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Operation Debt Reduction: October 2008 Update

Two months ago, my wife and I finally accomplished what seemed like the impossible: paying off every ounce of credit card debt. Our goal now is to be smart enough with our spending that we can easily pay off our credit cards each month, within our budget’s constraints. So far we are doing pretty well. Given how bad the economy is, smart spending is very important and staying out of credit card debt is just as important.

Now my focus has turned onto four things:

 

  1. Spending: Keep our spending in check (buy only what we need and saved up for). 
  2. Emergency Fund: Make sure the emergency fund is at least $1000 (and preferably higher, especially with the economy). General practice by people such as Dave Ramsey suggests that the initial emergency fund before we are debt free should be $1000. I would like a little more buffer on that.
  3. Home Improvement Fund: We recently bought a condo and are working on doing various improvements to it so we can have it ready to sell when the market turns around. We already began work, as tomorrow we will have two bedroom windows replaced. Our next goal is to get our sliding door replaced sometime in the spring. We are going to start a home improvement fund so we can fund these improvements without having to resort to signing up for a Home Depot credit card.
  4. Debt Reduction: Next on the debt snowball list, paying off my car loan, which has about $6300 left on it (and at worst, won’t be paid off until May 2011). I would really like to position myself to get this loan paid off if not sometime in 2009, then sometime in 2010.
So my initial thoughts on how to do this?
  1. Simple, stop buying useless crap, stop going out to eat when not necessary, and don’t buy any more gadgets (hardest thing on the list, for me).
  2. We are going to continue putting in $25 a week into our emergency fund. It would be nice we can get this up to $2000 by sometime next year (assuming no emergencies occur).
  3. Funding this is going to work like this: probably $25 a week into a savings account, deposit half of our extra paychecks (on a five paycheck month) into here, and deposit half of any bonuses we get into here. That should quickly build up to allow us to do home improvements such as a new sliding door.
  4. I may do something like just $10 extra a week towards this loan, or $40 a month. Small I know, but that is at least $480 a year extra off the loan. Then add ontop of that the rest of the extra paychecks and bonuses. I don’t think it is unreasonable to get this loan cut in half by this time next year.
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Debt snowball in full effect

I just sent in the payment that will officially pay off my HDTV two years early (I had no interest until 2010 on it). Why pay off something I have no interest on for two more years? Because I am following the Debt Snowball method of reducing debt. It is completely right too: tackling the smallest debts first allows for some really quick/easy wins that add up extremely quickly. Plus it is simply awesome to delete a company from my bill pay list! So far we have been able to payoff/close three credit card accounts completely and pay off one of my wife’s college loans.

Next up is paying off my last credit card with a balance. It still has about $1300 on it due to a car repair bill I am still paying from nearly a year ago (before my wife and I had an emergency fund, plus before the debt snowball started). With the debt snowball, I think I can get it paid off in ~8 months assuming I have no major unexpected bills come up, get a little overtime here and there, and reducing expenses where possible. I think I am going to try calling Comcast and see if I can threaten to switch to satellite over their video quality problems…maybe they will lower their monthly rate for a few months.