Friday, July 14, 2017

Let's DO this.

Back in the early aughts, I went on a one-month group backpacking trip that involved getting up early each morning, pointing to a peak in the distance, mapping out our path, and setting off for the summit. Every morning, the task seemed impossible, and every day, we faced setbacks: someone would get a blister and we'd have to stop for half an hour, or we'd pull over for a snack and get lulled into a nap under a blissfully shady tree, or we'd go the wrong way and have to backtrack. Sometimes we'd be miles from our target when we rolled into our sleeping bags for the night.

Nevertheless, we put one booted foot in front of the other and kept going, and eventually - if a few hours or even a day late - we'd reach our destination. From the top of the mountain looking down to where we'd started, every obstacle and challenge felt worthwhile.


The idea of paying off $76K+ in debt in just under five years on a rather limited budget is, to say the least, just as daunting. If we focus on how far we have to go and how many tens of thousands of dollars we have to repay, it seems almost impossible. But we're taking the same mindset as we do when we set off on a long hike: set the destination, make a plan for getting there, and then make progress one simple step (or one simple dollar) at a time.

The debt repayment plan we're using is the much-touted Debt Snowball method. For those unfamiliar with the concept, a Debt Snowball is when you pay off a series of debts in an order dictated by their balances and interest rates. When one debt gets paid off, you don't take the money that you used to apply to that payment and spend it on vacations or sushi or snow cones (I don't know why sushi and snow cones came to mind). Instead, you roll that money into the remaining debt until one day - if you're reeeeeeaaaallllly committed and stick to the plan - voila! Debt eliminated.

We allocate $1600 in our monthly budget for repayment of the following six debts, which I've outlined in the table below in the order that we will pay them off:


Debt
Monthly Payment
Current Balance
Interest Rate
Car Loan
$300
$1784
<6%
Credit Card #1
$150
$1553
14.99%
Credit Card #2
$275
$9667
15.74%
Credit Card #3
$280
$11067
14.51%
Student Loan #1
$202
$11608
7.00%
Student Loan #2
$393
$41436
7.25%

The car loan (which I didn't originally include in our debt calculation, but then figured I should) will be paid off by the end of this year, at which point we hope to apply that freed-up $300 to Credit Card #1 (a total payment of $450 a month). Once Credit Card #1 is paid off, we'll take that $450 and apply it, along with the original $275 monthly payment, to Credit Card #2. And so on.

It's going to feel like slow going at first, but once we're able to throw more than $700 a month at our highest-interest rate credit card, and once we see the balance moving downward at a fairly expeditious pace, I'm convinced we'll be inspired to keep plugging along.

That's the plan, but we'll see if adjustments are needed. With Fortysomething starting a new job later this month, our income will decrease somewhat. Though we hope not to, we may need to stash some of the $300 car payment cash in savings, thereby slowing our debt repayment. We'll have to play it by ear.

According to the calculations we made at What's the Cost, it will take us a whopping 59 months - just under 5 years - to pay off the full balance of our combined debt. Whew. Five years! That's going to take dedication, but I've never felt more determined to put ourselves into a better financial situation than I do right now.

I know that when we get to that point and look at how far we've come, the time, effort, and sacrifices will be worth it.

*     *     *

On another note, we're participating this month in Frugalwood's Uber Frugal Month Challenge. The accountability and encouragement are working. We've really reined it in this month: we've slashed our grocery bill and eliminated most non-essential expenses (the only exception we made was for haircuts for the Kiddo and Fortysomething; I can cut my *own* hair, but I don't know the first thing about cutting a guy's hair). I can't wait to tally our total savings at the end of the month and share it here.

Disease Called Debt

12 comments:

  1. Oh ya.... we are like in the same predicament. And we have the same auto loan Pay of Goal. Race you! But I would get a handicap because I am one income. ;-) Oh wait, just saw the balance. You will have that paid off in no time.

    I like your back story, future paragraph and that you're veggie (I am not, but am very high plant based). That is great both of you are on this goal together. And I love What's the Cost.

    Following. You all have this! Charge to Debt $0.

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    1. Thanks! Following you as well! We've got this. While I don't *want* people to be in the same boat we're in, it's nice that there are others who understand and who have similar goals.

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  2. You've got your destination, you've got your plan, and you're on your way! There will be times when those 59 months seem like an eternity, and other times when they fly by, but either way, I'm sure you'll get there.

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    1. Thank you, Gary! I appreciate that. Yes, it's going to be a long road... I think we're *finally* at the point where long-term stability sounds more appealing than instant gratification.

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  3. That's one plan. Another would be to transfer the balance of cc #2 to an interest free card, usually interest free for 6 months, and hammer the hell out of it. Save yourself months of payments. But I guess the important thing is that you HAVE a plan. Good luck.

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    1. Thank you! That's a great idea. Unfortunately, we don't have the funds at this point to pay off CC#2 in that short of a time frame. We'd really need a higher income in order to make that fly. I'm in the process of researching viable side hustles, though, so that could change in a few months. And I *could* see us taking this approach when we're paying off CC#3.

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    2. I'm sure you could do it on cc #1. I believe you can get credit cards frozen if you're in financial trouble, which you are, and you don't get charged further interest while you're paying them off. Look, I get the snowball method - there's a feel good result that makes you keep paying debt and not get discouraged. BUT. If you pay $120 to your debt and get charged $100 interest in the same time frame, you're really only bettering your situation by $20. The next month your might be better off by $20.50. You've paid hundreds but those hundreds have been devalued by your methodology. Every single dollar you have represents a piece of your life, that you sold for money. You HAVE to make those dollars work harder for you. It's AMAZING that you've faced this debt and that you have a plan. You're already a thousand times better off than many. BUT. Work smarter, not harder, don't they say? Have you considered seeing a budget adviser? Someone who knows all these hacks and tricks and can structure things to make this as small a mountain as possible? They're not just for poor folk avoiding bankruptcy!

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    3. Thanks so much for this great advice! We'll definitely use it.

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  4. Good luck! At least you have a plan on how to attack the debt now. Good luck climbing your new mountain!

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    1. Thanks so much! I appreciate this.

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  5. I love the determination. You've got a plan, which is more than many people in your predicament have. I know this may feel like holding a spoon staring down the mountain you've got to dig through, but when all you've got is a spoon...

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    Replies
    1. Thanks! It also helps to know that if we persist, we'll be out of debt in five years. That in itself seems incredible to me. Five years isn't that long (it used to seem like a long time, but after having a child and watching time fly... that's changed).

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