On Monday, I talked about my debt story and how I’m changing my focus to put a greater emphasis on paying off my debts, saving money, and spending less. Today, I want to talk about the nitty-gritty details of my debt and what it’s going to take for me to pay it off.
So when it comes to my debt, here is where I stand:
Credit cards: $1,204
School loans: $14,371
Car loan: $10,183
Medical bill: $2,500*
*Estimated. I need to get the actual number from my collection agency, but this is accurate, give or take a few hundred dollars.
In total, I am $28,258 in debt. But as I mentioned on Monday, I don’t include my car loan in my debt because I do consider it “good debt” and something I’m going to have for a while. (It’s honestly inevitable, especially since I’m not going to put a ton of focus on paying off my loan right now, and will be refinancing in another year.) So when you take away that, I have $18,075 of debt to pay off. Wheeeeew.
Denial, denial, denial. That was the name of my game. And now I’m nearly $20,000 in debt because of it. I recommend going to kreditfinanzcheck.de for advice before applying for loans. Business owners who are struggling to pay off their debts may consider seeking company insolvency advice.
But there’s nowhere to go but up! (Or really, down, if you think about it…)
My original goal was to be debt-free by the time I was 30, while also having $5,000 saved. After crunching the numbers, that’s not going to happen.
Oh, it could happen. I could do it. But do I want to live the next four years in a world where I cannot shop or travel or eat out? No, I do not. Paying down debt is important, but I’m not going to sacrifice my quality of life in order to do so. I realize this goes completely against what Dave Ramsey and personal finance bloggers preach. Live off rice and beans now and you’ll be able to live the rest of your live with financial freedom! Well, true. But I also firmly believe that life is meant to be lived and I don’t want to give up precious experiences because I’m too focused on money.
I’ll be taking the Debt Snowball approach, as suggested by Dave Ramsey, to pay off my debt, so when broken down, it looks like this:
Credit card #1: $234
Credit card #2: $947
School loan #1: $901
Medical bill: $2,500
School loan #2: $6,195
School loan #3: $7,275
And yes, I do understand math and I realized “Credit card #2” is slightly more than “School loan #1” but I really want to focus on getting my credit cards paid off first before I start tackling my other debt. I plan on cutting up “Credit card #1” but keeping the other credit card around for emergency purposes. (Possibly kept in a block of ice, a la Shopaholic.) (Maybe kidding.)
Taken like that, it seems a bit enormous and overwhelming and makes my heart race. But I’m only focusing on it bit by bit, one year at a time. I’m not going to set out a huge debt repayment plan, because things are going to come up. Emergencies may happen, trips will be planned, and it’s life. I want to enjoy it. I don’t want to be so bogged down in paying down my debts that I forget to enjoy the present.
So my plan for 2014?
- Get completely out of credit card debt
- Have $1,500 of my emergency fund saved
- Pay off my lowest school loan
- Begin saving to move out on my own (around $1,000)
- Budget for one tiny vacation in the summer
It’s a lot. It may not come close to what other people pay down in their debt over the course of the year, but it’s going to take a good chunk of my income to make this all happen. When I total up my necessary bills (things like rent, insurance, cell phone bill, groceries, gas, etc.), that takes up 74% of my income. That leaves me with 26% for debt repayment, savings, and disposable income for myself. If I achieve the above goals I set for myself, that will take up another 19%, leaving me with 6% as disposable income.
That’s not a lot of fun money! And that scares me because, honestly, I like having fun money. I like being able to shop and go out to eat and stop by Starbucks on a whim.
But I also hate that feeling in the pit of my stomach as I swipe my debit or credit card again. As I log onto my bank’s website, chanting, “Please still be in the triple digits. Please still be in the triple digits.” while I wait for my account to load. As I look at my credit score and my heart absolutely sinks when I realize how much work I have to do.
In order to satisfy the financial goals I set for myself this year, I had to make two tough decisions: first, I will be foregoing any big vacations this year. That means no cruises, no trip to NYC, no traveling. As mentioned above, though, I do intend to take one tiny vacation this summer, most likely spending a long weekend on the beach or in Orlando. Because, remember, it’s life. Paying debt and saving money is important, but so is actually living and experiencing and making memories and having fun. A short weekend won’t kill my money goals, like a long, week-long cruise might. Consider seeking guidance from a credit counselling service to help navigate your financial decisions and prioritize your goals effectively.
The second big decision, something I alluded to in my post on Monday, is that I decided to postpone moving out on my own. Right now, I live with my mom in a gorgeous apartment, but I was planning on getting a place of my own when our lease was up for renewal in November. But moving out is going to be costly, between apartment move-in fees and buying things for the new place (such as a couch, kitchenware, a dining table, etc.), so I was very torn about what to do. On the one hand, I’ll be nearing 27 at that point and honestly, it is time for me to be on my own. But on the other hand, I really want to place a priority on getting rid of my debt and the responsible thing to do would be to postpone moving out. I talked it over with my mom and she basically laughed at me when I asked her if it was okay. (I think she likes me!) So the plan is to stick around for, really, another two years and save, save, save while doing so. I feel much less anxiety by putting this off until 2015.
So there you have it! It’s not a complete plan for getting out of debt, but I want to take things from year to year, as so much can change in the course of a year, much less five years. Instead of putting together a long-term plan, I’m just taking it little by little. This year, I’m mostly concerned about starting an emergency fund and paying off my credit cards, and if I can get one school loan and start saving for moving costs in the meantime, I will be one happy camper.
Every month, I’ll be updating this blog with my progress, including a detailed description of my budget and spending habits. I have ambitious (for me, at least) goals for my finances this year, so I’m going to have to really shift the way I view money and learn to live more frugally. It will be a good lesson, though, and one I’m glad I’m taking the time to learn now, not ten years down the road when I’ve developed even more bad money habits.
Here we go!
What’s one financial goal you have for this year?
It is brave of you to put yourself out there like this, so you should be proud of yourself as I think by sharing the details, you will be more likely to achieve these goals. I really do not think you should beat yourself up over the car loan or student loans, especially since those likely carry lowish interest rates. I think top priority should be paying off your credit card and your medical bill (and maybe try talking to the collection agency and negotiating the amount down?). If I told you how much student loan debt I had, your jaw would drop. It’s bad. But it’s the cost of investing in my education so I try not to let it keep me up at night too much.
My goal for the year is to pay down my student loans by 2/3s – that way I can pay off the remaining balance in 2015. Besides that, I want to max out my 401(k) contribution and contribute to my IRA. I am hoping to get a decent bonus and an ok tax refund to help w/ some of these goals, but we’ll see how the year shakes out. I am definitely pretty obsessed with my finances and I look at a spreadsheet every day that tracks what bill payments will come out of each paycheck, but it makes me feel in control. I also need to be careful about saving because I (hopefully) have a cross-country move ahead of me which is so expensive and I don’t feel confident that I will get a relocation package… so yah. I am trying to be really careful about what I spend right now, so I have only eaten one lunch out so far this month, haven’t bought any clothes, or really any other fun things. But I will be in Charleston this weekend so I know I’ll offset some of the money saving I’ve done so far since most of our meals will be eaten out, but so it goes!
Good luck with your goals! I look forward to following along!
Ah girl. The first step is looking at all the scary numbers. I’m proud of you!
We’re all here cheering you on.
I have three financial goals. Vacations (4 states and Greece) save 1k or 1.5k for my parents’ retirement gift fund, 5.5K for student loans.
I’m not sure if I can do it but I’m going to try!
Stephany, this is a solid plan and it’s so great you are taking control this way. The ‘debt snowball’ approach is the one my parents used to get themselves out of their debt. I believe my mom heard someone talk about it on Oprah and that’s what she did-started with the smallest debt, paid it off, moved on to the next. The feeling of accomplishment you get when you pay one thing off will be so great and motivate you to keep going!
I agree not to worry about your car. That’s normal debt, just make your monthly payment each month. I agree with Lisa that you may need to think about the medical bill sooner rather than later, and definitely take care of anything that’s gone to collection, as that will hurt your credit score. But showing that you’ve paid things off will help that score too, so definitely work on the low credit card and loan balances as you’ve shown above.
Don’t worry about staying at home. You have a great relationship with your mom and she wants to help you! I actually really enjoyed living with my folks for that extra amount of time in my 20s and as a parent, I’d love it for Sophie to do that as well some day. The only thing to keep in mind is that someday when you do move out, you don’t have to buy a housefull of stuff right off the bat (financing furniture is part of what got my parents in debt trouble!). Today, it seems like lots of 20-somethings (sorry to generalize you darn kids LOL-wow I’m old!) think you have to have the top of the line place with granite countertops and king beds right out of the gate. When I got out of college, my parents didn’t even let me take my bed (which was their guest bed!)…I had a loveseat from my dorm room and slept on a cot for a month or so while I saved up paychecks to buy myself a bed, cash in full. 🙂 Over time, I bought nicer and nicer things. Then, I moved back home and didn’t need my own stuff anyway. Then, I met J and we started out with a couch and dining room set I bought on my own and a basic bedroom set he bought from a rent-to-own place-we only replaced that bedroom set eight years later!
All of this is just to say that it’s hard to delay gratification sometimes, but delaying it and having some financial security AND finally getting to buy some nice things? Priceless. XO
Way to be brave and put yourself out there!
My biggest financial goal is to get my savings back up to $1,500 by the end of the year after I completely deplete it for our trip to Ireland. I would also like to get our TFSA back up to the $4,000 it was a year ago before we used it for a bunch of house stuff. But I doubt both of those things will happen by the end of this year. We are paying for our big trip in cash though which I’m happy about. I just need to get myself in the mindset of saving just to save and not saving for SOMETHING.
Awesome goals! I agree that you are very brave to put your goals out there like you have. Go you 🙂
I’m taking the snowball approach this year as well. I have a handful of small debts < $1,000 that I want to tackle this year, and I want to end 2014 without any major credit card bills. I only have $400 left over after all my bills and expenses are paid, so about $300 can go towards debt and I keep $100 to spend (that goes SO fast)…but things come up all the time that take away from my debt pay down (car expense, cats get sick, etc). In total I have about $26,000 in student loans – my parents pay one loan that I don't count in "my" total. And that is for going to a state school and commuting! The cost of education is out of control. I don't have a car loan, luckily, and all my other debt is credit card related. I do have one vacation planned this year that will cost me about $1,000 I think, and I'm planning on using part of my tax return towards that. I have literally no savings (well, $300 but I don't count it because it couldn't save me in an emergency!) Basically, you're not alone. I think with the cost of education in the US these days it's very rare to find a 20-something that doesn't have some kind of debt, unless you have a wealthy family that can pay cash for you. I don't, ha.
I think staying home is a really, really smart idea. If I didn't live on my own I'd probably be out of debt by now. I could have paid off my student loans in the last two years with all the rent I've paid and that is SO maddening! It wasn't feasible to move home with my parents after I got divorced otherwise I would have. Pete will be moving in with me when his condo sells and that will help a lot but I have no idea when it will be so for now I'm assuming I'll be supporting myself for another year which means making small dents where I can but mostly avoiding getting further into debt.
Way to go on this post! You can do this!! Give up the little things and you will see such a difference. Starbucks?? Hell no. $4 for coffee is stupid. I’m not saying I don’t buy it every so often, but I do not understand how people afford to buy it daily!! It baffles me.
My financial goals this year are to lay for a wedding out of pocket (ay yi yi) and merge finances with Bill. Both scare the crap outta me.
Pay. Not lay. Lol. Stupid iPad. I hate typing on it.
I love the game plan that you’ve set yourself! It seems like you’ve made realistic goals and you should have no problem achieving them. I also like that you’re planning on taking things from year to year. I’m realizing that I’m going to need to do the same, maybe even month to month. For instance, I haven’t been able to make any big debt payments this month since I am only just barely starting a job and won’t get a paycheck until the end of the month; therefore, I’m thinking of pushing my payoff date back to June 2015. I still need to crunch the numbers, but that’s what I’m thinking for now. 😛
Thanks for sharing the debt details. As much as it sucks to be in debt, it’s nice to know we’re not alone. LET’S DO THIS!
This is a good plan. I need a plan too. First though, I need a new job. Cause hot damn my debt is no more fun. I feel ya on the no-travel thing. It makes me SO sad to think I won’t be traveling at all (probably) in 2014 but… Sometimes you have to make sacrifices, and I also want to be debt free and start saving again. That’s also important to me. BOO. I like these posts though they’re reminding me of this impending life problem of mine that I’ve been casually ignoring. Must stop ignoring debt.