Our Bad Debt: May 2008
Change of Debt Reduction Strategy
On your way to becoming bad debt free, don’t be afraid to change your strategy every now and again. Life changes all the time, so be ready and flexible to adjust your strategy for getting rid of your debt, based on the most current set of circumstances.
Take our debt for example…If you’ve noticed lately, I removed the debt reduction single bar graph in the side bar and replaced it with two bar graphs. We didn’t go out and buy a second car, we just decided to change the debt that we are aggressively paying down and I’m now listing both debts.
Instead of paying off the SUV loan faster than the terms require, we’ve begun paying off our car loan faster. We already made our first huge payment. I’ve just waited a bit to you update you.
Why The Change?
You might be saying, “Wait, PT, I thought the SUV had the highest interest rate?” Yes, it does (by 1%). But there’s more to life than interest rates, right? The reason we’re switching to paying off the car faster:
1. This Car’s The One. We now know we’re going to use the car for at least 2 more years. Mrs. PT is going to Graduate School and will be tripling her commute everyday. This smaller car will come in handy for the commute. Since we know this is the car we’re definitely keeping for a while, we’re opting to pay it off first.
2. Bigger Payment, Less Income. This car payment is the biggest and will free up extra money in our budget. Since Mrs. PT is going to school next year, we won’t be making the same income. It will be nice to have an extra $350+ in the budget.
3. The SUV is a Gas Guzzler. With gas prices continuing to rise, I just don’t know if it’s worth it to keep this beast. For me to really enjoy it, I’d need to put another $2,000 into fixing it up. It’s a ‘99 but has only 60,000 miles on it. With this SUV, my heart is saying “yes”, but my head has always said “no”. Until I can decide on what to do with this thing, I’m shifting my big payments to the car note.
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As always, thanks for putting up with these personal updates. It’s great motivation for me. Hopefully you’re able to find a little inspiration as well. Have you changed your debt reduction strategy lately based on changing circumstances? Share your story below in the comments.
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In our financial peace university class tonight one thing stuck in my mind – Dave Ramsey kept yelling – “SELL THE CAR!” (or SUV as the case may be). My vote is – sell the SUV and buy a cheaper car with the proceeds. Use the balance to pay down debt on the other car if there’s anything left over!
I know, SUVs are fun..
PT, with graduate school coming up, make sure you have a savings cushion built. Debt stinks, but instead of going hell-bent to pay them off, use the ING automatic bill pay. For each vehicle, round up the payment to the next even amount – i.e., if it’s $216, set ING to pay $250. After a few months, the required payment will slowly fall, but by still paying the same amount the extra will go to principle. Do it for both vehicles, and you can build an “O-Crap” fund at the same time.
Looks like you are making real good progress on that car. Keep it up. Once you pay it off, make sure you keep it for a while and don’t just run out and buy another!
One thing that tied me up when I started to attack my debt was figuring out what to pay first. This one has high interest. That one has a high amount. The best thing to do is just start somewhere and knock it out! Sounds like you have a good plan.
Maybe you should trade the SUV in for a good used compact that will save in gas?
@Pete – Whoa. I can tell you are fired up from your classes. I’ll list it on craigslist at the very top end and see if I get any bites.
@J – Thanks for your comments. That’s an excellent point and strategy for someone with no cushion already. You should write up a guest post on paying down debt and saving at the same time.
We’re holding a nice savings cushion already, and luckily Mrs. PT’s school will be paid for, so we’re looking to make a few big chunk payments like we’ve already done on the car loan.
@david – Thanks. Yeah, we plan on keeping one of the vehicles for a while after their paid off….likely the car. When we have a kid is when we’ll most likely purchase another. Mrs. PT deserves a nice, new ride. Plus, when she’s back working, and with a nice down payment, financed at 0%, it would fit nicely into our financial situation.
@ffb – I’ve thought about that and like I said in the post, my heart is really into this suv…it’s a 99 2-door tahoe…the last of it’s breed. Luckily my commute is really short and so I don’t feel it as much.