Warning: Slightly boring update on my debt situation ahead. Feel free to skip this post if you're not interested; it's really for my own documentation as much as (if not more than) it is for anything else. So. Last weekend I made my final payment on my "school loan" that I owed to my dad! I still have a really long way to go — as in, several thousand dollars long — but this was a particularly rewarding milestone because I got to see the look on my dad's face when I handed him that final check. And it was made even sweeter because my final "debt snowball" payment was supposed to be next month, but I made a double payment this month as a surprise birthday gift to him. So in total, I paid that debt off about a year and a half earlier than I was originally supposed to!
Now all I have left to tackle are my car loan and the personal loan I took out to transfer my credit card balances. And with the way the debt snowball works, my payments will get bigger and bigger each time I pay off a debt and start to focus on the next one. So my payments on the next lowest debt (my personal loan) are about to quadruple (or maybe even increase even more than that).
Also, I noticed that I've mentioned the Dave Ramsay debt snowball plan here on the blog before, but I don't think I've really properly explained it. Basically, here's how it works. Say I have four major debts to pay: $500 on Credit Card A, $1,000 on Credit Card B, a $2,000 Personal Loan and a $5,000 Car Loan. For the sake of simplicity, let's say my minimum payment for all four debts is $25 a month and all four have a 0% interest rate.
The debt snowball dictates that you focus on paying down the debts one at a time, in order from lowest to highest. So in this case, Credit Card A (CCA) is my main concern. I make payments as large as possible on it every month, while making minimum payments on all the others. So say I pay $100 a month on CCA, while making the $25 minimum payments on the other three. In five months, my debt is reduced to: CCA - $0, CCB - $875, PL - $1,875 and CL - $4,875. One debt down!
The next month, I take the amount I was putting toward CCA ($100/month) and add it to the minimum payment for the next lowest loan, CCB. So I'm now paying $125 on CCB, and the minimum on the other two. In seven months, CCB will be completely paid off. And at that time, my debt will stand as: PL - $1,700 and CL - $4,700. I then take the amount I was paying on CCB ($125) and add it to the minimum on PL, making my new payments $150. And by the time PL is paid off, CL's balance is down to $4,400, and I'm ready to start making payments of $175 on it until it's paid down.
Now, where the snowball really takes off is when you start adding your "extra" money to the "snowball" payments. Plus, in real life, interest is a factor that extends the length of payments, but minimum payments are usually higher. So instead of having a "snowball" of $175 at the end, I'm looking at payments in the $700+ range. If all goes well, I expect to be debt-free before the end of this year, and maybe even before Halloween! Let me tell you how I feel about that.
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It's been a while since I did a Fiscal Fridays post, mainly because there's not much to talk about. Ever since I got my new job six months ago, money's been pretty easy. I have enough to pay my bills, have a little fun, do a little shopping, and work on my Dave Ramsay Debt Snowball. In fact, I'm on track to pay off my next debt, the loan from my dad, about 18 months ahead of schedule. (The Best Buy credit card was the first.)
But this week, I realized that I can no longer update the software on my Macbook (I know, I know...#firstworldproblems). And my first thought was to buy a new Macbook Pro. At first, I had all these reasons in my head as to why it would be okay to charge a new computer.
Oh good lord, it's glorious.
I increased the limit on my Best Buy card, to $1,600. With that, I could easily get the 13" Macbook Pro without maxing out the card. I'd have 18 months to pay it off, in payments of less than $70 a month. And then I started thinking about why I need a new computer. After all, this one is nearly six years old. It has only one gig of RAM, and I only have about 10 gigs of space left on my hard drive. Plus, there's the whole can't-update-software thing, and the computer sometimes CRAWLS. Editing blog photos in Photoshop can be a nightmare, especially when it takes a good 20 or 30 seconds just to rotate a damn image. That brand-new Macbook Pro was practically in my shopping cart.
And then, I stopped myself.
I reminded myself that I am really trying to pay down my debt. That I'm currently on track to have everything, including my car, paid off in less than a year and a half. And while $70 a month seems like nothing in exchange for a new computer, it's $70 that I won't be able to put toward paying down my debt. Or going shopping.
And then I thought, really thought, about how my computer is working. And you know something? It still works. Yes, it's a little outdated, and yes, it's a little slow. But for about $100 (less if I take the time to scour eBay/Amazon) I can buy new RAM cards and replace my two 512 MB cards with two 1 GB cards to double my memory. I don't need a new computer. I just really want one.
Dave Ramsay says that if now you live like no one else, later you can live like no one else. What he means is, if you can ignore the "instant gratification" culture that's forced on us day in and day out, later you can have everything you want and more. Putting things I can't afford on my credit card simply because "I really want them" is what got me into this mess in the first place.
So right here and now, I'm starting a new savings plan. I'll cut into my "fun" money and start saving to buy a new computer. Because let's face it, this one won't last forever. I'll be lucky to get another year or two out of it. But if I start saving now, I might have all (or at least most) of the amount ready to go by the time this old gal kicks the bucket. And the less I charge, the better :)
