{Debt Management} How to Shorten the Length of Your Loans & Reduce Interest

She Makes CentsWanting to get control of your finances is great, but there is nothing like the empowering feeling of knowing when this MAJOR life goal could actually be attainable. After examining my debts, pay off amounts, and interest rates, I am proud to announce that my magic number is 8 years and 3 months to be debt free! Having an end date for a goal helps to make it more tangible and keeps me encouraged to hit my payment milestones from my personalized Financial Plan.

One Year from Now- Operation Credit Card

In January of this year, I revealed that I racked up $5300.00 in credit card debt, after getting it down to a zero balance. It happened by not adapting my spending habits to my drop in income. Today, that balance is now around $3400.00 by paying a little more every month on the minimum and doing the 52 Week Money Challenge (Bingo Style). Dare I say it out loud, I will have NO credit card debt by this time next year (insert fireworks here)! I’m truly proud of the way I have tackled this particular debt obstacle because I’m doing it at my own speed. I don’t even miss the extra money that I’m using to knock the balance down faster. If I were okay with just paying the minimum, it would take me 4 years and 3 months, instead of one year, to complete step one of my financial plan. Once the credit card is paid off, my monthly credit card payments will become extra payments to my student loans and so on…this is called the Snowball Method.

Four and a Half Years from Now- Goodbye Sallie Mae

debt-freeI have a love/hate relationship with Sallie Mae. Although we go back about ten years, she is not my friend nor is she yours. Don’t let her fool you. Yes, in times of financial need, she was there but in reality most people end up paying more than double for their educational loans. Currently, I pay the minimum $200 per month for my educational loans with more money being applied toward interest and not the principal. As I’m sure you know, paying just the minimum and nothing more will result in years and years of interest and a longer pay off timeline. In fact, by adding the money I would normally use for Operation Credit Card to make two or three lump sum payments per year toward the principle, not interest, I will shorten the length of my loan by 10 years and 11 months. Five years ago, I was a recent college graduate and while a lot has happened in that time, I still feel like time flew by. Knowing that these next five years could go by just as quickly helps keep me motivated. One day, four and a half years from today, I will be able to say goodbye to my financial frienemy- Sallie Mae for good.

Eight Years and Three Months- Debt Free

A lot can happen in eight plus years that could slow down my timeline or cause me to come up with a new goal altogether. Regardless of what life throws my way, I hope a victorious sprint toward financial freedom is in my foreseeable future. In eight years, my home will be a rental property providing is a great form of passive income. Having it completely paid off allows a greater financial contribution to my household. The idea of never having to think about another mortgage payment for my current house is a blessing in itself and I plan on tackling this debt by using the Snowball Method. In the same breath that I say goodbye to Sallie Mae, I will be begin this last phase by saying hello to extra payments, consisting of my monthly credit card payments and Sallie Mae payments, on top of my current mortgage.

What’s the point of all of this? Sure, I could continue to pay the minimum on my bills every month and I will forever owe someone but I have 17,636 reasons why that won’t work for me. Yep, having a plan and attacking my plan will help me save an overall of $17,635.15 in interest payments. While yes, I am at the beginning of my journey, I take solace in knowing there is light at the end of the tunnel.

How Long Will It Take You to Be Debt Free?

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{Financial Goals} Tackle Your Credit Card Debt Today

Slow-and-steady-moneyHave you ever heard the phrase, “a goal without a plan is just a wish”? Well I’m starting to think that is true. Like many of you, I always have financial goals… some I have shared on this blog and others I have not. As we start this brand new year, I have to ask myself, were my goals of last year actual goals or just wishes for the future? I started reflecting on this the other day while looking at older posts about financial goals. Sure, I can list some of my goals but without a plan, how can I help you as readers follow my financial journey? Isn’t that the point of all of this? I also started wondering how much is too much to share? The answers to these questions will unfold throughout 2013, but for today, getting a plan together is the priority.

The Problem: In my pre-She Makes Cents life, I worked every month and in a short amount of time, I paid off my credit card. Then the bottom fell out and I was using my credit card to simply…live (very honest moment). Long story short, my balance of about $5300 (rounding up) is nowhere near, where it should be. Why, you may ask? Because I was caught up. I started swiping to get the “cash back” deals that I told myself I would pay it off at the end of the month and didn’t. I wasn’t using my envelopes as I should have and I might not have fully realized the my new financial situation.

The Solution: In reading some of my older posts, I remembered a period where I locked my credit card up in a safe deposit box.  Initially, I just wanted to see how long I could go without credit card spending.   I wasn’t swiping, I wasn’t living beyond my means, and the balance was slowly decreasing over time. I am a very goal oriented person, so I know adding the component of an end goal date, one of the tips featured in the post How to Make and Achieve Your Goals, will help.  Thinking back, why did I ever take the card back out?

The Plan: If you are in a similar situation, this is how I plan on making this wish into a goal and a goal into a “been there done that”. While I would like to have this paid off in a year, I know I may need cushion. My end goal date for credit card payoff is August of 2014. That means, with my interest rate, I will need to be making a payment of $294.36 per month to be credit card free by next August (check out the credit card payoff calculator at the bottom of my sidebar to figure out yours).  Instead of paying the minimum, which is NEVER a good look, I will pay the fixed rate listed above or more.  Also, whenever there are cash back deals through my bank, I will use the “rewards” to pay down my credit card. In my research, I have heard the advice to pick up the phone and call your credit card company for a reduced interest rate but depending the company, they may label you as a “high risk” customer and close your account, so do your research first. 

How Are Your Eliminating Your Credit Card Debt?

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