I am deep in debt. Up to your chin in a muddy swamp kind of debt. Way more than $44,000 in debt. But I want to speak on budgets today, and how you can use Dave Ramsey’s snowball method to pay down a huge chunk of debt. Let’s start off by being VERY candid with how much debt I actually have. (#drinkeverytimeisaydebt #notreally #butillsayitalot)
- $3,000 Credit Card with iTunes Rewards (19.24%)
- $17,000 Private Student Loan (7.25%)
- $24,000 Car Loan (0.00%)
- $242,000 Federal Student Loan (consolidated at 7.25%)
For a grand total of $286,000 (for now – see interest rates :).
Obviously, this post is not titled “How I Plan to Pay off $286,000 in Under 2 Years” – I WISH. Instead, I am sculpting my debt pay-off scheme into two phases. The first phase will entail combining the credit card, private student loan, and car loan debt, which is equal to $44,000. Then I will focus on the federal student loan. Let’s refer to it as “Operation Freedom.”
Before I get started sharing my plan for Phase 1 of Operation Freedom, first you should know some facts:
- Dave Ramsey’s “Total Money Makeover” has inspired me since before I went to
Helllaw school – yet, I still went, but that’s beside the point.
- Because of Fact 1, I will definitely be using the ‘Snowball’ method – a ton.
- There is NEVER one correct way to curate a plan to pay off debt or one correct way to budget, and this is no exception – do what works for you. (#youdoyou)
OPERATION FREEDOM – PHASE ONE
- Monthly Income – $3,700 (not counting 5 week months)
- Minimum Debt Payments – $1,263
- Life Necessities (rent, food, gas, insurance, etc.) – $1,600
I will admit that $1,600 in “life necessities” is a little higher than I would like it to be, but it is what’s doable for me right now – I would be hard pressed to find a cheaper rent, or better landlords, in the area I’m living in – I should know, I do A LOT of landlord/tenant work. (#evictionsyo)
If everything goes smoothly and nothing happens to my budget (HA), then I have about $800 left over at the end of the month. My goal is to always live below my means. Or as Dave Ramsey puts it, “Live like no one else today, so you can live like no one else tomorrow.” But sometimes I get bit by the shopping bug, which I try my VERY best to overcome.
I already have an emergency fund in place for, you guessed it, emergencies. Those pesky little life moments you would not have seen coming – the “if it were a snake, it would have bit me” moments.
My budget does not account for any potential raises over the next two years. However, one is *crossing fingers* expected in summer 2017. (#holla) At that point, I will re-evaluate Phase One!
My plan is to invest the ENTIRE $800 back into my debt. For example, my minimum credit card payment is $131. BUT I will pay $931 instead. Here’s where the snow ball method comes in – once the card is payed off some time in June 2017, $931 will be allocated into my private student loan teeing up a whopping $1,186 payment. Once I pay off that loan, I’ll move on to the car loan.
I also plan on investing back all of my tax refunds back into my debt as well. I do not and will not get a ton back in refunds, but anything helps.
What If Life Gets In The Way?
Best laid plans are meant to be broken, so contingency plans are a must. Do you remember the 5 week months I mentioned, and did not account for in my budget? I intend to save the extra paychecks (twice per year) and use those accordingly – whether for savings or on family and friends for gifts.
Paying off debt is hard! Many times I think about the money I am spending on my debt and think to myself “I could do this” or “I could go here.” But I keep reminding myself that this is what I got myself into. I wanted to go to a big university. I wanted to go to law school. And to get what I wanted I had to take out the loans.
It helps to focus on that feeling at the end of the next two years – when about 20% of my debt is paid off and I can use that snowball to sucker punch my federal loan. Obviously, I won’t be able to pay off my massive federal loan in record time on a modest income, but that is not my focus now. My focus is paying off $44,000 in 2 years, and the blinders are on!
Do any of you have any plans to pay off debt? How does your plan differ from mine? Any advice or tweaks you would make to Phase One of Operation Freedom? Give me the deets in the comments below.