As I revealed last week, we had a perfect storm of higher than normal expenses combined with a small emergency fund and a large dip in income that not only slowed down our debt repayment progress, but caused us to go further into debt again.
This incident also caused us to finally give up gazelle intensity and accept that we have debt and likely won’t get rid of it quickly.
However, I will never accept that debt is a way of life. We ARE committed to getting rid of this debt, just at a slower pace.
Here’s our revamped plan:
1. Pay this month’s expenses off last month’s income.
Our absolute bare minimum monthly expenses are $4,000. We plan to have that amount in our checking account at all times. Come the beginning of the month, we will use that money to pay our bills. The money we earn for the current month will be used to pay the next month’s bills.
2. Follow You Need a Budget (YNAB).
A Mom’s Plans Facebook reader recommended YNAB, and I’m so glad she did! Gone are the 1.5 hour sessions every Friday to reconcile all of our accounts and determine where we stand financially. Now, I just spend a few minutes a day entering my data, and I’m good to go. (Look for a review of YNAB coming in a few weeks.)
3. Consolidate all of our credit card debt on a 0% APR card.
All of our credit card debt is on one card now. This is the same card that I previously used to transfer other credit card debt. The first transfer has a 0% APR until March, 2014. What I just transferred last week will have a 0% APR through September, 2014.
I called, and they let me know that in March, the APR will only be charged on the remaining balance. In addition, beginning in March, when part of our balance has an APR and part has 0% APR, I was told that the minimum balance will go to the 0% APR, and if I pay extra, the rest will go on the balance with the variable APR.
4. Attack credit card debt first.
While I would love to be rid of my student loan that only has $1,551 left, we decided to instead focus on credit cards. My student loan will be paid off by May, 2014 by just making the minimum payment. Plus, I get the tax write off on the interest. I’d like to make a significant dent on the credit card debt before I have to start paying too much interest. If I can get the balance to $8,000 or lower, I’d consider applying for a loan at our credit union to lower the APR.
5. Carefully plan for our extra income.
We have regular income–my husband’s salary and my regular freelance jobs. However, there are many times throughout the month when I get one-time writing jobs. Instead of throwing all of that money on the credit card, I will put 50% toward the credit card and the other 50% to our emergency fund. When the emergency fund reaches $2,000, then I will put 75% of the extra money on the credit card and 25% in our emergency fund until it reaches $4,000. Then we will have a two month emergency fund between our buffer in the checking and this $4,000.
6. Have all debt paid off in 5 years.
We mapped out a plan to have all our debt paid off in 5 years using Bankrate’s nifty calculator. My husband is looking into a grant that would pay half of his student loan debt. If he gets the grant, we’ll likely get out of debt in 3.5 to 4 years.
So, yes, I’m discouraged that we lost so much ground in our debt repayment progress over the last 6 weeks, but I have NOT given up. We have a plan, one that both I and my husband are comfortable with.