Debt

This article is part five of a series I’m writing explaining exactly how my family and I paid off over $90,000 of consumer debt in less than two years.

By the end of June 2004 my family and I were 6 months into our effort to pay off all of our non-mortgage debt.  As you can see from the table to the left, we had already paid off 5 of our “smallest” account balances. 

Each month that went by we were able to pay off more and more debt by trimming our expenses, working lots of overtime, and rigorously keeping track of every penny we spent.

Our original $90,415 debt balance had been reduced  to “only” $53,678 and we were actually starting to see some light at the end of the tunnel.

Our monthly take home pay was approaching $6,600 a month from working lots of overtime and receiving a raise at work.  Even better, nearly $3,600 of this take home pay was going directly to pay off our debt!

The $13,240 Credit Card Balance:

The next big challenge in our quest to become debt free (except the mortgage) was our USAA Credit Card balance of $13, 240.  Ironically, not a single dime of this balance was actually charged using my USAA Credit Card. 

In a previous article, I explained how I transferred a combined balance of $14,600 from two of my high interest credit cards (American Express, and Citibank Visa) to a USAA Credit Card at 0.0% interest.

I had actually called USAA to cancel my credit card because I had not (and did not intend) to use the card.  When the representative asked me why I was canceling the card I told them that my wife and I were attempting to pay off all of our debt.

The representative said she could actually help me out by allowing me to transfer up to $10,000 of my other credit card debt to my USAA Credit Card.  She also informed me this move would save me up to $1,400 per year in interest alone.

When I explained to her that I actually had over $14,000 in credit card debt she said she could “raise” the limit on my balance transfer request to clear up the balances on the other cards.  With no balance transfer fees and 0% interest for 12 months, the offer was too good to refuse!

From July to November of 2004 my family and I focused every single dollar we could towards paying off the balance of our USAA Credit Card Balance.  Sticking with our debt snowball plan, we continued to make minimum payments on all other debts and made (at least) one big “snowball payment” each month to our USAA Credit Card.

Reviewing my old Excel checkbook spreadsheet records I created, I see were we made the following payments over the course of 5 months to eliminate the balance on the credit card.

• July 2004: $2,300
• August 2004: $2,000
• September 2004: $2,400
• October 2004: $1,940
• November 2004: $4,600

By November of 2004 all of our outstanding credit card debt was paid off and our debt snowball was still building momentum! 

Now that we had “control” of our money through our written monthly budgets and my Excel checkbook spreadsheets, it was amazing to see what we could accomplish financially.  Had we not taken command of our finances and developed a plan to pay off our debt, I’m confident these extra payments we were making would have been wasted purchasing frivolous junk (like we had always done in the past)!

Highest Interest Rate or Lowest Balance First:

There has always been a debate among “debt snowballers” over which loans to pay off first.  Should we pay off the account with the highest interest rate or lowest balance first? I’ve actually written about this topic in the past but I thought it was worth brining the topic up again as our family’s debt freedom story continues.

With only three debts remaining, my family and I were faced with an all too common choice.  Should we focus on the next “smallest” debt in our debt snowball list (our low interest student loans), or should we attack the debt with the highest interest rate ( the remaining $17,000 on our Volvo s40)?

By utilizing the debt snowball calculator program I created, we determined that focusing our debt snowball payments on the $17,000 remaining on our Volvo s40 would shave another week off of our projected debt free day.    We were long past the stage of a “few quick wins” and it was now time to do what was right “mathematically” so that we could get on to the next stage of our financial lives!

The remaining balance on our automobile was our next “public enemy #1“!

To be continued tomorrow!