Thursday, September 5, 2013

September Financial Update

Is anyone else blown away about it being September already, or is it just me? 

This will make the fourth time this year that I write about our finances. The first was this post in February, the second was this post in May, and then the last time was this post in June. 

In the last post, I mentioned that I was nervous about the coming furlough. Now that the furlough is over, I figured it would be a good time to revisit our goals and be accountable on where we are with them. So let's dive in, shall we? #warningitslong

At the end of July, Roman and I re-did our entire budget. For this year, we've kind of had the method of "pay extra on everything-especially whatever has the highest interest rate." But I started to feel like we weren't really getting anywhere. We weren't seeing any success because nothing was actually getting paid off, and then when we weren't able to pay extra because of the furlough, it really started to feel unsuccessful. So one day I decided to cost it out: how much interest were we saving and how soon would everything be paid off after the furlough under our current method, vs. the consolidation method vs. the Dave Ramsey "snowball method". And the results were kind of surprising.

I thought for sure that the consolidation method would be the cheapest and the fastest because we would be able to save interest on our high-interest credit card. But in consolidating, we also lost the benefit of our low-interest credit line and student loan so we actually spent more money on interest. Pretty interesting, huh? (pun 100% intended) We also would not have been debt-free until February of 2015 because of the higher interest we would be paying. So this method wound up being the worst. 

The next-best method was our current method: paying a lot of extra on our high-interest items and paying a little extra on our low-interest method. Although we did save some interest against the consolidation method, because of the furlough we were not going to be debt-free until January of 2015. And it was going to be May of 2014 before anything actually got paid off--that's a long time to wait to see any of the fruits of our labor. 

That leaves the Dave Ramsey method: snowballing. If you aren't familiar with this method, you take the smallest debt you have and pay as much as you can on it while making the minimum payments on everything else. Once it's paid off, you take that money you were paying and add it to the next-smallest debt until it's paid off. You continue this method until everything is paid off. I thought we would be spending more money on interest under this method because our smallest item (credit line) also has one of the lowest interest rates, but I was wrong because under this method our two high interest items (credit card/couch loan) were getting paid off MUCH faster. However, we did tie with our current method as far as timeline goes-thank you, furlough. 

So without further ado, here are our old goals.......

Goal #1: Pay off student loan by end of 2014.

Goal #2: Pay off credit card/credit line by July of 2014. 

Goal #3: Go on a second cruise in October. 

Goal #4: Have $3,000 in savings by end of 2014. 

Goal #5: Pay off our couch loan by end of 2014. 

Goal #6: Be 100% debt-free by end of 2014. 

And here are our updated goals under our new plan......

Goal #1: Pay off student loan by January of 2015.

Goal #2: Pay off credit card by March of 2014.

Goal #3: Pay off credit line by October of 2013. 

Goal #4: Have $3,000 in savings by end of 2014.

Goal #5: Pay off couch loan and car by June of 2014.

Goal #6: Be 100% debt-free by January of 2015.

As you can see, everything gets paid off faster except for the student loan. And the only reason we are behind by one month on the student loan is because we haven't been able to throw as much money towards our debt the past six weeks due to the furlough. 

Another thing we did was start saving for Christmas this month. In the past, we've used a combination of my Christmas bonus and credit to pay for Christmas. This year it's not guaranteed that federal employees will receive a bonus, so I don't want to rely on that. We certainly don't want to go deeper into debt while we are trying to pay it off, so we've done a mini-budget on what we want to spend for Christmas and a savings plan to make sure we have the money available. 

It's really exciting to see Goal #3, because we get to see something paid off by next month. Finally, results! Wahoo!! So congratulations Dave, you win. Not only are we saving money on interest under your method, but we are seeing the fruits of our labor a lot faster too, thereby keeping us motivated and dedicated to reach our financial goals. 

Whew! That was a long one. But you guys are all invited to an ice cream party in January 2015 so we can celebrate our debt-conquering, m'kay?? Bring the cool whip and chocolate syrup! 

Pssst: If you want to learn more about Dave Ramsey and his guide to money management, you can check out his web page here. (Not an affiliate, just really love his product!)

"The rich rules over the poor, and the borrower is the slave of the lender." ~Proverbs 22:7

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