Saturday, April 22, 2006

Closer to Debt Free

I paid off my biggest mortgage this week. The process for paying it off has been a series of good fortune and in the case of the last payment misfortune. Good fortune, because I received a windfall of stock in Alltel, from a privately held company. All though my bad planning there put me in debt to the IRS. I also took my $2000 in the 401-k and applied it to the debt, earlier this year when my company merged with another. The misfortune, was an insurance check due to being the victim of an arsonist, that set a storage shed on fire. Most people don't get these kind of checks to what I did. I have just been extremely blessed by God to do so. Allowing me to pay off the mortgage (which was a consolidation loan) off 3 years early.

Most people would add a little extra to their regular payments, so that they can pay it off earlier. The next thing to do (and what I am describing is what Dave Ramsey calls the debt snowball), once one debt is paid off is to add that entire payment to the next debt. So for me, and I have been over extended on my monthly bills, I am taking that $400 a month and putting it towards my next mortgage (a home improvement loan). So instead of $75/month, I will instead pay them $400/month, however to keep the interest to a minimum and get more to go the principle, I will pay it at $100/week for the next 19 weeks.

After that I will then start doubling up on my car loan so that I can get that paid off earlier. I have put my credit card away and am not using it, while sending them $200/month I expect to have them paid off in 2-3 months and will then keep the card only for emergencies while I working to build my savings.

Also please note for those that carry a cash balance, but carry a balance from month to month, but think they are taking advantage of the 30 day 0% grace period. That grace period only exists if their is no balance left. Anotherwords, it has to paid off 100% every month.

2 comments:

  1. Awesome, Kevin. Keep up the good work.

    If you are interested, my wife and I are starting Dave Ramsey's FPU at Fellowship Bible Church this Wednesday night (April 26)...you've probably heard the promos on 1440.

    We would love to have you experience it with us and share your personal testimony.

    Contact details are at FBC Topeka, click on Calendar and look at the details for Wednesday, April 26.

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  2. Dave Ramsey is absolutely right with his debt snowball idea. But a very key question is which debts to pay off first. You specified elsewhere that secured loans should be prioritized. I don't agree. Secured loans should be paid on time every month, but priority should come from rate, and probably only rate. So if your home improvement loan is at 7%, that's interest you deduct, so it's like 5%. If your car is at 7%, you cannot deduct any of it. So you should pay the car off first. And if the credit card debt rate is higher than the car loand rate, it's the credit card that should be your first target until it's gone. Rate, rate, and rate.

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