Becoming Debt Free

2013-03-21

Update

It’s been too long since writing here.

I was building momentum. It felt incredible. I had a $1500 emergency fund, and $100 in what I call Getting Ahead savings (money left over from budgeted items, that can be used for any unexpected expenses.)

I took $500 from the emergency fund and bought myself some IKEA furniture. I hadn’t had a dresser in five-and-a-half years, nor a desk chair in one-and-a-half years. I also bought two nightstands and two lamps, so my girlfriend and I have a place to put things.

The room feels more like a home now, especially when compared to last year, when I slept on an air mattress, and used plastic totes to both store my clothes and serve as a computer desk.

It wasn’t an emergency, but I think even Dave Ramsey could get behind buying some basic furniture.

The Getting Ahead savings turned out to be a better in theory than practice. I found it would build up with $50 or $60, and I’d just use it to buy fast food. It wasn’t getting me ahead. So I decided to abandon that idea. Any excess budgeted money will either stay in the budgeted areas (always good to have a little extra for utilities,) or it will be moved to one of my savings for the trips I’m taking this year.

There are three trips left: Florida in June to visit my girlfriend’s mom, Pennsylvania in July for a wedding, and Colorado in December for my brother’s wedding. The savings is a little strange - I’m going to save the budgeted amount for Florida, then save enough to buy a plane ticket to Colorado, then save for the Pennsylvania wedding, then save the rest of the budgeted amount for Colorado.

The debt snowball has been put on hold for this year because of these trips. I’m okay with that. Last year was long and tough and I’m not going to say a break is deserved, but I’m not going to beat myself up over it. I’m still making more-than-minimum payments and on-track to meet my goals for this year.

A few weeks ago, I went through the process to consolidate my student loans. I was going to last July, but I started to worry what consolidation might do to my mindset. Would I be less encouraged to pay them off quickly, with the new, lower monthly payment? Will I pay more interest, and is that cost worth it?

The consolidated loan adds ten years to the repayment period, and doubles the amount of interest paid. But that assumes I pay the new, lower minimum payment. Adding the consolidated loan into my debt snowball will result in nearly identical interest payments and payoff date (give or take a couple hundred dollars and one or two months.)

This will allow me to pay off the student loans my mom took out for me a little bit quicker than I could otherwise.

Speaking of paying things off more quickly, I’ve been toying with the idea of a second job for awhile, but don’t have any idea what I might want to do. Another retail job would be easy, but likely not fulfilling. Jobs I may find interesting would likely require I leave my current job, which I’d really hate to do because I really love my job now. All I know is, $350 more a month would cut my debt repayment by three years.

Debt is such a scourge, and it has made my life worse than it needs to be. I think a lot about my debt-free list. I want a comfortable savings cushion, and to start saving for a home and maybe a car and retirement. I don’t want to think about how going to the doctor messes up my budget. I want to be able to travel and see my family whenever I want. I want to feel empowered to make the right decisions for me and my life, and not worry as much about social and professional implications.

So consolidated loans. And furniture. And a few trips. This is 2013. It’s comfortable, less frantic than 2011 and 2012. It feels nice. Thinking about a second job and my debt-free list make me both hopeful and anxious, so maybe it’s best not to. In the meantime, I’m doing alright.

2013-03-07

I don’t understand.

I don’t understand how someone who makes similar money to me and has similar big bills (rent, student loans) can’t make ends meet.

I don’t understand how someone who makes $120,000 per year can only manage to pay $20,000 per year on their debt. (I make less than a third of that, and pay about $10,000 per year on debt.)

I just can’t wrap my head around it.

2013-01-22

Momentum

Well, fifteen days later, my Emergency Fund is $1300, which is $300 beyond my goal. I received $300 in unexpected income, and figured it made sense to just put it right into savings.

Being so close to $1500, I’m not going to wait until June to get there. I’m going to put my income tax refund into my Emergency Fund, and try to be there by the end of February. I can then focus on saving for the few small trips with the girlfriend and my brother’s wedding.

And there are other things on the horizon for me, to help me build savings and get to a place I feel comfortable enough to attack my student loans with the same intensity I attacked my consumer debt. The momentum is building.

2013-01-06

Failure and Momentum

I have spent the last week or so preparing to file my income tax return, and today I went through my bank statements to see if I need to wait for a 1099-INT.

The good news: my savings account (which is my emergency fund) only earned $2.53 in interest, so I won’t need to wait for a 1099 before I file.

The bad news: In the last thirteen months, I have not yet ended a month with $1000 in my account. The highest month-end balance was $900, and the lowest was $.04. Four freakin’ cents.

Sure, in the middle of several months I had $1000. And for most of those thirteen months, my ending balance was $700 or more. But the emergency fund is supposed to be $1000, and I simply didn’t have emergencies every month for the last year.

So I haven’t been as good as I would like to be. But there are positives.

It’s the beginning of a new year, I’ve seen the mistakes I’ve made, and I am ready to meet my financial goals.

I will have at least $900 in my emergency fund in twelve days. If I’m careful and deliberate, I may have it back to $1000.

A small tax refund will either help me finish the emergency fund, or go to my savings funds for a few small trips the girlfriend and I have planned.

If the momentum is still going, I will start putting more money into my emergency fund - the goal is $1500 by the end of June.

I could make a lot of excuses for why my emergency fund hasn’t consistently been $1000 for the last year: a law firm threatened to sue me over toll road bills; I moved, expecting to save $200 a month, but couldn’t stand the squalor and lost $500 in the process; I got lazy with the budget and used the emergency fund to augment my income.

But I can’t get too caught up on all of that. I need to look forward, and I see not just a chance to be better, but the perfect conditions to become better. Now I just have to be it.

2013-01-01

This year

This time last year, I had $8500 in credit cards and personal loans, and over $60,000 in student loans. Twelve months later, and there are no more credit cards or personal loans, and right around $55,000 in student loans. I worked very hard in 2012 to pay down my debt.

Looking at 2013, and my debt-payoff is a little more modest:

Student loans: My student loan debt should be about $49,500. I’ll pay about $8500, but only about $5700 will go towards principal.

Savings: I would like to save $2500, bringing my Emergency Fund to $2750.

Trips: The girlfriend and I are planning two trips over the next six months. I expect they’ll total $700.

Trip for Brother’s wedding: I might be way off the mark here, but I am budgeting $1000 for this trip, just to be safe.

It’s not the extreme I went to in 2012. Things will certainly be more comfortable, even if only slightly more so.

—————

UPDATE: After writing this, I remembered the payroll tax cut expired, and there hasn’t been talk of renewing it. That means my take-home pay will be reduced by about $75 per month, or $900 for the year. Which means I probably won’t be able to save as much - maybe $1600, instead of $2500? We’ll see how it shakes out, but it now looks like my goals for 2013 were too optimistic.

And while I start cutting $900 from my savings plan, the GOP is trying to figure out a way to make millionaires pay less in taxes. That’s a little aggravating.

2012-12-27

Student Loan Interest Deduction

For the last several months, my debt repayment has been pretty boring. I’m spending more than I did before I paid off my credit cards. A lot of it is food and going out which is not budgeted and thus a problem, and some of it is the date budget with my girlfriend, which is budgeted and thus not a problem.

The only marginally-exciting thing has been about student loans. In June, I set a goal to have my student loan debt to under $54,000. I have since paid $3350, which puts my current student loan balance at about $55,000. I’m definitely going to meet my goal.

A few days ago, I started thinking about my tax return this year, and realized since my loans have come out of deferment and I’ve been paying them, I will be able to take the Student Loan Interest Deduction for 2012. I started looking at the instructions, and learned the deduction is either the amount of interest paid during the year or $2500, whichever is less.

My loans just entered repayment three months ago, and the entirety of my payments go towards accrued interest. I expect this to be the case for most if not all of 2013 as well. For 2012, I’ve paid $1070 in interest, and will pay over $4000 for 2013.

Because my interest payments for 2013 will far exceed the $2500 deduction, and I’m not anywhere near that limit for 2012, I decided to make an extra payment this year and have a larger deduction. By making the payment a few days earlier than planned, my tax refund will be about $40 more than expected.

Even though it says it right in the name, I hoped the Student Loan Interest Deduction was a credit. The deduction is nice, but it will probably net me about a $200 refund. A credit would give me nearly $1400.

Oh well. Something is better than nothing.

2012-10-16

A trillion dollars a year for a decade

I’m firmly convinced the most important political issue for the next decade will be the national debt. Democrats are eager to spend money - Obama has added $6 trillion to the national debt in just four years. Republicans are MORE eager to spend money - Bush added $4 trillion to the debt, and Romney wants to add a $5 trillion tax cut and increase military spending.

Our future, it seems, is between spending more money than we take in (Obama), or spending A LOT more money than we take in (Romney).

Of course, there is talk of cutting back. Romney and Republicans are talking about de-funding things like NPR, the NEA, and Planned Parenthood, but at less than a billion dollars combined annually, it’s peanuts.

What needs cut? The military. At $650b annually, it accounts for nearly 20 percent of all spending. But no politician would dare propose such a thing. Hell, there are 2000 tanks sitting idle in California, the Pentagon says it has no use for them and already have more tanks than they need, but Congress wants to fund the building of MORE tanks.

My friends say, the government isn’t like a household. It isn’t like a business. Governments need to be able to deficit spend in bad economic times. I get that. My question to them is, how long can bad times go on, and how much deficit spending can we do, before we say enough is enough?

Is a decade long enough? Is $10 trillion dollars enough debt? Because it’s been that long, and it’s cost that much.

I can’t in good conscience vote for either candidate this election. They both have failed to acknowledge the seriousness of our spending and our debt, and voting for the one who would spend more (instead of the one who would spend A LOT more) would be a vote against my conscience and what I believe to be right.

(To those who might suggest third-party candidates: they tend to be kooks, and more than that, we have a two-party system. Third-party candidates don’t stand a chance in national politics.)

George Carlin adds a few points about voting, starting at about 1:40….

2012-09-26

Something worthwhile

Today, my final payment on my last credit card cleared my account. I am free of consumer debt.

I have paid $13,500, between a car loan, a personal loan, two credit cards, and three collections accounts.

It hasn’t been easy, and it hasn’t been fun.

More than half of my income - between 50 and 55 percent, depending on the month - has gone towards debt repayment. I’ve lived cheaply. A year after moving to Maryland, and my only furniture is a bed and a simple desk - my clothes get folded and put into a large plastic tote. I’ve gone out some, but I tried keeping it to happy hours, when I could get a couple beers and some wings and walk out the door for $10. I haven’t spent as much time with my friends as I would have liked.

During the winter, we kept our heat at 65 degrees, although my room would get down to 60 degrees at night. In the summer, we kept our AC at 85 degrees, although my room would get up to 90 degrees during the day.

I learned a lot about getting around. Shoes are part of my transportation budget now. The Metro is a pain in the ass on the weekends, but most weekdays it’s fine. ZipCar is nice, but because they charge by the hour, it’s not a good option for day-long outings. Taxis are convenient, but too expensive to use regularly. The cost of taking a taxi to see my friends is about $35, which is about the cost of four hours with a ZipCar, or about five days of getting to and from work on the Metro. Too expensive.

I hate peanut butter and jelly sandwiches now. I still eat them, because they are cheap, but I hate them. When I pull a PB&J out of my locker at lunch time, I unintentionally scowl at it. I can feel my pulse quicken. I hate those goddamned sandwiches.

I love refried bean burritos, though. A can of refried beans, with chopped jalapeños, then mashed to a paste with a potato masher, then a dollop of sour cream and cheddar cheese stirred in. Put it on a tortilla with more cheese, more sour cream, and Chalula sauce… That’s good eats.

Comfort has become an afterthought, at best. I didn’t move to Maryland to be comfortable - I came here to pay off debt. Walking in the snow, having to say no to friends, wearing clothes that don’t fit so well and shoes with holes in them… The less I spend on nice things, the more I can put towards debt repayment.

I started my Total Money Makeover because of Kath Brandon. One night after work we had a drink, and she told me what a difference it made for her life, how her parents were struggling with debt in retirement, and she didn’t want that for herself. And she told me about Dave Ramsey. At the time, it sounded nice, but wasn’t practical - I was making $900 a month, with $1200 in minimum payments. But she encouraged me to read his book. She started talking about “wants” versus “needs”. She talked to me about her money and financial decisions.

When I got a promotion, I started paying a little more towards each bill, but eight months later I hadn’t made meaningful progress. I decided to listen to Ramsey’s podcast. His words often seemed harsh, but his message was clear and simple: your eyes are too big, and your wallet is too small. After listening to his podcast for two weeks, I thought, “Well, my way hasn’t worked, let me try this.” And I wrote out a debt snowball plan.

Fifteen months later, I have no consumer debt. It hasn’t been fun, it hasn’t been easy, and it frequently hasn’t been comfortable. But it has been worthwhile.

2012-09-17

Balancing zero

On Monday, September 10, my credit card balances totaled $1885.63

Today, Monday, September 17, my credit card balances total $520.63

By Monday, October 1, my credit card balances will total $0.

Boom.

2012-09-16

Fifty-six thousand, six hundred twelve dollars and seventy-four cents.

The student loans have entered repayment.

2012-09-11

Lifestyle

This appeared at the end of a New York Times article Sunday:

A marketing coordinator for a law firm, she filed for bankruptcy last year because she could not afford her mortgage, car payment and student loans. She lost the house, but still owes $115,000 in student loans, both private and federal. Under income-based repayment, she pays $325 a month on her federal loans; she also pays $250 a month on her private loans.

“I will never have my head above water,” Ms. Franke said.

I sympathize with high student loan payments - my loan payment minimum (under standard repayment) is $680 per month, and the balance is about $58,000. It’s a lot of money. But as the weight of debt settled on my shoulders, I decided to do something about it. I moved to a place with public transportation and sold my car, even though it was just eight months from being paid off. I moved into a house with strangers, to pay as little as possible for a roof over my head.

This young woman, with $115,000 in student loans, thought it would be wise to buy a home and a car.

She feels like she’ll never be able to get ahead. I remember that feeling, too. But she has a choice: living a lifestyle she feels she deserves or is entitled to, or finding financial freedom.

It would be nice to have a TV, an XBox, a simple desk and chair to use when I’m on my computer. It would be nice to have better clothes and more comfortable shoes, more AC in the summer and more heat in the winter, more dinners and drinks with friends on Friday nights. I would love to have my own apartment.

But it all costs money. I can’t afford to live alone, given my current debt payments. I could afford to do everything else, but it would wipe out more than half of my discretionary income. How much better off would Ms. Franke be if she was renting a place with a friend, or a couple friends? And if she had bought an inexpensive car, rather than finance a car she couldn’t afford?

When people feel they deserve something, they find a way to get it, even if they can’t truly afford it. That’s the catch, TRULY able to afford something. If in one or two or three years, if someone’s home gets foreclosed on or their car gets repossessed, they couldn’t TRULY afford it. You have to be able to look down the road a ways, plan for the worst and hope for the best.

2012-09-07

Two years and $550 apart…

I’ve had a cough for somewhere close to three weeks. I haven’t thought much about it - I’ve just been waiting for it to get better. Well, surprise of surprises, it ended up getting worse, to the point I felt like I was drowning when I took a deep breath.

So, I went to an urgent care provider (I don’t have a primary care physician.) To see the doctor, I had to pay a $20 co-pay. The doctor wrote me two prescriptions, for prednisone and azithromycin, and when I went to the pharmacy, I paid $10 for both. $30 to get over a bout of bronchitis.

Thank god for health insurance.

In August two years ago, I had a bad cough, with some dizziness and fatigue, that had persisted for weeks. A manager sent me home early one day - Jill was insistent I go see a doctor. So I stopped by an Urgent Care on my way home.

Charges for the visit totaled $550 - being broke, I asked them to bill me. The doctor prescribed prednisone and azithromycin, and when I went to the pharmacy, the cost was $85. I only filled the azithromycin, for $55, as the doctor said it was more important than the prednisone.

I ended up not being able to pay the doctor bill, I let it go to collections, and it all caught up to me last November. I paid $580 to pay the account, in full.

Even with the cost of the Metro and a ZipCar to get to the doctor, and a post-visit Chick-Fil-A run, my unexpected out-of-pocket cost today was about $80. And it’s all paid. (It sucks, because I paid for it with my new Getting Ahead savings, but I don’t think it will set my debt snowball back. It just takes my little extra savings to zero.)

Thank god for my health insurance.

2012-09-01

Food

Fifty dollars. Thirteen days. We’ll see how this goes.

Last night I warmed up a can of refried beans, added diced jalapeños and cubed cheese, used a potato masher to smooth it out, added a dollop of sour cream, and put it on a tortilla. Dinner. And there’s plenty of leftovers.

For lunch today, I’m eating a peanut butter and jelly sandwich, with a package of peanut butter crackers, two granola bars, and a banana. I estimate the cost of lunch to be about $3.50.

I’m just gonna go out on a limb and say the next two weeks are gonna be pretty lame.

2012-08-30

Debt-free list

This pay period, I am paying $575 towards my credit cards. Over half of my paycheck is going to pay off debt.

Does it feel good? Sure. More importantly, it’s keeping me focused on WHY I’m becoming debt-free - because if I didn’t have this mountain of debt, I could do a lot of nice things.

In two weeks, I could fly home to Colorado for a weekend.

If I saved for a month, I could buy a new computer.

If I saved for six months, I could take a trip overseas.

If I saved for twelve months, I could pay cash for a $9,000 car, insure it for a year and buy gas for a year.

If I saved for five years, I could do all of the above and have nearly $50,000 for a down payment on a home.

This list makes me feel like the next five years are lost. I suppose they are. This is the trouble with student loans and credit cards and personal loans and car loans. But this list also makes me feel so hopeful for the following five years. God knows what my life will look like when I’m debt-free, but I’m expecting to start enjoying life a lot more.

2012-08-24

Some people make a million dollars a year. I don’t. I’m not angry about that. It’s not unfair. So you can spend the next few years of your life being angry and upset, or you can get over it and find things to be happy about.

— Me, to a 12-year old girl after she got upset with her older sister as they were buying an iPad for their mom. The girl said it wasn’t fair because she didn’t have an iPad but her friends did, and her older sister asked me if I could say something to her.