I’ve Paid For This Twice Already…

Archive for the ‘debt reduction’ Category

No more will I talk about debt reduction.

That doesn’t mean the blog is changing or I am abandoning my goals.  What it means is that instead of talking about debt reduction, I am going to commit to the idea of debt elimination.  Up to this point, I’ve kind of used the two phrases interchangeably, depending on which happened to come out of my brain and onto the keyboard.  But from now on, I will try my very best to talk about debt elimination and debt elimination only.

Because language is a powerful thing.  My goal is to eliminate our debt, not simply reduce it.  I want to use language that furthers my goals and pushes me, not just allowing me to coast where I am.  It doesn’t have to take a whole lot of extra effort to reduce debt, because to reduce you only have to make progress, no matter how slight.   Eliminating it, that’s a whole other story.  And that’s the goal – elimination.  So my language will reflect that.

We will eliminate my spouse’s student loan debt by the end of 2008.  We will eliminate our car loan in March 2009, and my student loan debt by December 2009.  And that will be life changing, in and of itself.  Elimination.  That’s the plan.  Reduction is important and of course, if you don’t reduce you can’t eliminate.  But in my mind, I want my eye to always be on the end goal – elimination.   As I said, language is a very powerful thing.  And I want to harness that power and use it to propel me to the finish line.

Although as an aside, the category for these posts stays debt reduction, because going through and completely changing the category would change some of how things link together and I don’t mess with the back end of my blog for fear of killing it accidentally.  I am nothing close to computer savvy. 

A while back, I came up with the concept of a debt crossover point, inspired by the more traditional crossover point I have read about in relation to investment income. The traditional crossover point is the point where your income from investments meets your budgeted needs, and you no longer rely on a job or other outside source of income to live your current lifestyle. The concept is generally discussed in relationship to retirement, but can really come at any point in one’s life.

The idea of the debt crossover point is simultaneously similar yet completely different. The debt crossover point is the point where paying your budgeted minimum* to debt (not necessarily your actual minimum due) will allow you to pay off your debt by your goal date without any additional snowflakes (or payments). Our budgeted minimum we pay to debt each month is $810.41, and then we pay as much additional as we can manage through earning additional income. In the past, the only way we would reach our goal date of December 2010 for debt elimination is by making extra payments above our budgeted minimum every month. But, the more additional we paid, the smaller that additional amount needed to be to reach our goal, because we were able most months to exceed the amount needed to reach the December 2010 goal date. So, it is time to check in again with our debt crossover point and possibly revise our goal date.

When I looked at our current debt total of $21612.70, and used the snowball calculator to run our payoff out using $810.41 as our monthly payment, I made a welcome discovery. For the first time, our projected payoff date using only our budgeted minimum amount to debt was in fact December 2010. And when I extended out the calculations, I found that I could still meet the December 2010 goal date by paying as little as $763.17 a month, a full $47.24 under our budgeted minimum.

Which means, it is time to revise the December 2010 goal. Unless something catastrophic happens, we will pay at least our budgeted minimum to debt each month, so we need to shoot for something more ambitious to keep the motivation to snowflake extra amounts to debt each month alive. I did a number of calculations and determined a number of different payoff dates, the minimum amount we would have to pay in total each month to meet that goal, and what additional per month over the budgeted minimum of $810.41 we would have to snowflake:

• Payoff December 2009 – minimum $1200.06/month ($389.65 snowflakes)
• Payoff June 2009 – minimum $1722/month ($911.59 snowflakes)
• Payoff December 2008 – minimum $3140/month ($2329.59 snowflakes)

Clearly, paying off our debt by December 2008 would be a BIG stretch. We haven’t paid $3140 to debt in any single month so far, even the month we had a $1000 windfall. We might have in May if we hadn’t had the furnace problems, but there will always be something that goes wrong and something unexpected to account for. Therefore, I have eliminated that one from consideration for the time being.

The most likely scenario, I think, falls somewhere between the June 2009 and December 2009 timelines. With the addition of my taekwondo job, snowflaking about $400 each month should be more than possible, even this summer when the tutoring job will be very sporadic. I continue to earn money from blog advertising and from taking surveys as well, so all in all I think most months, that should be a very reasonable goal to meet. Snowflaking a little over $900 a month, however, is a bit of a stretch to meet consistently month to month. Therefore, I’ve set my new goal for our debt payoff officially for December 2009, with a stretch goal of one year from today – June 13, 2009. Which would be just shy of two years after I started this blog, a fitting goal to stretch for I think. After almost a year of focusing on debt reduction, we aren’t yet at 50% of our debt paid off (and probably won’t be for at least a few months) but as we’ve become more focused and concentrated on exploring more avenues for income, we’ve consistently increased our overall pace, in spite of some expensive setbacks. So I feel that June 2009 is within reach, but too ambitious right now to commit to as the overall goal.

But I’ll be reaching for it. And resetting our goal to December 2009, a full year ahead of our original schedule, is simply more than I could have hoped for a year ago. Just going through this exercise and calculating a new goal date has gotten me reinvigorated and excited. Debt – I’ve got you nailed down. You are not long for this world.

*Budgeted minimum differs from the actual minimum amount due. While a minimum amount due may go down each month due to paying off certain debts or a debt whose minimum is dependent on the current balance (like a credit card), the budgeted minimum is set and then stays fixed for the life of the debts. It is the minimum amount that can be budgeted for and consistently paid to debt, and does not change even as the actual minimum falls. Our budgeted minimum started out only dollars more than our actual minimum due, but as we paid off our credit card, has grown to $200 over our actual minimum.

1. Don’t keep track of your money. At all. After all, paying over-limit and insufficient fund fees are a great way to accumulate more debt.

2. Use credit cards for everything. But make sure to not pay them off in full each month. You want to float some of that money for a rainy day, or something. After all, it’s like *your* money since the credit card lets you have it, right?

3. Don’t save. Saving is like the anti-debt. Don’t save anything, for any reason.

4. Shop for fun, and make sure to let your impulsive side show. Buying on impulse is a great way to keep that debt running high.

5. Interest rates? Cash back? Who cares! I want a credit card that is pretty and matches my purse*. Oh, and can I put a picture of my cat/dog/kid on it? Even better….

6. Buy the most house the bank will let you. Because if the bank will give you the money, it has to be okay.

7. Do not shop around. Just buy it wherever, would it really save you any money to check prices? In fact, I saw a commercial where it was just a waste of time to check prices and commercials never lie. Do not confuse this with “do not shop”. Shopping is good. Shop early, late, and often.

8. Credit card full? Get another. Or move the balance somewhere else and charge it up again.

9. Or – wait! Put it all into a home equity loan! Then charge it up again. Awesome.

10. Don’t care. That’s the biggest one. Just… don’t … care. Don’t let debt keep you up at night. Don’t worry – be happy.

*Those who know me well will know this list is not my actual advice because I never carry a purse. In fact, I do not even own a purse.

When you’re the recipient of an unexpected windfall, you might have one of two typical reactions. One is to set the windfall aside as “extra” and use it for a big splurge. The other is to absorb it into your normal spending and not really keep track of it specifically, but let it add to whatever budgeting plan you already have set up.

I don’t feel a windfall is an excuse to splurge, but I do ascribe to the first camp in part. I think a windfall should be looked at as extra and kept out of your day to day spending. Too many small windfalls in the past for our family got deposited into our checking account and then never heard from again. Like a raise, we subtly adjusted to lifestyle inflation and absorbed the extra money. But no more. For the past year, our windfalls have been counted and used to make a difference instead of simply keeping us afloat.

Use windfalls to jumpstart your financial goals. Don’t treat it as budgeted money and add it here and there to your budget to pad it for a month or two – make it special and make it count. No matter what your primary financial goal is, use the windfall to jumpstart it. Ours right now is of course debt reduction, but no matter what that goal is, a windfall can give the motivation and ability to achieve yours. Is your goal retirement savings? An emergency fund? Or even a family vacation? We all have our own personal priorities based on where we are in life and what our financial goals are. An influx of a thousand, a few thousand, or even a hundred dollars into your primary financial goal can make it feel that much more achievable, instantly. After all, a windfall is simply a snowflake that grew.

Why do I feel so strongly about this? Because I spent far too long not feeling the rewards of having a windfall happen. Our windfalls somehow just got absorbed into our day to day life and a few months later, it was like it never happened and we had little to show for it. A windfall should feel rewarding, no matter what it is being used for. Reward yourself today with a responsible choice that will kickstart your most important financial goals and put your motivation into overdrive.

Hi, I’m paidtwice, and I’m in debt.

But of course, you all know that. However, sometimes I feel like my life is like that, defined by my debt progress and my current state of past payoff. I’m in “debt recovery” and I keep working and working at it but the possibility of future debt looms over me at every turn. There’s debt that I can choose to avoid – like purchasing luxury items beyond my means, not taking extravagant vacations, and the like, but there is also debt that feels unavoidable. The balance between being prepared for an emergency and paying down our existing debt is a tough one, and if I choose to save too little in order to make more progress on our debt, it could backfire and I could instead end up in more debt. This has already happened once in our debt reduction journey, when the engine in our Saturn self-destructed and we didn’t have the entire $3600 required to fix it. We did bounce back from that pretty quickly, but a bigger emergency (or a string of significant ones) could easily place us back into more debt.

And then there are our cars. This is the “future debt” I have been purposely not thinking about but I know, when I am honest with myself, is probably the most likely reality. The wheres and the whys aren’t important, but the fact of the matter is, the likelihood of one of our cars becoming inoperable before we have enough money saved to replace it is pretty high. I hope that isn’t the case, and both cars last another 6-8 years at least, but it isn’t very likely (especially given the track record of one of the aforementioned cars).

But for today, I have made a decision. Debt does not define me. I may be in debt, and I may be in more debt in the future, if we are not able to pay for a car in cash when the time comes to replace one. My goal is debt freedom, and I will do anything I can reasonably do to achieve it. But if for some reason, we enter into more debt – that will be okay. We will work to rid ourselves of it, and we will not take on any additional debt lightly. But I refuse to let the idea of future debt make me feel like a failure. We have come a long way, and although we still have a lot further to go, the road is a long one and there isn’t an easy solution. It isn’t possible to save for every possibility and make any progress at all on our debt. Because I know for sure that I don’t still want to be paying off my undergraduate student loans in 2017 (the current estimated payoff according to Sallie Mae).

Debt does not define me – past, present, or future. And the possibility of future debt will not completely derail our present progress. All we can do is make informed decisions, weigh risk and reward, and plan a course of action. And then – move forward with a balance of considered risks vs possible reward that we are most comfortable with.

Repeat it with me. Debt does not define me. Action does.