11/17/2008

FINANCIALLY SPEAKING

I haven't really talked all that much about money lately, and it seems as though it's a very common topic of conversation lately. But it's usually in terms of "Man, I'm broke" or "I lost half of my 401K! Awesome!".

But just because the stock market is tanking doesn't mean that the bills go away. On the contrary, they're still around. While the interest rate on our Home Equity Line of Credit (HELOC) has gone down dramatically, the balance still remains. Hubby and I have been having conversations on our new financial path. The new financial path has involved spending less and allocating more to debt elimination. We could spend even less, but we're working on it. Some things are a priority and will not be given up, like the house cleaning. But Hubby eats out a lot during his work week, and that will be easier to trim.

I've talked about our debt situation in the past. It's nothing horrific to speak of. We have the beforementioned HELOC which is the bulk of our debt. The other debts, although smaller, are starting to really bug Hubby. Namely, our truck loan. Recently, Hubby paid off the balance on his braces because it just bugged him that much (even though the payment plan didn't charge interest). I think for him it's not just the dollar amount or the interest rates, but the number of entities that we owe money.

Here's how it stands:

- My Student Loan: Balance $2229.33, 3.25% APR Fixed, $60.97 fixed monthly payment
This student loan doesn't really bother me all that much, because the interest rate and payments are really low. I would like to get this paid off early, however, because the balance seems reachable. Also, the Student Loan Interest tax adjustment is limited for me due to my & Hubby's income.

- Truck Loan: Balance $3739.18, 4.74% APR Fixed, $424.20 fixed monthly payment
This truck loan is really irking Hubby. How I know is that every once in a while he'll ask how close we are to paying off the truck. We have 9 payments left.

- HELOC: Balance $12763.68, 5.70% APR Variable, $100 minimum monthly payment
This is the loan that bothers me the most due to its sheer size. It's a Home Equity Line of Credit and basically how it works is that we have a 10 year "draw period" where we can draw money from the credit line and we only have to pay interest or $100 per month, whichever is higher. When the draw period is over, we enter a "repayment period" of 15 years where we have to pay principal AND interest. We're 5 years into the draw period and have used our line solely for house stuff. I really want to get this thing down before we start making the repayments.

And that's about it EXCLUDING the mortgage on our house. That number is so huge that it's not even worth mentioning, but we are making extra principal payments ever month. Also, we have a Visa where we charge EVERYTHING (for the miles, baby!) but we pay it off every month and hold the money in our checking account.

We have savings that we're trying to build up, and the fact that we're current on our debt payments, I don't need or want to tap into it...for now. I'm building on my personal emergency fund (Goal $3000) as well as our joint emergency fund (Goal $6000), and I feel it's important to build them to goal levels before tackling debt to the max. We just never know if there will be a time where we need quick access to cash. While paying off debts will feel better, it won't help in an emergency situation. For example, if I make extra payments on my student loan, it reduces my principal balance but I still have to make a payment next month. It doesn't help in the short run is what I'm saying.

Here is what I was doing. I have been focusing our energies between our joint savings and our HELOC. Our savings is pretty good, not exactly where I'd like it, but it's enough to make a couple of house payments. There are automatic transfers into our savings accounts as well.

So, what we're going to do now is not exactly a classic debt snowball, which is paying the highest interest stuff off first, but more of a modified debt snowball (via Poorer than You), which is paying off the most annoying stuff off first.

We are going to focus our energies into paying off the truck. This is pretty much as far as I have thought about it. I haven't really decided if the student loan bugs me more or if the HELOC bugs me more. It would be soooo nice to not make those student loan payments anymore, but as I mentioned before, the HELOC balance is so big!

I'll cross that bridge when it comes to it. With Christmas coming up, I'll be asking my family for checks written out to the Department of Education. Let's see if my Mom takes the bait, which may help factor into my decision. I don't see the truck getting paid off before then.

I'll keep you posted....

2 comments:

Auburn Kat said...

I definitely agree with you on having the emergency fund first before you start really tackling the debt.

marisol said...

Good luck to you and your hubby in managing this debt. I pulled my credit report today and saw my total debt and about puked. I had forgotten how much I had borrowed for school. I was happy to see that the $$ on my credit card was nothing. What I mean is that I have been so good with my credit card for the past year that what I spend during the month I pay off right away.

I really should build up an emergency fund.