Debt Free in 2010?

I’ve been planning around with the CNN debt calculator, and it turns out that if I were to raise my monthly contributions to my debt by $200/month I’d be able to have no credit card debt by January 2011 (December 31st, 2010 to be exact).

The idea of being debt free in a year sounds incredible. Certainly it would be a great way to start 2011 with no debt. Now, I don’t know if I’d be able to put an extra $200 towards my debt every month. But here is what I think I’ll be able to pull off in the next 13 months:

December 2009: $1,060 (normal $1000 payment + $2/day towards debt)

January 2010-April 2010: $1,512 (normal $1000 payment + $2/day + $452 from extra class I’ll be teaching)

May 2010-August 2010: $500 (won’t be teaching classes most likely, so will have to make a reduced summer budget to account for $500 less money/month)

September 2010-December 2010: $1060 (assuming I’ll be teaching 1 class, hard to predict this far in advance)

Using the pay scheme above here is how much I’ll have remaining at each point:

December 2009: $12,978

April 2010: $7,790

August 2010: $6,400

December 2010: $2,511

If however I was able to get myself a class in EITHER in the summer or a second class next fall, I will be able to pay off my credit card no problem in 2010. OR if I was able to bump up my contributions each month by $140 (+the $2/day) – I’ll get the card paid off by the beginning of 2011. Absolutely incredible.

So, if I don’t want to count on the “chance” of getting a class in the summer or an extra class in the fall, what can I do to get the extra $140/month?

Well, I could cut my contributions to my emergency fund. Or at least lower it. If I were to reduce my contributions to my E-fund to $25/month rather than $100, I could put an extra $75 on my credit card. And if the E-fund dips below $1000, I could go back up to $100/month.

If I were to just add that extra $75/month to the payment plan I have listed above I could end December 2010 with a balance of only $533 on my credit card. I have to figure out if the debt repayment is better than the E-fund.

It is pretty exciting to think that I could be debt free in 2010. I’ll need to spend some time thinking about what is better: no debt or a $2400 E-fund at the end of 2010.

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31 Responses to Debt Free in 2010?

  1. With savings accounts and CDs paying pretty much nothing right now, I’d be very tempted to go with CC debt repayment. Whatever your interest rate is, it has to be worse than 2%. And the difference in emergencies you can pay off with $1,425 and $2,400 just don’t seem that large to me.

  2. eemusings says:

    I guess the main thing I’d take into consideration is your job stability, but I’d definitely lean towards paying off the card!

  3. Melinda says:

    I’d pay off the credit card first too. πŸ™‚

    Have you read Dave Ramsay’s book “Total Money Makeover”? It’s great for helping you find small amounts that add up to larger amounts.

    Also, there’s a practice called Snowflaking where you use tiny amounts of money to keep paying down the debt in addition to your monthly payment. Say you’ve got 50c in change, you put that on the debt. Skip a cappuchino and put the $4 saved onto the debt. It adds up pretty quickly and you’re not paying interest on those tiny amounts.

    Good luck!

  4. mo says:

    pay off the cc debt. Being debt free will make a whole world of difference I think. Not sure if you can, or if it would be worth it, but when I had a large (ish) cc debt I transferred to a zero interest card (and kept doing it) whilst putting a debt downpayment into a savings account. Admittedly this worked a lot better when the interest rates were higher. But even accounting for the fact that you now have to pay 3% or whatever to transfer a cc debt to a 0% interest version…. it may be worth a few hundred dollars? Just an idea.

    • SS4BC says:

      Yeah, I know that transferring to a zero interest card might save me some money. However, I have this great fear of credit relapse. And the idea of having two cards out there that I could spend on is even worse than the idea of having only one. So even though it will cost me money in the short term, psychologically I think it is better for me at this time to keep my debt where it is at so that I don’t feel tempted in the future to get more debt and be in a worse situation.

  5. IngaG says:

    Frankly, I don’t understand the idea of having more than one month of expenses in an emergency fund at all, if you still have high interest credit card debt. I mean, anything you put into am emergency fund increases the amount of interest you are paying. Emergencies may or may not happen – but paying interest on the debt you have not reduced is a certainty.

    Of course, this is only valid as long as you have access to any credit at a reasonable rate in case of emergency. If you don’t, then I understand both the psychological relief and the real need of having an emergency fund.

    • SS4BC says:

      Well, with my E-fund at the current level that it is, I don’t have 1 month of living expenses. Currently the amount I pay per month towards debt (at least $1000 to my credit card and $117 towards my student loan, dwarfs my measely $100/month contribution to my savings). For me it is just a peace of mind knowing that if something happens then I won’t have to go back to the credit cards to pay for it because I’ll have a larger safety net.

      However, I’m considering the idea that within the next 13 months hopefully $1,200 will be enough to cover most reasonable emergencies and just socking it all at the debt full force. I’ll get it paid down 3-4 months faster and will save myself about $800 in interest. However, I won’t have the “safety net” of a large(r) E-fund if something happens and I need the money.

      That said, the general consensus seems to be with my gut feeling that I should just hit the debt with everything once I get my $1200 E-fund and be plan to get rid of the debt sooner! =)

      Also, my credit rate it current at 27%, not what I would consider reasonable to fall back on at all!

      • IngaG says:

        I’d say go with your gut πŸ™‚

        Is your outstanding CC debt at the same 27% or did you consolidate it into a lower rate? If the latter, then I do understand the logic of avoiding the need to fall back on it.

  6. Tough one. I feel like the EF needs some more beefing up. Yes, at the expense of your CC debt and interest accrual. I would compromise and aim for $1,800 EF and the rest to your CC, rather than the $2,400 EF at the end of the year.

    • SS4BC says:

      I do like compromises! Thanks for your thoughts – I really appreciate the contrasting opinion.

      I’ll, of course, have to go through the math and see if it is better to get $1800 by saving $100/month for 6 months or $50/month for a year. (And by “better” I mean which would make the interest on the credit card lower over the long haul)

  7. Jessie says:

    I would nail that credit card debt to the wall!

    Then perhaps you could use the snow flaking technique for your e-fund. Will you be getting a tax refund, rebates of any kind, making any returns? All of that money could go into your e-fund.

    • SS4BC says:

      I’m not sure if I’ll get a tax refund or not. Last year I got $530 in a refund, which I used towards my vacation. I don’t like to rely on getting it or not because some years I’ve had to pay.

      Maybe I should change my name to small steps to nailing that credit card to the wall!

  8. Carrie says:

    No debt > EF !!! πŸ™‚

  9. Revanche says:

    I generally a compromiser like RainyDaySaver because I don’t believe in accruing more debt due to emergencies while trying to pay off debt, but in this case, since you’re under contract – if the math works out that you’d be paying less interest, go for paying off the debt!

    • SS4BC says:

      Well, it looks like the masses have spoken!

      I’ll probably end up doing $20-30/month into my E-fund still (just because it feels wrong to not contribute anything) – and push everything else into my debt.

      Thanks for the advice guys! I do appreciate it!

  10. Revanche says:

    Oops, meant “I’m” there.

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  17. Looks like you’ve given lots of thought to how you will approach debt repayment! I would say if you don’t get the summer work, then keep contributing to your emergency fund as you have been. I don’t think it’s a good idea (especially in this economy) to have an underfunded emergency fund. Not sure how much debt you have besides this one credit card, but if you have other debt, then I have found the debt snowball to be the best approach to paying it off. Here is a post where I explain the two different methods of implementing the debt snowball: http://www.bitesizeidea.com/bsi/how-to-snowball-debt-till-its-gone

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