J.D. over at Get Rich Slowly linked his readers to a very thought provoking experiment two days ago. No Credit Needed set up automatic transfer of $5/day onto his credit card for a month. Having this small daily transaction, much like any other transaction he might have made, allowed him to realize that he could put $150 more ($5 x 30 days) onto his credit card then he had previously been doing.
And of course, this got ME thinking.
I feel like I would definitely notice if $150 were gone from my allowed spending money. However, if $1/day disappeared I probably would notice. Wait… wait… back up… (I thought to myself)… If you wouldn’t NOTICE $1/day leaving your bank account why don’t you DO that?
And holy crap my synapses were flying – sure it was only $30 more per month I would be putting on my credit card. Only $30, right?
Every dollar adds up. And little payments reduce my daily balance and the amount of interest I have to pay!
Then I realized… well… would I feel $2/day? Maybe not… I could easily find ways of cutting back $2/day out of my budget I think. That is $60/month!
So I put some numbers into CNN.com’s debt reduction calculator (a FANTASTIC tool, btw).
With $1,000 per month payment (what my base payment currently is) I’ll be debt free in 1 year and 4 month and pay $2,363 in interest.
With $1,030 per month ($1/day) I’ll be debt free in 1 year and 4 months and pay $2,273 in interest.
With $1,060 per month ($2/day) I’ll be debt free in 1 year and 3 months and pay $2,186 in interest.
That’s right – by STEALING $2/day from my daily habits I’d be out of debt a month sooner AND save myself almost $200 in interest.
And what if I COULD manage to squeeze $150 from my budget by taking $5/day? Well, I’d be paying $1,150/month and end up debt free in 1 year and 2 months (WOW! – that means I could be debt free before 2011!) and manage to only pay $1,964 in interest.
The bottom line is that every dollar counts. And if you think that you could shave $1/day off your budget and not notice – THEN YOU SHOULD!
So rather than set up a daily $2 transfer, I’m taking $14 out per week. If $14 a week can save me $200 AND get me out of debt a month sooner – well – that is $14 well spent! If I don’t notice the $14/week gone then I’ll raise it to $3/day the next month ($21/week). Essentially, I’m going to keep raising the amount I pull out of my expense account per day until it starts to become noticeable – and then I’ll pull back. That may be $1/day – it may be $6 (or $10?!) – either way I’m getting out of debt faster and saving myself money in the long run!