{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 Cents} How To Make A Financial Plan

Sometimes I need to remind myself that a goal without a plan is just a wish. Every morning I would pray for financial blessings but somehow found myself going through the motions, which was slowing my progress to my goal of zero debt. For me, it is about finding that balance between enjoying my lifestyle and making financially sound decisions. I have been bitten by the travel bug and I can’t wait to explore the world, I live for bottomless mimosas at brunch, and I believe shoes and the right lipstick makes the outfit. However, I also believe in building hefty savings, going into marriage without bad debt (i.e. credit card and student loans), and building generational wealth. I must agree with Dave Ramsey, financial guru, who affirms, “Personal finance is 80% behavior and only 20% head knowledge”. I am working on the behavior part. I found that even though I enjoy shopping, I’m more likely to shop when I’m bored. Recently, I started filling that boredom with QT with the Mr. walking and exploring our city. I am focusing on better decisions, which will yield better behavior. Every cause has an effect and every decision has a financial consequence; that’s why coming up with a personalized financial plan has been my saving grace. Yes, I prayed for financial blessing…I still do, but I have also added the caveat that with financial blessings come financial responsibility.

Check Out My Financial Plan!

1.  Write down your debt & don’t forget to include people you owe money.    I was talking with a childhood friend who says he had zero debt.  As we got to talking it was revealed that he did not include the almost $7,000 he owed to a family member and the card he maxed out in his college days.  Out of sight, out of mind, I guess.  Once we dove deeper into our conversation, he and I started listing our debt.  My list was simple- one credit card, student loans, and mortgage.  His, well…let’s just say that I composed a very sobering list on his behalf that included all the debt that he could remember.  Seeing your debt listed makes it more real.

2.  Emergency Fund Minimum.  Baby Step One of the Total Money Makeover is to get your emergency fund to $1,000 if you have an annual income of $20,000 or more.  “Your car will need repairs and your kids will outgrow their clothes. These are not emergencies; they are items that belong in your budget. If you don’t budget for them, they will feel like emergencies”.  It was this statement from the book that caused me to stop dead in my tracks and redefine what I considered an emergency versus saving.

3.  52 Week Money Challenge- BINGO Style.  This was actually a part of my New Year’s Resolutions for 2013.  The challenge is to make a weekly deposit that reflects the number of weeks of the year. For example, on week one you deposit $1.00 and on week 27 you deposit $27.00 and so on.  I took the challenge one step further by remixing it into a BINGO style which makes it easier to be successful.  In the end, you will have saved $1378.00!  I’m using the money from the challenge to pay down the balance on my credit card, birthday, and holidays. Update: In 2016, I saved $1,900.00 doing this challenge.  Want to join in on the 2017 version, grab your FREE copy of the bingo card here.

4.  Tackle Your List.  I revealed in the post, Tackle Your Credit Card Debt Today, that as of January I started with $5300 in credit card debt.  I have reduced my debt down to $0.00  by paying a little over the minimum and applying the Bingo Style money to the balance EVERY Friday (I have yet to miss one), but that was interest is killing me.   While making additional payments to the credit card, I am making the minimum payment toward my student loans and mortgage.  Once the credit card was paid off, I will now apply that money to extra payments to my student loans and so on…this is called the Snowball Method.  Now, I will confess, if I had more debt, I would recommend switching between the Snowball Method and the Avalanche method, which we will discuss later in the Financial Cents series.

5.  Emergency & Savings.  Don’t forget to save that money you are no longer paying to others.  Use it to prepare for the future.  Emergencies will arise and more than likely something will come up that will cause you to tap into your savings….be prepared.

She Makes Cents Wants to Know If Personal FInance More Behavior or Knowledge?