Debt-Free Zone

Is My Debt Payoff Too Aggressive? + Debt Snowball Progress for August 2015

Slaying my credit card debt is one of my top goals. I plan to be well done before my 30th birthday. What a great gift, right?

I discussed this with a friend as we were kayaking, and he thought that was a great goal. Then he told me that he had discussed maxing out his Roth IRA contribution with his girlfriend and encouraged her to do the same this year. Apparently, his girlfriend’s parents offer a matching contribution.

“Must be nice,” I thought.

I wish my parents were in a position of wealth and power to offer those types of incentives for me and my brothers. It made me think about the legacy I want to leave and why it’s important to stop paying for past mistakes (credit card debt) as soon as possible, so I can start investing more money for the future.

During my mid-year checkup with my financial planner, he grew concerned at my aggressive debt payoff strategy. I’m paying $350 more than the minimum on those cards. He’d prefer that I shuffle over more money into the Roth IRA. Who knows how long the government will keep that option available?

I definitely here what he’s saying. Plus, I’m starting to feel the pinch. Medical bills are rolling in from my surgery 10 weeks ago, and it seems as if my car, Penny, is guzzling up a good amount of gas. My small pot of discretionary income seems to be shrinking mightily, so I’ve started taking out a weekly allowance in cash to live on. Living on cash again is an eye-opener!

But I remain steadfast in my resolve because it will only take four months to get rid of Credit Card No. 2. Then just another 6 months or so to get rid of the third and final card.

I’ve started to say money affirmations daily to keep my spirits up and stay in a mindset of abundance—not lack. Things are going to turn around. I’m upward bound! (Oh, that rhymed!)

Debt Snowball Progress for August 2015

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Debt Snowball Progress for July 2015

The snowball is getting bigger! This month, I rolled over the payment from Credit Cart No.1 into Credit Card No. 2. I also added a bit more to the amount each month so that I’m not paying a small bill in December.

It was so odd and disheartening to see such a large amount of money go to one creditor. I’m excited for the day when that money will come to me and no one else. Those dollars will go toward retirement, other investments, savings or big purchases I’ve longed to make.

I can’t even remember what I purchased with the credit card. Isn’t that a shame! Whatever I bought probably wasn’t worth the aggravation it’s giving me now. I’ll remember this feeling so I won’t go into more credit card debt when I break free. By this time next year, I will be free. God-willing, I WILL BE FREE.

Debt Snowball Progress July 2015

How to Spend Guilt-Free While Not Living Debt-Free (Yet)

I subscribe to the EZ Bugdet or Anti-Budget from Dave Weliver’s MoneyUnder30.com. (I love that site. Don’t you?)

This spending plan is pretty simple. Dave instructs you to:

  • Total your fixed monthly expenses (your Nut).
  • Figure out your net (take-home) pay, per month.
  • Subtract your Nut from your take-home pay.
  • The remainder is what’s left to spend. On whatever you want—food, gas, beer and travel. For the purpose of this post, I’ll call this amount “the leftovers.”

ez-budget-napkin-money-under-30

The plan is supposed to help you take care of the most important stuff through automated payments, so you can spend the remainder—no matter how large or small—guilt-free.

My fixed expenses include the basics (rent, utilities, cell phone bill, etc.), and the extras:

  • savings
  • premiums for extra insurance not covered by my employer’s plan
  • Roth IRA contributions
  • aggressive debt repayment

The amount I spend toward the debt payoff is about $350 more than the combined minimum payments of $60. I’m sacrificing a large chunk of take-home pay each month to the debt snowball. So why do I feel guilty if I spend the leftovers on something cool?! I guess I’m fighting the felling that I should be doing more.

After I paid off a credit card in June, I took advantage of a Groupon sale on top of the 50-percent discount to buy a cooking class I’ve been coveting for months. The class was a reward. And it helps me achieve another goal of constant self-improvement. I paid $79.20 for a 6-hour cooking boot camp valued at $199. That’s 60-percent off!

I paid for the purchase outright. But I felt guilty! Why couldn’t I just put that money toward the next credit card?!

Shouldn’t I go ahead and pay off that medical bill?

Shouldn’t it go toward my savings?
I’ve read so many of those posts with outrageous headlines, like “How we paid off $1 million dollars in debt in a week!” Shouldn’t I cut every corner like they did?

No. Personal finances are personal.

I should do what’s right for me. I don’t want to put every single penny into debt repayment because I want to have some fun, too. And that’s OK. There’s no fun in only spending the leftovers on gas, food and household items. I don’t thrive on deprivation. Also, interest isn’t accruing on the medical bills or the credit card debts because of the balance transfers.

Dave Ramsay fans are probably screaming his quote, “If you will live like no one else, later you can live like no one else.”

Yeah, yeah. But I am living like no one else. I’m not out here looking for a new apartment (which I want to do), buying new furniture (which I’ve wanted badly for two years), looking for a new car (which I’ll need pretty soon), buying new, sexy shoes (which would be nice to have), or taking a big trip (which hurts my inner globetrotter). I’m putting at least an extra $350 toward debt repayment for goodness sake!

I must deal with this guilt. I found these tips from Divine Caroline via Intent.

Tips For Dealing With Spending Without Guilt:

  1. Acknowledge your money fears, however irrational. Just like the post’s author, my irrational money fear is that if I spend a big chunk of money today on something for myself, then I’ll encounter some terrible financial misfortune that’ll cause me to regret spending money on said item. If that’s the case, then I’ll end up never spending money on anything fun. I’m not advocating for going overboard, but I must find a middle ground.
  2. Make sure your personal finances are in working order. Check! Since I’m taking care of my monthly Nut before spending on anything else, then my finances are in order. The bases are covered, so go ahead and swing for the moon.
  3. Set aside fun money that you absolutely MUST spend on yourself. I haven’t create a Fun Fund, so maybe I should do that now. I should plan to spend an allotment amount on self-care or fun.
  4. Save for big splurges ahead of time. I already save monthly for annual expenses I have to pay for, such as, renter’s insurance, professional organization fees. I should start another savings account to pay for a vacation or furniture.
  5. Give away some money to a good cause regularly. The author writes:Superstitious or not, I truly believe that giving some money to a good cause on a monthly basis makes for good money karma (and of course good life karma overall). When you are in the position of helping others in need through financial donations, you are always in a state of abundance no matter how big your paycheck is.”
  6. Be on the lookout for good deals on things you want to spend money on. I totally agree with this. Hence, my Groupon and LivingSocial obsessions.
  7. Prioritize what you want to spend money on and know what makes you happy. Right now my priorities lie in lifelong learning and self-care. So I will no longer feel guilty for buying the cooking class in June, or paying for the second part of wedding planning class, a pedicure or those classic dresses I bought on sale from one of my favorite designers at Dillard’s this month. These things make me happy and feel better about my self. They’re investments.

So, guilt, be gone!

The True Cost of Debt

debt-problemsOne of my favorite personal finance blogs is The Simple Dollar. You could spend hours on that site gaining insight from its contributors and learning from their experiences. A post on Dec. 5 reiterates the true cost of debt.

Doug Hoyes wrote:

  1. Interest eats up your budget
  2. Amortization is not always your friend
  3. Debt is a deterrent to saving
  4. Debt limits freedom of choice
  5. Debt delays retirement
  6. Debt has an unexpected life cycle
  7. Debt strains marriage

He wrote: “Simply put, debt is complicated. Yes, you will pay interest — but you will pay much more.

  • Debt grows faster than you expect.
  • Debt takes longer to pay off than you expect.
  • Debt adds risk when life throws an unexpected curveball.”

I couldn’t agree with Doug more, especially about interest eating up my budget. It has cost me to delay moving to another city or to give up trips. As a little exercise, I totaled up the interest charged on four credit cards, one of which I paid off, in 2014.

  1. Card 1 – $577.55
  2. Card 2 – $517.68
  3. Card 3 – $346.98
  4. Card 4 – $53.25

Grand total: $1,495.46.

Yep. That’s a sizable emergency fund. A great vacation to a beach locale. A nice Roth IRA deposit. ARGH!!!

The numbers don’t lie. They’re telling me that I dug myself a deep hole, and I must climb out of it ASAP.

Word of the Day: Emcumbrance

Encumbrance2The daily horoscope in the local newspaper spoke to me today. Usually, I take everything with a grain of salt because they could be used for any other sign besides Aquarius. Anyhoo, the horoscope read: “It’s time for those material possessions that don’t serve your well to be released to someone who will put them to good use. Immediately the lack of encumbrance will make you feel younger.”

Hmm…Encumbrance. It made my nose turn up as if an odor assaulted by olfactory system. Using my context clues, I was could tell it had a negative connotation.

A quick Google search showed that encumbrance means a “burden or impediment.” Synonyms include: hindrance, obstruction, obstacle, impediment, constraint, handicap, inconvenience, nuisance, disadvantage, drawback, etc.

Yep, debt is definitely an encumbrance. All of this baggage will slow down my journey to financial prosperity. I’m going to keep this image in mind. The term could also be used to define a mortgage or other charge on property or assets.

But as far as I’m concerned, my credit card debt and student loans will be known as encumbrance. I mean—who doesn’t want to get rid of that quickly?!

Should Freelance Payments Go Toward Savings or Debt Reduction?

I got a highly anticipated email today. The direct deposit from some freelance assignments in is progress.

“Amen!” I exclaimed at my cubicle. “Amen.”

I had to ask four times in the past week about these payments, so I’m glad it finally came through. Unfortunately, this money is going straight to debt repayment.

I’m going to pay off one of my credit cards with the lowest balance to attain my goal of paying it off by September. SCORE! Then the minimum payment I was making toward that card will go to the next to get the snowball rolling. (Yes, I will keep that promise to myself this time.)

But I don’t know where to put the remainder of the funds:

  • Do I replenish the $300 I took out from my emergency fund? I want to build that to $1,000 by the end of 2015.
  • Do I put that money onto the card I used during my summer shopping spree?
  • Do I put that money on the card with a hefty car repair bill on it in order to pay off that promotional purchase before the six-month period without interest expires?
  • Do I spend $80 on those music festival tickets I’ve been eyeing?
  • Do I go the mechanic to finally check out those car vibrations?

I’d actually save money in the long-term by reducing the balance on the shopping spree card. The interest rate on that is 19 percent. But my goodness, I really want to replenish my emergency fund because I feel guilty for dipping into it. Putting money back into that account would really boost my happiness in the short-term. The savings account’s interest rate is 0.25 percent. If I put that money in the emergency fund, then it could reduce the chances of me using a credit card. Hmmm…. Decisions, decisions.

This money isn’t an unexpected windfall per sé, but the many personal finance writers have different ideas for how to use this nice chunk of change. Put in savings. Splurge with 5% of it. Pay off debt with it.

Perhaps, in the future I should go ahead and allocate where my freelance money will go before I get it. That way, the decision’s already made.

Small Changes Make Big Difference

Last week, I completed the open enrollment process at work. It’s so important to really understand your work benefits. Because I had no idea that my company adds money each pay period into my HSA, I didn’t spend the five minutes necessary to fill out the single-sheet form with my HSA account info. So I missed out on $180 in my ignorant state. That’s nothing to sneeze at. That amount could have covered a couple of annual exams, at least. Oh, well. Lesson learned. I took the five minutes to fill out the form this time.

This weekend, I got a little head start on my quarterly financial review and reviewed my Financial S.M.A.R.T. goals.

  • Bad news: I still have a ton of debt, mostly from grad school loans.
  • Good news: I’m two-thirds of the way toward my emergency/Life Happens fund goal. The act of directly depositing part of my paycheck into savings in addition to putting away small windfalls has made a significant impact.
  • Discovery: Freedom from consumer debt is just 18 months away! Just 18 months! Totally doable!

I was initially afraid of the total balance of my credit cards. On my S.M.A.R.T. goals spreadsheet, I aimlessly wrote “Pay off consumer credit card debt by end of 2015.” The calculator helped me figure out that I could put just $72 more toward those balances each month, and freedom could be mine at the end of 2015. I’ll post a calendar on my fridge to keep me on track.

With all the talk of the government’s new student loan repayment plan, I decided to check out my federal loan repayment plan. I’m on the extended fixed plan. So I have up to 25 years to pay off my loan and my bill won’t change. The plan is to pay more than what’s required each month to chip away at the very, very large balance. It won’t take 25 years to pay it off. I refuse.

I basically use the exact same system to pay and keep track of bills as MoneyNing’s Travis Pizel. Certain bills are allocated to each payday. So I pay my bills on two days of the month. Those two mornings are exhilarating. Really.

A few months ago, I realized that I needed to pay my federal loan bill with the previous paycheck instead of the one I immediately get a few days before payment is due. I’d drown if I hadn’t made that small change. This plan gives me peace of mind until the next set of bills are up. I’m currently on track to make an extra payment this year, which I hope helps out with the interest accrued and eventually make a dent in the very, very large balance.