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.