12-11-2009 02:26 PM
OK, I got pretty far on my credit repair project (see link in my sig). Now it's time to eliminate debt.
Wifey and I have 9 outstanding accounts totaling $212,704 with interest rates varying from 4.5% all the way up to 23.99%. We wish to be debt free and use credit accounts only when they get us a discount, then immediately pay them off.
It sounds impossible, but it's not. In the following log I will continue to chart my credit improvements as well as log our debt elimination plan. Here's what I have done so far:
I created a simple spreadsheet listing all the debt we have, first the balance, then minimum payment, and interest rate. Then I sorted them by interest rate, assigning a priority number to each. The highest priority is the highest rate, and so on. I then moved my car loan to the top priority spot, even though it was the second highest rate I did this because we are very close to finishing this and it it is one of my largest monthly payments.
Since we were paying a little extra to each account, I took that amount, plus whatever I could scrape out of our budget, and came up with a total extra payment amount of $540. I started paying minimum payments only to my accounts, and paid the extra to my priority 1 account.
In my next post is the chart showing these accounts and amounts, I have removed all personal account numbers and institution names.
The plan is to continue paying this extra amount. You will see a payoff date for each account in the chart. I used an amortization calculator that I found online to figure out these dates. With the extra payment, I now only have 3 more months to pay on my car loan instead of 6 months. When it is done, I plan to add the entire payment amount of $1,000 to the payments I'm making to the next priority item, a retail card. This will add the 1,000 to the 50, making the payment 1,050 total. Based on the amortization calculator I will have this done in just one month, instead of paying interest for 2 years.
Each time I complete payoff on an account, instead of adding that freed up cash to my spending budget, I will add it to the payment. By the time I work my way down to my mortgage, my extra payment amount will be over 1,500. When I combine that with my mortgage payment I will be able to pay off my mortgage in a third of the time!
If I stick to this plan in one year I will have significantly reduced my debt, and in ten I will be completely debt free. The best part is adding up the cash from all the bills I won't have means I'll be able to save aggressively for retirement while still having significantly more disposable income than ever. I'm talking vacations, toys, all kinds of fun paid for in cash!
The trick is paying off the most expensive loans first. If you do an amortization calculator and find out how much you pay for all the money you borrow it's enough to make you choke! Try it sometime, and think about what else you could do with that money... Put in your mortgage and look at the total interest paid. Then, add a hundred to the payment and see what that saves you. Add more, and see the reduction in total interest paid, and the payoff date. The sooner you pay more, the more impact it will have!
I'll keep updating this as I go, and let you know how I progress... If anyone has additional suggestions please let me know.
12-11-2009 02:27 PM
NAME BALANCE MIN PMT EX PMT CUR PMT RATE PRIORITY PAYOFF DATE
CAR 3,540 460 540 1,000 18.99% 1 Mar 2010
RETAIL CARD 1,055 52 0 52 23.99% 2 Jan 2012
MOTORCYCLE 2,965 92 0 92 13.99% 3 Jan 2013
CREDIT CARD 4,414 93 0 93 11.99% 4 Feb 2012
LOAN 6,800 226 0 226 9.99% 5 Jul 2012
STUDENT LOAN 1,359 50 0 50 4.75% 6 Mar 2012
MORTGAGE 185,274 1,256 0 1,256 4.50% 7 Jul 2039
STUDENT LOAN 5,769 110 0 110 2.48% 8 Sep 2014
MEDICAL 1,527 100 0 100 0.00% 9 May 2011
12-11-2009 04:29 PM
I will say that I disagree with this statement: The trick is paying off the most expensive loans. At least I disagree with it for me. I had to have the positive motivation of seeing things come up as "Paid In Full". So what I did was line up based on minimum payments and pay off the shortest timeframe first... then add that amount of payment to the next one. I may have paid a slight bit more in interest along the way, but I believe it shortened the amount of overall time i was paying... and I definitely kept my motivation up. had all my CCs paid off this past summer after having had up to $20K on them (just in time for $4K in roof repairs... ugh). Different things work for different people. :-)
12-11-2009 04:34 PM
I'm locking this thread to direct traffic back to your Project Log on the RYC board, since you've already got this information posted there:
Friendly, Supportive & Respectful
"However gradual may be the growth of confidence, that of credit requires still more time to arrive at maturity” ~ Benjamin Disraeli
myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.>> About myFICO