The cold, hard number

My mother refers to the practice of avoiding uncomfortable introspection or confrontations as the “Ostrich Syndrome.” As in, bury your head in the sand and hope that either the situation changes without introspection or confrontation, or bury your head in the sand and pretend there was never a problem to begin with. I feel fairly confident in saying that our approach to our debt was the former and not the latter, which is a start? Maybe? We knew we had debt, we talked about it all the time. I made transferring balances into a high art form. We made plans all the time. Yet, nothing happened. I haven’t done the math, but I’d be willing to bet we’re at the same sum of accumulated debt that we were at four years ago. More, even, since we just bought a new car for many thousands of dollars more than the one we bought four years ago. And that’s kind of an issue when our household income is more than double what it was four years ago.

One of the consistent pieces of advice I’ve read on debt reduction is to start small. Get rid of the lowest debt first, regardless of interest rate, and work through them all like that. Along those lines, I also chose to start small in evaluating our debt. Which means that when I added it up I only included consumer debt on credit cards. The number is still staggering to me, but it’s a little more palatable than what it’d be if I added in twenty something thousand for the car, several thousand each for college loans, and several thousand for the idiotic loan we took out while my husband (heretofore referred to as “the Rev”) was in seminary.

I added it up yesterday. And I’m posting it here because it’ll keep me honest. The magic number is $11,833. All on credit cards. The breakdown: $5,401.97 on one, $4,884.85 on another, $876.67 on a third, and $671.00 on the last one. Two of them, the highest and the lowest, actually, are at 0% interest right now. The second highest is at 1.9% for over a year.

I wish I could even say definitively how it all got there. We have no trips to exotic, semi-exotic, or even remotely exciting destinations here. Our TVs are both 10 years old. Our laptops are fairly new, but both were paid for in cash (from the credit card pay-off section of the budget, naturally). Basically, this debt was accumulated by really doing a few things, the lessons from which I’ve taken and created our rules for paying it off.

  • Pay ourselves first. As a clergy family, we pay taxes quarterly (the IRS considers ministers self-employed). Thankfully, we got smart last year and decided to start actually setting money aside to pay quarterly taxes, rather than taking it quarterly from the money we allotted to debt repayment (more on that later). We even got a little smarter than THAT and decided to take out even more so we’d have money saved for Christmas presents or what have you. On top of that, we had a savings account attached to our bank account that deposited a dollar every time we used our debit cards. That was our first line of defense saving and the other account was the second. Except when it came to those things we were saving for, we always seemed to balk at withdrawing from savings. For some reason, it seemed better to put a $45 oil change at the end of the month (the Rev is paid once a month) on a credit card than to withdraw from our savings account. I don’t know where this logic came from, but it is not logical or smart. So, while we’ve already technically been doing Rule Number One, we’re going to actually have to start *using* that money. The plan is to save the same amount we did last year for taxes, and, since we switched banks a few months ago and now don’t have the benefit of automatic deposit into savings, to deposit at least $75 from each paycheck (roughly what was going into the savings account from the old bank) into the savings account connected to our checking account.
  • Budget. The ol’ “if you want to win the game, you’re going to need to score more touchdowns.” In other words, the obvious one. And one I’ve tried before. Many times. Along with the software. Nothing has worked. So this time I’m approaching it differently. The huge problem with budgeting when we wanted to pay down debt is that we often didn’t take into account other expenses we could incur, such as car maintenance, pest control, etc, and therefore when they arose, we’d just take the money from the line item reserved for debt. And then if we’d spent all that already, we would either put it on the credit card (likely) or cross our fingers we’d still have enough money to make it to the end of the month (less likely without transferring from savings). In the immortal words of Robin Morgan, “goodbye to all that.” Now I’m  making a line item even for things that don’t go out every month and putting it in the savings account. I know it’ll cost $78 every three months for pest control. So each month $25 is going into the savings account and will be withdrawn every three months (I figure we can cover the extra $3). The Rev drives an old car that’s oil only needs changing maybe twice a year because of the limited number of miles he drives it, but is also more inclined to need work every time it’s looked at. So $20 a month is going into the savings account for that. I know the budget won’t be perfect, but if the past is any indication of where our problems lie, hopefully being very, very specific will alleviate some of them.
  • The Envelope System. I’ve tried this before and it worked out ok. One of the drawbacks to it was that I’d withdraw all of what I’d budgeted at the beginning of the month. That made the Rev uncomfortable because he didn’t like me having large sums of cash on my person. So I started leaving some at home. But then it became kind of our go-to cash pile, and it was a lot easier to lose (I swear, I still wonder if I accidentally tossed $200 months ago). So now, my solution is to withdraw only what I’ve allotted each week for groceries and miscellaneous expenditures. If I end up needing more I’ll withdraw that, too, but must make a note of it so I adjust for that in subsequent weeks.
  • Leaving the debit card at home or in the car. This is one I’ve never tried before. I came up with it because it’s a hell of a lot easier to be less careful about shopping when I’m paying with a debit card rather than a set stack of cash. I might have to go Robin Morgan on the dollar section at Target, but I think I can live with that.
  • Paying off debt throughout the month. This is also a new-to-me strategy. I read about it here and really wanted to try it. As I’ve already said, one of our biggest mistakes/habits is to pull from the debt payoff pile or to have to resort to credit cards because we’ve overestimated the debt payoff pile or have unbudgeted expenses or just went over our budget entirely. Paying off a debt throughout the month–paying the same we would when the payment is due, just over the course of a month instead–is a way to address that. I followed the formula above to address the card with the lowest amount on it this month, and to hopefully pay it off entirely. That means making the minimum on the due date and then setting up extra payments that add up to the snowball amount. As I don’t have the expectation that we’ll be getting any extra income in January, I just subtracted the minimum payment from the total and then divided that by four to create an equal number of installments. I did this all through our bank’s online bill pay. This way, if we’ve budgeted wrong or sold ourselves short, I can cancel a payment if I need to. I like that flexibility.

So those are my rules for getting this taken care of. By my calculations, it should take a little over a year. I’d be so excited if we could get it done by Christmas 2012, though. Then maybe we’ll tackle that idiotic loan from seminary


About twokidsandonedog

SAHM, two kids, one dog
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