This is liable to be my last update for a while, and I’m even early on it… We met with a personal finance advisor on Saturday, and we have some tweaking to do that really makes sense, but it will delay the time that we are out of debt by a bit. On the flip side, it will also mean that our emergency fund will be established when we are out of debt, so that puts these updates to “I stockpiled some more cash this week”… not a particularly interesting topic.
It has been encouraging to see my balances drop drastically on the credit cards, however, and I’m very excited to report that, as of Christmas Day, we will have less than $40,000 total debt and less than $2,500 left on the credit cards, meaning we beat our goal by about $500. That puts us at nearly 92% paid off in 2 years! Not too shabby!
The financial planner we met with suggested a few changes, and I’m still mulling over those changes before going ahead with the bulk of them.
First of all, he suggested that my wife and I get a will in place – this is a no-brainer, for sure, so we are sitting down right after Christmas to do just that.
Second, he suggested getting the foundation of income and asset protection in place prior to debt snowballing. This means getting 3-6 months worth of expenses into an emergency fund, and getting term life insurance in place. The term life will run us about $100/month – not a pleasant thing to think about, but, at the same time, were something to happen to me, my wife would be taken care of for a while.
Third, he suggested paying off our debts differently. Rather than paying of the lowest balance first, he suggested paying off debt that frees up monthly cash flow the fastest, which, in our case, happens to be the truck, then car, credit card, and finally the student loan.
I don’t know that I agree with a couple of things about the approach, but I’m also not discounting his process as a whole, either. Mainly, I’m ready to be done with the credit cards – I’m ready to just pay them off as quickly as I can.
The emergency fund confuses me a bit, since it must be higher now than it would need to be after we pay off debts. The reason is simple… Right now, we have a total debt repayment of nearly $700/month, which wouldn’t be required were we to be out of debt. So a 3-month emergency fund must be at least $2100 higher now than it would need to be after we get everything paid off. The other way to look at it is that I’m getting a good head start on a 6-month emergency fund at the beginning of the process, rather than waiting until the end.
He encouraged us to just start piling up cash for our next meeting (sometime in February or March), and hopefully accumulate enough to start working on the debt by having our emergency fund in place, but I’m tempted to cheat just long enough to be done with the last credit card, then start working the plan his way. The last three debts aren’t going away in the next 6 months anyway, but I’m just ALMOST there with the credit card, and I want the emotional boost of being DONE with the credit cards. (In fact, I just almost cheated and put all the money we have towards the pregnancy against the last credit card to just be done with it by the end of the year.)
I’m getting a full week and a half off starting Wednesday, and my wife and I have decided to set that time aside as an opportunity to set some goals for 2009, get our wills in place and figured out, and basically get set for the coming year. Of course, no vacation would be complete without a little R&R in there, so we are planning on doing some local things that we haven’t done to this point – go to the aquarium, check out a museum or two – things like that.
I wish you all a very merry Christmas, and a happy new year! Thank you for all the support you have given me over the past few months, and I’ll return from time to time to give updates as I have them!