Sunday, July 23, 2017

How to get better traction in paying off your debt

Have you ever felt stuck in your efforts to get ahead in your financial goals? I remember reading once where someone mentioned that some people's problem is not that they don't have good goals, but that some of their goals conflict with each other and it holds them back.

We have a goal to pay off the rest of my husband's student loans from law school in the next 2.5 years. But along the way, we, being homeowners, have also wanted to make certain improvements to our home or yard. Some of them are necessary or improve our quality of life as we pay off debt. And the ones we do make are usually pretty frugal, such as our modest kitchen makeover and our mudroom makeover. But there are other ones that have crept in, like putting new flooring in our basement or replacing our broken television or upgrading to smartphones. None of these are really necessary, and the money diverted to them could hinder or progress in paying off student loans.

I have felt convicted recently about our effort to save a little extra of our income since my husband got a raise about six months ago. Initially we had plans to save as much of it as we could while putting just a little extra toward debt. It seemed like a good idea to have a much larger emergency fund than the often recommended $1000 fund.

Not surprisingly, however, I have noticed that when there is extra money in our bank account, we have a way of spending it. Most of these expenses have been necessary, such as paying for summer activities for the kids, bar registration fees, new tires for the van and more, but still, I'd like to challenge ourselves to make every effort to put any extra income toward debt in the next ten months after basic necessities have been taken care of. We have a decently comfortable amount in our savings account now, and if something big comes up, we have about $1,060 extra dollars a month (which I plan to put toward student loan debt) that can be re-directed toward an emergency because we are on an income-based repayment plan which only requires us to pay $48 per month toward our student loans.

This doesn't mean we won't purchase anything, just what we absolutely need. Shoes for the family fall into that category as does clothing, but when possible I will try to use birthday money/Christmas money gifts to put toward that. I would also like to try and save gift money for home projects instead of always dipping into our savings account.

If you're wondering where you could make cuts, here are some questions that have helped me determine where to make them:
  • Do we really need it? A leaky shower that needs to be fixed because it's damaging subfloor is needed, as are tires so worn that the metal rim is peeking through <gulp>. A replaced, more aesthetically pleasing flooring choice in our basement is not.
  • Will our quality of life be sacrificed in a way that will lead to emotional weakness in pursuing debt repayment? For example, theoretically we could live on only beans and rice to save more money in our grocery budget, but we'd quickly become so demoralized that we might spend more in other areas to compensate and give up on repaying our debt.
  • What will this purchase cost me in terms of time, money, and maintenance? I love to build things and have been tempted to put some of my birthday money toward a new table saw, but I know that with four kids and homeschooling, I won't have that much free time to make use of it. Besides, if I do have free time, I should put it toward earning extra income until our student loans are gone!
  • Can I find another way to get this without paying a lot or anything at all? As a homeschooler, one of the biggest temptations I have is to buy more curriculum or books for my kids. But we also have access to one of the nation's best libraries, and I could teach science by checking out some high quality lab books and working through them with my kids. Similarly,  I would like to have more home decor around the house to make it feel cozy, and I have a lot of scrap wood which I could turn into trays, wall organizers, and more. 
  • What will I gain by waiting? Sometimes simply putting off a decision for awhile will either make the want go away or give you better options. I faced this recently when we almost converted to smartphones because the price per month is only slightly higher than what we are paying for basic phones and my husband's keypad is beginning to wear down (he's a heavy texter :)). There was a great deal for decent phones at only $10 each, but we decided to wait because the higher bill would amount to an extra $96 per year. My guess is that by waiting, if and when we do convert, we will have choices in phones that are even better than they are today. 
  • Which matters more? By prioritizing your financial goals, you can achieve one at a time faster than if you tried to tackle them all at once. For us, paying off these loans is really really important, and it's much more motivating to get them done more quickly than to drag it out for 10 years. 
It took me awhile to realize this, but now I now that I really really want these loans to be gone as soon as possible. The more I crunch the numbers, the more excited I get about how much more we could pay off in the next eighteen months.

Asking questions like this can help you put a pause on the dollars that are flying out of your wallet. Decide what matters to you, and then do everything you can to pursue it. 

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