August 8, 2011 14 Comments
I started this blog with the intention of getting debt free and getting a stronger financial foothold. I had $32,661 worth of debt (and $13,882 worth of assets).
Now, almost three years later, I have doubled my assets (I’m around $27,000-ish right now, including my retirement which makes up the bulk of this increase). However, my debt is $28,589.
That’s right. In the course of 3 years I’ve only actually been able to reduce my debt by about $4,000. Now, this isn’t the minimum that my debt has been. But seeing that the change is so small has lit a fire under me.
I realize that I’ve been approaching this debt thing the wrong way. I made a budget that included paying extra on my debt and putting any extra money I get onto my debt. However, it doesn’t take a Ph.D. to recognize that since I’ve been playing this strategy for three years and am just about where I started (minus $4,000), I have to make a change.
I’ve decided that the only way I can get out of this debt in a reasonable time frame (I’m going to set the date as December 31st, 2012), I have to stop treating my debt as an account that I throw extra money at and instead think of my debt as a bill.
What does this mean? Instead of thinking that my minimum payment on my credit card is $400 and anything I pay over it is a “bonus” – my new “minimum payment” is now the payment that it will take me to pay off my debt by December 2012.
That means 16 months from now I’ll need to pay off $15,960 worth of credit card debt.
Using CNN debt calculator I figured out that it will take a payment of slightly over $1,000/month to achieve this goal. Also, after 3 months my bed will be paid off (it is at 0% interest), which means I’ll have another $115 to dedicate to my new “minimum payment”.
With my new mentality of this amount being my new minimum payment, I have to adjust my budget to be able to afford this. So I spent the majority of this afternoon figuring this out.
Above you can see summary of how this works out based on my new salary that I negotiated (which starts August 15th). I’ve decreased quite a few parts of my budget including emergency fund, food, doggy daycare, miscellaneous, gas, and clothes. The best part of this budget is that I will feel pinched (this is good as it reminds me of my ultimate goal), but I don’t think I’ll feel completely cash strapped. Also, in a few months (presuming no emergency happens) I’ll be able to decrease the emergency fund savings even more and put that onto my debt.
I’m excited and scared for this new mentality towards debt. I hope I can stick with it. I’ll start on my next paycheck, which is August 15th. I can’t wait to see some fast movement because of my large payments I’ll be making.