Monday, November 12, 2007

Where Am I Going? – Part II: My Plan of Attack

In my crusade to pay off all of my debt, I’m combining basic strategies I’ve learned from PF blogs, Dave Ramsey, and Suze Orman into a plan that will work for my situation.

I’ve already got a small emergency fund ($400) and I’m contributing $25 a month to it indefinitely. This is a pretty small fund, but I’m very healthy, my car is in good condition, and I rent. Murphy can certainly come knocking on anyone’s door, including mine, but these things make it pretty unlikely I’ll have an emergency that my insurance and a few hundred dollars can’t solve.

My debt snowball is currently at a solid $250 a month, but I’ve been able to get it above $300 most months through alternative income.

First on the endangered debts list is the AES student loan. Of the debts with an interest rate, this one is both the smallest amount and the highest rate. It’s also the company that I despise the most because they’ve been difficult to work with in the past. I’ll be thrilled to rid myself of this one.

Next up is the US Bank credit card. This card is currently at 1.9% interest, but the rate expires in September of 2008, so I want to eliminate it before then.

After that I’ll pay off The Bank of My Friends. This is a small debt that’s technically at 0% interest because I sort of borrowed it from myself. As soon as the credit card debt is gone, I’ll knock this out with my next snowball payment.

At this point my parents’ patience will finally be paid (literally) off. They’ve been incredibly nice about the money they lent me; they aren’t charging interest and they’re letting me stop payments until the credit card is eliminated. This is the debt I’ll feel the most satisfied about paying off.

During the course of paying down the previous three debts, I’ll have been paying the minimums on my car loan and the Chase credit card, which was an eighteen-months-same-as-cash LCD TV purchase. The Chase debt will get eliminated by the time I write my last check to The Bank of Mom & Dad, and the car loan will be gone within a month or two after that.

At this point, which is about a year and a half away, my debt snowball will be at least $600 a month and the only thing left will be my two monstrous student loans. The private loan has a higher variable interest rate, so I’ll attack it first and have it gone in about three or three and a half years (five years from now).

Depending on what my job/salary situation is at that time, I’ll probably back off on the debt repayment slightly so that I can split my focus a little. I’ll use half of the snowball, which will be upwards of $1000 at this point, to pay down the federal student loan. I’ll use the other half to save a larger emergency fund, contribute to my 401(k), save for a car, and save for a down payment on a home (in that order). There’s a long road ahead before I get to that point, however, so for right now I’m taking it one step at a time.

I’m planning on being debt free except for the federal student loan in five years, and debt free except for the mortgage in twelve years. I can practically feel the weight lifting off me already, and I know it will feel even better when I actually (finally!) get there.

This post is part of my Financial Revolution Series, which is my personal financial story. Each post gives a piece of the story, detailing how I got into debt and how I turned things around.

Next Time on TVG&M: …To Sum Up

1 comment:

Matt and Carol said...

okay - I haven't posted the last couple of days because the little guy is in the hospital [I could go back and comment on them to keep my perfect record ;-)]. Once again - I am so proud of you. I know what you mean about that weight lifting off of you. It's an incredible feeling!
C