Tuesday, March 15, 2016

Debting Down

I really love that I have been so open about this debt business. What I really love are all the phone calls, comments, and questions about both how we are doing and, better, how we are doing it. In the last six days, I have spoken to five people that have said they need a better plan.

I love it. A BETTER PLAN. I like being a sounding board. I don't give advice unless asked, mostly because it is rude to assume that is what someone seeks. I don't need to know numbers- but it is amazing to hear a family say, "Thank you for putting it out there. It makes me feel better to know that we are not alone."

As a blanket response to "a better plan," it made me wonder if a debt snowball could be in your future...  {unsolicited advice coming}

Have you heard of a debt snowball?

We are fortunate (that word being used loosely) to only have one debt to pay-- student loans (two if the mortgage is on the list). The debt snowball does not apply to us, but it is a tried and true method to reduce debt and it answers some questions and responds to that statement: We Need A Better Plan. 

Step one: Get a pad and paper.
Step two: Find your biggest wine glass and get to pouring.
Step three: Repeat step two.

Make a list of the balance of every debt you have, the minimum payment, and the percentage of the interest rate. 
Next- rank these debts from smallest to largest. 
Strike a big black line through the percentage rates; that is not our worry right now. 

Here's an example: 

Item
Amount
Minimum Payment
Interest Rate
credit card
$2,500.00
$25.00
29%
car
$18,000.00
$350.00
0%
student loans
$100,000.00
$650.00
5%
house
$150,000.00
$550.00
3%

Here's how this works: Your goal is to attack the smallest debt FIRST. Forget percentages (this was hard for me). Pay the minimum on all the other debts until the smallest debt is paid off.

In the above example, there are $1,575 in minimum payments. That's $1,575 of potential fun that is lost until these notes are dissolved. Imagine what kind of fun can be had with $1,575!

Put everything you can towards the $2500 until it is paid off.

What's everything? Well... if you ate lunch at home or at a friend's house instead of going out, that's $12 saved. Slice what you can, eliminate the erroneous extra and put that towards the $2500.
Let's say we consolidate the extra being paid towards everything else and eliminate the erroneous spending and it equals $300. Pay the $300 + $25 minimum payment = $325. Once that is paid off in about 8 months, roll the $325 payment into the car debt. $350 + $350 minimum payment = $700.

See what is happening? The snowball is becoming a snowflake!

$700 + $650 = splitting the time in half that the loans will be paid. IN FREAKING HALF. Think about that. A thirty year note won't be paid off until the kids are out of college and married with kids of their own. Fifteen? Well... not quite out of high school.

That's the debt snowball. Dave Ramsay does a much better job explaining it.

An extra $10 burning a hole in your pocket? Send it to the debt. 
If you can pay $10-- why can't you pay $10.88? Or $11.23? Find your lucky number in dollars and cents and send it off.

Don't use next month's money to pay for last month's fun.

I called in a coach a few weeks ago to hash out our plan and he reminded of something I quoted not too long before from Fight Club, "We buy things we don't need to impress people we don't like with money we don't have." 

We are halfway through March-- beware the Ides of March-- and I reminded that on this day nine years ago, Husband was getting ready for "Match Day" with his peers. For almost four years, they have struggled through their anatomy classes together. They have learned minute details about microscopic things that mean nothing to me. He has relationships with these people that I will never understand because, while I was witness to the struggle- I was not in the depths of the struggle. These men and women, who are now called doctors are flung across the country. They dedicated their youth to be a servant to their patients, healing the sick and easing the pain.

Now, they are further dedicating a portion of their very hard earned salary to pay back what was spent on their education; an education they use to better the world. I remind myself constantly that if he did not have the loans, we would not have the lifestyle that we have- nor the lifestyle that we anticipate enjoying once they are gone.

Our plan is not perfect. It is wrought with second guessing ourselves and forward motion. In the interim, I focus on our key word REDUCTION! and remind myself that this is temporary. Just like medical school, this time will pass and we will look back with laughter at the things we did to see the finish line.

The Ides of March. Let the next Ides of March be an Ides of Student Loan- halfway will be beautiful.

REDUCTION!


Sunday, March 6, 2016

Eat, Pray, Shoot

Husband and I went to a fundraiser for Parochial yesterday. Sometimes, pictures tell stories better than words. This is one of those times...