DEBT REDUCTION

• Now that we have real people jobs and are out of school, our biggest goal is paying off all our debts, saving for a house, and a new(er) car for Tim. Between the two of us we have accumulated more debt than I ever wish to have again! So much, that I'm not even going to tell you the amount. Don't get me wrong, it's not as high as some people I know, just high enought that it used to give me panic attacks. To remedy this, I've spent the last year reading random financial books, all of which seem to just keep repeating themselves ("pay off your debts," "budget yourself," etc). So I just compiled the information and came up with a plan that worked for me.

• First and foremost, please keep in mind that I am NOT in anyway shape or form giving advise. I'm simply stating what's working for me, personally. Tim and I go with what is commonly known as the snowball method. This is where you take all of your debts, organize them by smallest to largest debt, then organize them by interest rates (for example, if you have two debts that are close to or equal $10,000, list the one with the highest interest rate first). We've done this and all of our 30 year school loans and car loans will be paid off by July 2017. I know this sounds a little crazy and drastic, but it works. We owe about $900 a month in debts. My Kohl's card was the first to go. After budgeting a little, we started paying $100 a week ($400 a month) on it until it was gone. This increased our debt budget to $1,300 a month. This is the amount that will never change. My Kohl's card was paid off in a little over a month, then it was to go toward a cash loan. I owe $55 a month on my cash loan, and they are expecting it to be paid off over 15 years. Now that I don't owe on my Kohl's card, all that extra money goes toward my cash loan. I pay $455 a month on it and it is NOW scheduled to be paid off July of 2011! Big change from 2025! After that's gone, I will add the $455 to my monthly car payment of $330 (now $785/month) which will now be paid off in March of 2012. This keeps going until we get to Tim's loan (which is the highest I might add). We only owe $175/month on this loan and at the end we will be paying $1,300/month on it! This is what a little discipline can do. We went from our debts being paid off in 2040+ to 2017 (that's a gain of 33 years we're not paying! Plus don't forget that you won't be paying interest on if for those extra 33 years).

• Now take it a little further. What if when we're done, we start putting that money in a savings account every month until 2040. Not counting gained interest we would have $514,800 over the 33 years we were scheduled to pay someone else. Tim & I would be in our 50's and have half a million dollars banked off the money that we were going to pay someone else! We would have a retirement fund, and extra money to retire comfortably at the age of 60 if we wanted to. I can't wait until 2017!

~Melissa~