2009, and save $15000 to a new (to us) car as well.  I’d like this car to not just be a stopover car but be a 10-15 year car, which $15000 to $20000 will accomplish.  That timeline’s not impossible - my GEO Tracker was still going strong at almost 14 years old when we replaced it for practicality reasons (I was having a baby and the back seats were not car seat friendly, or even safe after years of weather abuse from my convertible days).  The Corolla we have is still going strong at 13 years old.

But if the Saturn bites the dust before we can save for a new used car, we’ll probably go with something older and cheaper that won’t last us as long as I’d hope, but will be more reliable than said Saturn.  And avoid a loan as much as possible, or at least make it as small as possible.

And then the priorities shift to paying off said loan quickly and efficiently.

Here’s to 2009!

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I’ve spent so much time and energy sending off money to our debts over the past year and a half, I kind of lost sight of the fact that sometimes, the debt is going towards an actual concrete item.  I paid off our credit card in February, which was for some concrete items, but I can’t even really remember what anymore.  And I paid off my spouse’s student loan last month, which was for his education, but the education is long completed.

And then on Friday I paid off my car loan.  Since it is one of the very few bills I do not pay electronically, I actually wrote out the check at the bank for one thousand one hundred fifty three and 03/100 dollars.  Writing it out on the check in words like that made it somehow even more significant to me.  I have been making payments electronically for similar amounts every month for the past few months to my spouse’s student loan, but somehow physically writing this on the check made it have a little more weight.

As the teller sent me the receipt through the drive through at the bank, she said to me “You’ll receive the title in about ten days” and it dawned on me - the car loan was a debt paid off, but it also meant the car I was sitting in now completely belonged to us.  Another tangible marker of our progress.  And it was a little bit humbling.

I don’t anticipate another quick victory - it has been great to knock off two debts in the span of two months - but my student loan still sits at over $10,000.  But by sometime in 2009, with a little luck and a lot of hard work, we will hopefully be able to say we are non-mortgage debt free.

The numbers, the one-debt numbers, now look like this:

• Debt at start of blog (6/19/07) : $36,451.71
• Current total as of 11/18/08: $10,791.17
• Principal paid to date $25,660.54
• Broken down into:
  • Credit Card: PAID OFF 2/7/08
  • Student loan (at 7%): $10,791.17 (paid $289 this week)
  • Spouse student loan (at 9%): PAID OFF 10/7/08
  • Car loan (at 4%): PAID OFF 11/14/08
• NCN Network Chart:  70.4% paid off (last week, 66.6%)

Also Sallie Mae sent my spouse a nice letter this week congratulating him on paying off his loan.  On to getting one of those letters for me!

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