FPU Week 4: Dumping Debt

Lots to talk about and I'm behind, so let's kick it off:

Starting off with some statistics for 2009:

1.) Total amount of consumer debt in the United States stands at nearly $2.5 TRILLION dollars. That works out to be nearly $8,100 in debt for every man, woman and child that lives here in the US. We're talking about consumer credit - which does not include debt secured by real estate. So if you're thinking that number has mortgage values in it, it doesn't.
Roughly 36% of all consumer debt - as of November 2009 - of this type is what is termed revolving credit, which is defined as credit which is repeatedly available as periodic repayments are made. The most common type of revolving credit would be credit card debt.
The other 64% of that debt is derived from loans that are not revolving in nature. This type of debt would include automobile loans, student loans, and loans on boats, trailers or even vacations.

2.) The average new car loan is over $30,400.

3.) According to information gathered by the US Census bureau, there were approximately 173 million credit card holders in the United States in 2006 and that number is projected to grow to 181 million Americans by 2010. These same Americans own approximately 1.5 billion cards - an average of nearly nine credit cards issued per credit card holder.

4.) This data also tells us that Americans carried approximately $886 billion in credit card debt and that number is expected to grow to a projected $1.1 trillion by the year 2010. This works out to over $5,100 in credit card debt per cardholder (not household) and that number is expected to increase to over $6,500 by 2010.

Statistics courtesy of money-zine.com. Edited for space.

The sheer magnitude of these facts alone is enough to reject the entire notion of lending altogether. Have you looked at your recent credit statements?  Lenders are now required to show how long it would take to pay off your debt paying just the minimum payment.  I have a $1400 credit card debt that would take 17 YEARS to pay off using just the minimum payment.  Kudos to Congress and President Obama for getting that done!  That single revelation should be enough to get people "gazelle intense" about paying off their debt!

We have started to become "gazelle intense" on our debts.  We have sold some items on Ebay and Craigslist, and are putting that money towards our debt snowball.  My wife has resolved to pay off some 5 debt accounts by the end of this summer.  It is challenging yet encouraging.  I am so blessed to have a wonderful wife who supports me and our endeavor to become debt free!  She is the rock that keeps me sane.  I am most definitely the nerd and she is the free-spirit, though we both have cross-tendencies.  I can spend in a frenzy and she can be a tightwad...rarely.

NERD ALERT:  I have already begun budgeting for April.  I now LOVE getting bills in the mail before the month starts so we can map out our spending; it's like a game!  (We'll see how excited I am 16 months from now.)  Our debt snowball shows us being debt-free in 36 months, so we're going to have to keep up the momentum to get there.  I, personally, would like to beat that.

Extra money opportunities are always nice.

One of the things I've been looking for is gaining a little extra money to throw at my debt snowball.  I'm always VERY skeptic about "sit-at-home-and-do-nothing-and-earn-money-on-the-internet" schemes, but I can actually attest to OpinionOutpost.com. I wouldn't push a scam on people because I've fallen for those, too, but I have actually earned real money from this site.  I sat down and took two surveys that paid out a total of seven dollars.  Seven dollars?  Free money?  That was pretty sweet.  I get about 4 or 5 survey offers a day, some I qualify for, some I don't.  You get paid in points, which equate to 10 points for $1, and I've never even seen a survey that paid less than $2 minimum.  Once you accumlate at least $5 you can request a check, and it's easy to keep track of what you earn.

For even more legitimacy, OpinionOutpost.com is the survey portal for Western Wats, a actual, for-real market research company.

Doing surveys for a week and then getting a check for $15 or more is free money that can really help with the budget or the debt snowball. Of course, if you're not doing a budget yet, you don't know how precious those dollars really are.  DO A BUDGET!

Sign up for OpinionOutpost.com today, try it out for a little bit, if you like it, great, if you don't, leave.  Membership is absolutely free, and you can leave anytime.  (I know, I sound like an infomercial.  Sorry.)

Changing our life one baby step at a time...

My wife and I started Dave Ramsey's Financial Peace University two weeks ago. I have been following Dave for the past couple of years but after numerous false starts we finally got on the same page at the same time and decided that if we were going to be held accountable we would need to attend the live group.

Before our class started I sat down and crafted a budget with Shan for the month of February. Surprisingly, it works just as advertised. After never having any money at the end of each month, and basically spending next month's money to cover the current month's expenses, I'm proud to report that we have ended the month with roughly $400 left over! We are so proud! It's going straight to the emergency fund.

Baby Step 1: Build a $1000 emergency fund.

I thought it would take a couple of months to build our fund but the goodness of the Lord led me to some unexpected money sitting in an account with an institution that equalled roughly $580! So it looks like we got our fund a lot quicker than we expected! I've also listed some items on eBay and craigslist to gain some add'l money.

The emergency fund is for life's little "murphies" (Murphy's Law- if something can go wrong, it will) so they do not ruin your progress on baby step 2.

Baby Step 2: Pay Off Debt using the "Debt Snowball"

The debt snowball is a mathematical wonder that allows you to use your current payments (and any little extra you can afford) to attack each debt one at a time. If you continue to pay your debts using just the minimum payments you are diluting your efforts and will never gain any traction. Start looking at your credit card bills now. Thanks to the Credit CARD Act of 2009 companies are now required to tell you how long it would take you to pay off your balance with just the minimum payments. Suffice it to say, depending on your balance, it will generally be ten years or more.
Line up your debts starting with the smallest balance first to the largest balance. Continue making minimum payments on all debts except for the first one, where you will throw as much money at it over the minimum payment as you can. Financial wizards and rational people will tell you to line them up by higher interest rate to lower interest rate to save the maximum amount of money. (You will save money by reducing future interest). But, (and I do attest from personal experience) you DO need some quick wins at the beginning to build momentum and feel accomplished and to have the drive to attack each one and actually finish. As your total debt goes down, those larger balances don't seem as insurmountable as before! Here are two arguments against the interest rate approach:

1.) "Personal finance is 80% behavior, 20% head knowledge." -Dave Ramsey

2.) You would continue paying interest into infinity if you weren't doing the snowball and trying to get out of debt, so you're saving loads by simply being on the program. If a certain approach helps you stay on the program, DO IT!

After formulating my debt snowball (google: debt snowball calculator), it looks like it will take us 36 months to pay down our debt. The emergency fund is there to keep us on track and to allow us to take care of financial emergencies so we don't end up going into more debt to take care of them.

Tomorrow, we do our third class of FPU. We have some great news to share and hopefully we can help others enjoy the same success!


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