So here we are…at the end of January! How is that possible? So let’s dive right in to our Destroy Debt Series! I’ll start with a little information about our long and short term goals, how we plan to accomplish them, and then we will get into the fun details about how that plan worked out for us this month! Click here to read about our debt story and why we are so motivated to pay it off!
Long Term Debt Payoff Goals
We are breaking our long term goals into two separate categories. Our first long term goals is to pay off our all of our consumer loans plus one student loan in twenty four months or less. Once that is done, we move to our second long term goal which is to pay off the rest of my student loans within another twenty four months. That gives us a total of forty eight months to become debt free!
So why are we breaking it up into two sections?
Even though forty eight months is a small amount of time in the grand scheme of things, it is quite a long time when considering that we are currently renting our home. We do plan on adding to our family eventually so we will soon outgrow this place! Because of that we decided that we would reevaluate what our next step will be once we reach our first long term goal.
We will just have to see if renting still makes sense for us at that time, or if it would be better for us to move forward on purchasing a home!
Short Term Debt Payoff Goals
Our short term goals are simply structured by the separate amounts due to each lender. That’s it! Once we payoff a balance due to a single lender, that’s one short term goal met! Pretty simple, huh?
How Are We Going To Do This?
Let’s start off with a few details about how we are structuring our debt payoff strategy.
We are using something called the Debt Snowball Method. In a nutshell, this is simply:
- Arranging debts from smallest to largest (don’t pay attention to interest rates)
- Pay minimums on all debts except for the smallest
- Pay the minimum on the smallest PLUS whatever extra money is available that month
- Once the smallest debt is paid off, take that minimum payment and add it to the next smallest debt minimum payment (this is what begins the “snowball” effect!)
Our first goal we set for ourselves was to pay off our remaining balance on one of my husband’s classes for his graduate program, and our hospital labor and delivery balances from having our second child this past May.
The remaining balance at the beginning of January for his graduate class was $560 dollars with no set minimum. Basically, it just had to be paid off before he would get credit for the class. The hospital balance was $406.77 and had a minimum payment of $100 dollars a month. I anticipated the $100 dollar minimum as I had been paying that for months already so I knew our balance would be going down at least that much. That brought the remaining hospital balance to $306.77.
So how did we find over $800.00 to pay these off?
Yep, you guessed it. The dreaded budget. The rules you give your money so that it behaves properly.
But, it works! Huh, who would have thought?!
This being our first month writing and actually sticking to a budget, there were some glitches that we will need to correct for next month. Adding a category for miscellaneous household items like laundry detergent, toilet paper and light bulbs is a good example!
So yeah, there were things that we spent money on that we didn’t plan to…but that’s okay! Luckily, there were categories where we didn’t spend as much as we thought we would and that money covered the things we forgot to include.
All of that aside, having a budget made it really easy to see where our money would be going for the month. From there we could see if there were any areas we could trim down the spending and apply to our debt.
A big thing that influenced how much money we could put towards debt was reducing our spending on eating out. When you spend $25.00 eating here or there over the course of thirty days it REALLY adds up! We knew that money could go so much further at the grocery for items to cook at home.
By curbing our spending, and even eliminating unnecessary items (like extras from the grocery store or monthly beauty subscriptions), we were able to find roughly $500.00 in our budget! Let me tell you, I was shocked when I saw that number.
My husband receives mileage compensation for any traveling he does for his job so we were able to add that to our debt payment and that money, along with some cash we received for Christmas totaled about $400 dollars. It would have been easy to think we should have spent that money for fun because it was irregular income and was given as a gift, but we really wanted to hit our goal so we decided to add it to our debt payment.
Putting It All Together
So, let’s recap!
Our goal this month was to pay off a total of $866.77 worth of debt. We created a budget and were able to find $500 dollars leftover from that. We also had a bit of money from Christmas and our irregular income which was about $400.00, giving us a total of $900.00 to put towards debt! With that money we were able to pay off the balance for my husband’s class AND we paid off the balance we owed on our hospital bill.
I can’t tell you how awesome it feels to have those debts gone! Yes, we could have had a little fun spending that money on other things that we wanted (but didn’t really need), but I’m so glad knowing that we will be receiving two less bills next month!
In February, we are moving on to our next smallest debt balance. A school loan we will be working to pay off next has a balance of a little over $5000, so you can see it is going to take us a quite a bit longer to achieve.
This loan has a minimum payment due each month of $88, but we can now add that $100 minimum payment we WERE paying on our hospital bill (remember, that’s paid off!) to the loan minimum creating our first “snowball” payment. This means our new minimum payment on our credit card will be $188.00.
Our new goal is to pay an additional $650.00 on our credit card by the end of February. It’s a tall order, but we’re motivated and setting our sights high!
So that’s it for this month! Stay tuned next month for updates on our Destroy Debt Series! Thanks for stopping by, friend!