My Debt Payoff for 2008
So I have the approximate data for how much debt I paid off in 2008.
Car Loan:
Started – $8,347.40
Ended – $2,289.46
Total debt paid off – $6,057.94
Student Loans:
Started - $18,032.51
Ended – $17,285.56
Total debt paid off – $746.95
Total combined debt paid off – $6,804.89
When I started 2008, I had almost exactly $3000 in savings and not much else. Some of the money that was added to that savings along the way (to add up to the $5000 I paid my parents in November) came from my tax return in May and the stimulus package, but the rest of the debt payoff came from my regular monthly payments. Obviously it’s still slow-going, but it’s nice to think that I can get my debt down about $3800 dollars less each year…and possibly even more. Yay!
My Dilemma
When I got back from the beach I read Dave Ramsey’s Total Money Makeover and enjoyed it, but it left me torn on what’s best for me right now: paying down debt or saving money.
Usually when this question is asked of an “expert” they suggest that you save if you’re getting a better return than the interest you’re paying on your debts. If I had substantial credit card debt, I’d know that it must be paid down as soon as possible, but I’m not in that boat.
I’ve never had credit card debt and never plan to, either. I didn’t get my first credit card until I was nearly 22 years old, so I bypassed relying on credit like other college students do. I might have accrued some credit card debt if I’d had one, but I doubt it. It never occurred to me that I should buy things now that I won’t be able to pay for when the bill comes due. So it was not from a strong sense of responsibility that I never fell into the credit trap, but a lack of someone telling me, “You can buy it now and pay for it in a few months!”
Currently I have the student loans that I pay interest on every month and I can write it off come tax time. I read today that I can do this every year until it’s paid off instead of only for the first five years as was the original tax law. As my pay increases every year, the payment I make will be a smaller and smaller chunk out of my monthly budget. Theoretically I could just pay every month for the next 13 years and four months and it would be no big deal. The money I would have put to extra payments could be put into savings for a car or a house or something.
But I’m not planning on working for the next 13 years and four months. Here are a few of my goals:
1. Get married in 2-3 years (this depends on when/if B proposes)
2. Replace my 4Runner with another used SUV in 3-5 years (this depends on how long it lasts…I’m averaging around 24,000 miles a year presently, and I’m just over 106,000 right now…I’d love for it to still be reliable at 200,000, but….it’s unlikely)
3. Buy a house in 4-5 years
4. Quit my job after having first child in 5-6 years (depending on when/if I get married)
I’d like to increase my net worth as much as possible in the next 5-6 years that I’ll be working, either by paying down the debt or putting more in savings, so that we’re in better financial shape by the time kids come along. B expects to help me pay off debt once we’re married, just as I expect to help him pay off any of his own, so I don’t feel an all-consuming need to be out of debt before getting hitched…but it would be nice to have a chunk of it out of the way.
So what I’m getting at is I don’t know what to do. Does it make more sense to save or pay off?
My Debts
Sometimes I wonder what would be so bad about paying the exact monthly rate for my car payment and student loans until they’re all paid up, the car by November 2010 and my student loans by December 2021. I’d be able to save more money, especially as I earned more money, spend a little more on myself, etc.
The interest I’d pay would be ridiculous, of course. You can look down on my sidebar to see my count of what I owe on each loan, and the student loan is a LOT…in my eyes, anyway. I know that most people who take out student loans have a much higher balance than I do.
B and I have discussed marriage (though that won’t be for a while yet) and how it wouldn’t take long to pay off my loans. He has minimal debt at this point, but he’s considering getting his Masters and perhaps a Doctorate. I told him that if we were married, I would of course help him pay for school. Both of my aunts married poor men (my aunts were poor, too, but had decent jobs) who worked part-time or full-time jobs while getting advanced degrees. My aunts worked full-time and helped pay the way. One aunt sold an old sports car that she adored for extra money, too. My uncles got those degrees, got better jobs and both my aunts stopped working as soon as they had children, partially because that was a priority to them, but mostly because they helped make it so their husbands could support them and the kids.
B said that he wouldn’t want me to pay for his Masters, but he’d let me help with the doctorate. I don’t see how it makes much difference except that he might find a job that will help pay for the Masters. Regardless of that, he’ll have to take out student loans to help pay. I don’t want us to be paying my loans AND his at the same time, so I’d like to get rid of my loans as soon as possible.
I’d also like to get rid of the debts because I don’t want to rely on this relationship working. I mean, I’m pretty sure that it will, but I don’t want to be a woman who spends frivolously because she thinks her husband will one day see to the savings and debt paying. It will probably be a good two years before we get married (IF we get married) and I’d love to have all my debts paid by then, but I know that it’s unrealistic for me to pay off over $25,000 in two years. I’ll pay off $5000 in about two months, but even then $20,000 in a year and a halfish is unrealistic for me given my current expenses and current salary. Four thousand a year might be doable, but I don’t know. We’ll see how it goes.
My Student Loan Woes
I was playing around on my student loan servicing website and saw that I’m still on track for a .25% reduction in interest if I continue to pay on time for the next 18 months, so I was pleased (but not surprised) about that.
Here’s what I’m not thrilled about: In the past year I’ve paid $2088.12 in student loans, but my principal was only reduced by $600.74. Now I know that that is the way that it works and that everytime I make a payment I pay a tiny bit less interest and a tiny bit more principal and I only started paying this off 18 months ago, but it still sucks. I will keep myself from being brash about this and increasing payments before I know whether I can afford to do it.
Right now I need to concentrate on paying off my car loan to my parents. Even though it is at 6% interest (rather than 7.25% on a higher amount of money), once it’s out of the way I’ll be able to concentrate solely on the student loans. My target date for the car being paid off is November 2010, assuming I don’t adjust my payments, which I will.
My problem is that I look too much to the future. I want to do NOW things that MUST wait until I can afford to do them, like paying down my debt at a faster rate. I want to get everywhere faster: It’s why I speed on roadways. It’s like I have a list of life events in front of me, and my goal is to get every single one crossed off as soon as possible. The longer one takes, the more frusterated I become.
That’s not going to change about me, so I’ll see what I can do with my budget to adjust for faster loan repayment.
My Snowflaking?
A long time ago I opened up a Upromise account. I don’t remember WHY I did it, exactly, but a couple months ago I went ahead and linked it with each of my credit cards. I didn’t think anything of it (knowing that I’d only earned about forty cents in four years) until I went to my student loan servicing site today and saw a link about using Upromise to help pay off my loans.
I’m not certain how it goes yet. I have to wait five to ten days for it to go into effect or something. I’m assuming that it will draw money automatically from my Upromise account, which would be rad. Since I linked my accounts up (this was probably in April) I’ve only gained about two dollars, but I explored the site a little more and found out that I could also link my CVS and Giant discount cards. This will give me a tiny percentage if I buy certain brand names. It probably won’t help too much, but anything I get is free for me.
One of the companies that offers a discount is Exxon, the gas station that I use the most, so I was pleased to see small amounts coming from those purchases. For the next 2 1/2 months or so I’m getting 5% back from gas purchases from my Discover card, and one cent per gallon from this, so a little money is being saved.
Also on the Upromise website, I saw that what I earn through taking E-Rewards surveys can be transferred over to Upromise. After e-mailing E-Rewards’ customer service, I found out that I’d have to cancel my current account and open up a new one linked to Upromise. After I choose a reward with the $50 I’ve earned so far, I think that I will. Most of the rewards on the site are only things like $50 off when you spend $125 at E-bags.com, and that’s not really worth it. The only good reward (for me) is having money transferred to my Borders Rewards account. This can only be done in $15 increments, so I may just transfer the $45 I’ve earned and let the other $5 go…or wait until I’m up to $60 and then open a new account.
Since I never pay attention to the Upromise account, it’d be cool if even a dollar a month gets added to my student loan payoff. I’m not going to go overboard trying to always buy things that are asssociated with the account, so this won’t change anything I’m doing. And since I’m continuing to pay the same amount in loans each month, this will just be a little snowflaking. I read about snowflaking a lot, but it’s not something I’m terribly interested in utilizing for everyday life, so this is just a tiny way to help.
Anyway, for those of you who don’t have a Upromise account and aren’t squeamish about linking your credit cards and discount cards, this might be a fun thing to sign up for. Once my student loans are paid off, I’ll continue with the account and use the funds for my kids…even if they each only get $5 once they start college.
My Story
This all seemed relatively fine; I got a used car in wonderful condition for a fairly good price and I knew that I could make the payments with my fancy new salary. Except that I hated teaching. At the end of the year I resigned with no intention of ever returning. Previously, I’d been smart enough to choose the 10-month payment plan (instead of the 12) to make sure the money grew interest in my account instead of Fairfax County’s, and I’d set aside that extra money in a separate account. I foolishly decided to wait on finding a new job while I enjoyed the summer and recovered from a stressful year. That led to me being out of a job until mid-December. I had to live on my savings until that point and my expenses were increasing while I had barely any money coming in.
That September I moved out of a 2-bedroom apartment I shared with a roommate into a one bedroom which cost a lot more; my roommate was getting married and I didn’t have anyone to live with to share expenses. I realize I could have lived with a stranger, but in the past I had such a horrible living situation that I’d rather struggle financially for a while than struggle emotionally.
So here I am in April, with more debt than assets. My biggest trouble is sticking to a budget, so that is what I will start working on first.
