We are currently debt free except for the mortgage.
We still use credit cards, but we pay them off completely at the end of the month.
I can tell you that it’s a wonderful feeling that debt is no longer a major factor in our life. We’ve dealt with credit cards, student loans, car loans, and more. But we set debt reduction goals each year for the past several years to help motivate us to get rid of this debt.
A solid debt reduction plan is key if you want to tackle your debt like we did.
To follow our debt reduction efforts with the mortgage in the future, just pay attention to our net worth updates each month.
Debt Reduction Goals for 2009
Payoff the auto loan or get a newer vehicle and loan with a more reasonable interest rate DONE
Stretch Goal: Begin making double payments on our student loans DONE
This could be the first year that I don’t have a debt with and interest rate above 4%, excluding the mortgage. Would be nice.
Debt Reduction Goals for 2008
Aggressively pay off any auto loan with interest higher than 5% – We’ve done well here this year. We paid off one car loan already (a car that I love and would love to keep a long time) and we’re getting closer with the other (my old two-door SUV). The issue now is do we pay off this loan and keep the SUV, OR sell it and get a new SUV (with 4 doors) which we’ll need next year for the new baby? I’ll be sharing a guest post from loyal reader J in the coming days that may help us make this decision. We almost purchased a new SUV last month…with all the 0% financing deals available it’s hard to pass this up.
Continue paying off credit card expenses monthly – We’ve been blessed to not have to go to the credit cards out of necessity much this year. When we did, we were disciplined enough to pay them off within a month. By the way, if you can do this, this is how you should treat high-interest debt…get rid of it monthly.
Pay off student loan and mortgage debt using the minimum payments – Smooth sailing here. We’re not at a point where we’re ready to tackle these debts. The student loans (my all-time, favorite debt) would come first, but right now we just have too many other financial goals that take precedence. My debt philosophy has us in an extremely comfortable place before we take these on.
Car Loan Progress in 2008
As you can see in the 2008 update above, we made good progress with our car loans. I did a series of update posts detailing the progress. I’ve listed them all below.
Debt Reduction Bar Graph Added to PT Money
If you look to your
right you will see my shiny new debt reduction bar chart. It’s currently displaying the auto loan debt for my SUV, along with how much I’ve paid off. This is the debt currently under-fire for Mrs. PT and I. I mentioned last week that our big spending was over and that it was time to focus all efforts on getting rid of our auto loan debt. So here it is, on the PT Money sidebar for all to see.
How I Made the Debt Reduction Bar Graph
As a result of some of our former spending, we have a Macbook Pro. Once I was able to pry it away from Mrs. PT, I used Apple’s iWork: Numbers software to build a very simple spreadsheet and graph. Numbers is just like excel with better graphs. I’m still playing around with the font and colors and hope to get a more readable version up soon and will update it every time a payment is made. The only two numbers I needed for the graph were total payments made since 1/1/08 and total auto loan debt at 1/1/08 less total payments made. I think the actual graph I used is called “split bar graph”. Don’t hold me to that.
The Power of Visual Reminders
One of the reason’s for starting PT Money was to motivate myself to achieve greater success with my personal finances. I think it’s fitting that debt reduction, which is a big goal of mine, is front and center on the site. I look at Prime Time Money on a daily, sometimes hourly basis, and so I hope to be constantly reminded of how I want to get rid of this debt.
If you’re serious about debt reduction, I challenge you to create your own visual reminder. It doesn’t have to be a goofy chart like mine, you could simply draw up a quick bar chart and post it on your fridge or on your computer where you work, or in your wallet taped to your credit card. Every time you make a payment, just fill in a little bit of the bar. The point is to keep the idea of paying down your debt fresh on your mind and motivating you daily.
Debt Target Update: March 2008
Our SUV Loan
Last month I began sharing my debt tracking chart (above) for our SUV loan. As I shared previously, it’s the debt that we’re currently attacking with full force. This chart will be shown on the sidebar until I can pay it off completely.
Just the Minimum?
This month we’ve only been able to make the regular payment and nothing more. The reason for this is because (1) we’d like to save a little more for our short-term savings (considering the current economic downturn), and (2) we’re expecting a hefty tax bill next month
Our plan going forward is to make one more minimum payment (April), and then, in May, begin putting half of our normal short-term savings contribution towards this debt every month. That should have us completely free of this debt by August.
Debt Target Update: April 2008
Our SUV Loan
Two months ago I began sharing my debt tracking chart (above) for our SUV loan. As I shared previously, it’s the debt that we’re currently attacking with full force. This chart will be shown on the sidebar until I can pay it off completely.
Just the Minimum?
This month we’ve only been able to make the regular payment and nothing more. The reason for this is because (1) we’d like to save a little more for our short-term savings (considering the current economic downturn), and (2) we just paid a hefty tax bill.
This was our last minimum payment. In May, we will begin putting at least half of our normal short-term savings contribution towards this debt every month. That should have us completely free of this debt by August.
Debt Target Update: 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.
Debt Target Update: June 2008
We Paid Off the Car Loan!!!
There’s been a lot going on with the blog these past few weeks and I didn’t find time in June to squeeze in an update of our debt reduction. So here it is. As you can see by the updated chart, we’ve paid off the car loan. It feels really great to only have the one bad debt now, the SUV loan. But before we discuss that, let’s take a second to celebrate the payoff of the car loan.
How We Paid it Off
When we last reviewed our progress I had around $3,500 left to pay on the car. Since then, we were able to pay it off completely thanks to our economic stimulus check, our property tax savings (which we just shifted to an ESPP), and a small bit of our emergency fund. Wow, talk about creative finance. 🙂 It feels great to have this done and still be in a good position with our short-term savings.
What Debt is Next?
As for the remaining bad debt, the SUV loan, we plan on aggressively paying it off over the next 2 months so that we’re completely rid of our bad debts prior to Mrs. PT quitting her job and going back to school in the fall. To accomplish this we’ll have to utilize some of the blog income that’s finally starting to trickle in, as well as Mrs. PT’s last few paychecks.
Debt Target Update: September 2008
It’s been a while since I’ve updated you guys on our debt reduction situation. It’s not that I’ve been avoiding it, it’s just that nothing much has changed on the balance since last time. Previously (during the June Debt Target Update) I said that,
“for the remaining bad debt, the SUV loan, we plan on aggressively paying it off over the next 2 months so that we’re completely rid of our bad debts prior to Mrs. PT quitting her job and going back to school in the fall.”
Well, even the best laid plans sometimes fail. The grant for the program she’s attending fell through and we ended up having to pay for her school tuition. Would have been nice to put that chunk of money towards this debt. Oh well, at least it’s education expenses. It will repay itself.
Our Future Debt Reduction Plans
Well, obviously our goal is still just to attack the SUV loan. It’s our only “bad debt” left. It’s just we’ve had to dial back the time table somewhat. For now, we’ll just have to wait and see. With a baby on the way, and us relying on one income now, our savings goals are taking precedence. Blog income is starting to pick up. Maybe I can start throwing some of that money at this debt. We’ll see.
Debt Reduction Goals for 2007
As promised, here are a few of our current goals under the category of debt reduction. I guess I find it easier to categorize my goals for posting purposes. Last week I listed our current savings goals.
These debt reduction goals will basically be a listing of the debts we have and the order in which we want to pay them off, with the ultimate goal of being “bad debt” free!
* I define “bad debt” as any debt, other than a house mortgage or education loan, that has an interest rate above 5%, in which you are incurring interest charges (cannot pay off in a month).
The Auto Loans – Aggressively pay off any auto loan with interest higher than 5%. My wife and I both need a vehicle here in Texas. However, I don’t feel like we both should have a high interest loan on a vehicle. This is the last of our bad debt. So, our first debt reduction goal is to pay off any auto loans that have high interest rates, or get into a new purchase with a low or zero interest rate.
Another aspect of this is that want to buy a new vehicle and finance it at or near 0%. Right now we both have older used vehicles with relatively small loan amounts, but the interest is high. If we buy a new vehicle, we’d end up with one huge debt at low interest and one small debt at high interest that we could focus on paying down aggressively. Anyone have a strong opinion against moving toward this position?
December 2007 Update: (cue failed game show contest music) Wow, we haven’t made much progress here. We’ve only made the minimum payments on our auto loans this year. Why? Because we were saving most of our extra cash for our house down payment. Since we closed on the home in September I’d hoped to have made a dent in our auto loans by this point in the year. However, with the home we needed to purchase a few extra things and so our ability to repay these aggressively was limited.
The Interest-Bearing Credit Cards – Pay off any monthly credit card balances. Although we left college with a couple of balances, this is one area that we are lucky to be in control of. We still use credit cards, for the points and flexibility, but we’re blessed to be able to pay them off every month to avoid interest charges.
December 2007 Update:We’ve been blessed to have had 100% success with this goal this past year. No credit card balance went unpaid past the grace period. The CC companies must be hating us.
The 0% Credit Cards – Pay off 0% credit card balances on time. I love the 0% credit card. This is the ultimate in leverage. It’s a dangerous game for the undisciplined though. We always aim to pay these off a month before they actually expire.
December 2007 Update: We were involved with only one of these types of debts this year. It was a card for some expensive medical needs which was locked at 0% for 12 months. We were able to pay this off within 8 months.
The Student Loans – Pay off any student loan balances using the minimum payments. We enjoy the tax benefits and low interest charges on these loans, so there’s no reason to hurry these along.
December 2007 Update: While I’m not sure we get to claim complete yet, for our student loans we never missed a scheduled payment this year. I’m happy for now to have them sitting there at interest rates well below 5% and paying the minimums.
So what are your debt reduction goals?