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Posts tagged with: snowball method

Savings versus Debt

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Just to piggyback on my earlier post….

What do you guys think about this?

Screen Shot 2015-11-13 at 4.35.52 PM

Image from this article.

Apparently the image was originally from a poster on Reddit, who advocated a minimum 3-6 months of savings in an EF as well as a steady 401(k) contribution (up to employer match) prior to tackling debt.

It seems to me based on some recent conversations (occurring inside the comments sections of a few posts), that this is the approach advocated by some of our readers.

Of course, for any Ramsey followers (who, admittedly, is one of the first people to get me into personal finance, although I don’t blindly follow all his teachings; I pick and choose what works for me), this is drastically different than what is recommended. Ramsey’s Baby Steps  advocate (#1) starting with a $1,000 beginner emergency fund. His argument is that most unexpected emergencies are about $1,000 or less, so that should be an adequate fund for most people. In my own debt-reduction experience, we’ve had a handful of emergencies (e.g., emergency root canal, emergency car repairs). All of our emergencies except one have been under $1,000. And the one time we had to raid our EF for over $1,000 was this past August. It was not actually due to any large emergency expense, but due to a lack of income! I don’t get paid in August (just due to normal schedule of payment) and hubs ended up having a no-income month that month (he has a variable income). So, really, I would consider this more of a factor related to variable income rather than due to an emergency, per se.

Ramsey’s next baby step (#2) is to pay off all debt but a mortgage, followed by (#3) going back and re-stocking the EF up to 3-6 months expense.

Obviously a very different approach, right?

What other factors do you think are important?

I think for single people, people without kids, people with low monthly expenses, renters, and people with steady/predictable income a lower EF might be sufficient. I also think it depends on the size of the debt (e.g., will it take 3 months to pay off or 3 years to pay off? I’m more likely to be “ok” with a smaller EF for a short period of time rather than a long one).

I’ve also seen some arguments over what debt should be considered high versus low priority. Some people are okay with student loans and car loans hanging around for awhile, though almost everyone is in agreement that credit card debt should be tackled quickly!  I’m of the mind that I want ALL my debt gone. That being said, I’ve still prioritized my debt such that I have paid/plan to pay: (1) credit cards, (2) car, (3) student loans (4) medical bills. To me, our medical debt that has no interest is way less burdensome than my student loans (mostly at 6.5% interest), even though the overall amount of the student loan debt is significantly larger than the medical debt.

Those are just my thoughts.

How have you prioritized debt repayment savings? And, among your various forms of debt, how have you ordered or prioritized which debt to pay first? Do you do the snowball method (smallest debt first), avalanche method (highest interest first), or some other arrangement (such as the most personally satisfying)?

Personal finance is just that – personal. So I don’t think there’s one “right” or “wrong” answer and I think there are multiple different routes to the same end-goal (being DEBT FREE with a good financial security net). Just curious about your thoughts on the matter!


Ashley’s April 2015 Debt Update

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Happy Monday! Hope you all had a good weekend!

This weekend was our little camping trip I mentioned in a previous post (couldn’t find the link). Basically, the town where we live hosted an overnight camping thing. It cost $5  for a family of 4 to camp, and they provided star gazing (with giant telescopes), a big outdoor movie screen playing Wall-E, a bonfire with storyteller, and tons of other perks (e.g., playscapes for kids were on-site). Husband and I used to be avid campers but this was our first time to go since the girls were born. This was a perfect “get your toes wet” kind of experience because it was so short (just one night), and had lots of fun amenities for kids. We had a blast (minus my allergies and all), and I expect stuff like this will only become MORE fun as the girls get older! Who doesn’t love some good old fashioned cheap fun!?

Anyway…. let’s get to the heart of this post. It’s time for another debt update. But before we dive into the table let me explain what I’ve done here….

I’ve now added a new loan to the list titled Balance Transfer student loan. This loan amount includes the original balance from my Navient loan #1-01 of $5821 (I used the exact 10-day payoff amount) PLUS the 2% initiation fee, for a total balance of $5937 (if you’re catching up, I wrote more about the decision to do a balance transfer here).

For now, I’ve decided to leave the rest of my Department of Education loans grouped together. When I move onto focusing on a new one, I’ll probably do the same thing and separate just the one new focal loan. Otherwise, for continuity and ease, I’ve left them grouped together. The other thing to note, however, is that I’ve changed the amount in the “original debt” column for my Department of Education loans to reflect a lower amount (equal to subtracting the amount from loan 1-01, which is now separate). I’ve also changed the APR (it used to range from 6.55-8.25%, but I’ve now separated the only 8.25% loan – my balance transfer loan – so all the rest of my Department of Education loans are 6.55% APR.

So hopefully that should explain the changes. Everything else is pretty straight forward.

PlaceCurrent BalanceAPRLast Payment MadeLast Payment Date Original debt, March 2014
Capital One CC-17.9%-Paid off in March 2014$413
Mattress Firm-0%-Paid off in May 2014$1381
Wells Fargo CC-13.65%-Paid off in May 2014$7697
BoA CC-7.24%-Paid off in June 2014$2220
License Fees-2.5%$1119Paid off in April 2015$5808
PenFed Car Loan$154232.49%$100April$24040
Balance Transfer student loan (Former Navient 1-01)$59370% (through April 2016)$0(balance transfer initiated on 4/2/15)$5937
Navient - Federal Student Loan$40788.25%$116April$4687
Navient - Dept of Education student loans$665566.55%$260April$63254
ACS Student Loans$210407.24%$77March$21035
Medical Bills$61360%$124April$9000
Totals$119,170 (Last month = 120,610)$1796Starting Debt = $145,472

I guess I do have a couple more notes I want to make about my debts this month…

First, you’ll notice another really low car payment this month (last month I only paid $50, and this month only $100). That’s because I really wanted to knock out those two debts I’ve been battling (a medical bill and the license fees). Also, since I initiated my student loan balance transfer this month I didn’t actually make any payments on it yet.

Starting in May, I’ll be making payments of $500/month toward my balance transfer student loan, and will be increasing my car loan payment as well. I’ll continue making minimum payments on everything else, so the size of my car loan payment will fluctuate depending on how much money we have to put toward debt during the month, but my hope is to be able to put at least $1,000 (or more) toward it fairly regularly from here on out until its gone!

Exciting stuff!!!

What’s the most recent debt you paid off?

 


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