One of the most important things before beginning any journey is plotting the course of how to get there. The same was true for me in getting out of debt. And you can count on the fact that there will be roadblocks, but the important thing is to not get distracted by these barriers to your goal, but to continue pressing forward.
Dave Ramsey's advice early on has been crucial, but I don't do everything exactly the way he describes. His plan isn't a bad one, in the least, there were just some adjustments that I made in order to fit my lifestyle and thinking. In fact, I heartily recommend reading his "Total Money Makeover", mentioned in the previous post.
One think that Ramsey advocates is the "Debt Snowball". That is, ordering your debts, without regard to interest rate, from smallest to largest. After you have $1,000 in the bank as an emergency fund, you begin attacking the smallest debt, then, once paid off, take the money that you were paying on the smallest one and applying it to the next one in addition to the minimum payment, gradually increasing your payment.
Fortunately for me, my credit score was excellent. I was able to take advantage of low interest rate offers and so I ordered my debts smallest to largest, but I combined several credit cards into one larger one with an transfer offer giving me 3.9% until it was paid off.
It consolidated some of my smaller cards, but it allowed me to pay off some of my other, higher-interest cards first. So I adapted the Debt Snowball to make sense mathematically as well as psychologically.
Although I'm heavily focused on paying off a credit card at this point, that doesn't mean that I ignore my other loans. Since interest rates dropped, I decided to apply for a refinance loan on my truck, which was financed at 7.99% APR. I applied at a different bank than the one who had the loan. Once approved, I was informed that my rate could be 5.94%, but they would charge a one-time fee of $200 for paperwork, etc. It still amounted to about $150 in savings over my current loan, so I went in to the bank to find out my payoff amount. They asked me if I was selling the truck, and I responded that I'd been offered a 2% better rate at the bank down the street. They asked if they could see what they could do and have me keep my loan with them, so I said I'd be willing to do that. I walked out of there, renegotiating my loan to 5.89%, and no $200 transfer fee. That will save me about $350 (a payment and a half) over the life of the loan.
But all of this would be worth far less if I hadn't done what I will be posting on next.... The importance of my checking account.
I saw Julie's comment over on beingfrugal.net and that you had started a new blog to detail your journey to being debt-free. So I just wanted to stop by and write a quick comment of encouragement.
ReplyDeleteKeep going, you'll get there.
I came across your site via beingfrugal.net. It's encouraging to read how you're getting out of debt - keep up the informative posts!
ReplyDeleteI can relate to your GOLIATH DEBT -my husband & my combined student loans debt = $125K, credit card debt = $5K and home loan = $173K. Our credit card will be paid off this month, student loans in 4 years, 4 months and we’ll focus on the house after that… *deep sigh* We are saving for an emergency fund too. How can we afford it??!! Sites like you’re are a big support – it’s helpful to know how you get lower interest rates and how you are tackling your own debt. We have a budget, stick to it, don’t splurge, we make $99K a year (thanks to a good education we have great jobs) and we use a free online debt calculator to plot our monthly payments and forecast when each debt will be paid off. If it wasn’t for the online calc I couldn’t wrap my head around my own Goliath Debt.
Reading your site is very helpful so thank you!! I’m looking forward to your next post!
Sincerely, Holland (a new fan)