Getting Outta Debt pt 6- Airing Dirty Laundry…Debt

This is a republishing of a post that’s part of a series on “How I Got Outta Debt” written back in 2009 when this blog was on Blogger. I know I keep saying it but this is just as relevant today as it was yesterday. If you are in the position to do so I hope that it inspires you to take control of your finances and your life.

 

Laundry is hung to dry above an Italian street.

Laundry is hung to dry above an Italian street. (Photo credit: Wikipedia)

I’m back with the calculations on all my debt listed in part 5 of this series. I’m going to show my debts, the amount of time it would have taken me to pay off the debt based on the payment amount and the total amount I would have paid doing it the way most folks do/the way the creditors want you to.

What was/is their plan? To pay the minimum payment for the maximum amount of time. This results in you paying the maximum amount of money on the money you borrowed. Translation…it’s more money that you have to work for to make these payments…forever. (it will feel like that) Here is the lowdown and remember APR is the interest rate:

 

         DEBT/ AMT/ PAYMENT/ APR/ PAYOFF TIME/ TOTAL AMT PD
  • Visa: $2371.53, $50 per mo, 12%, 65 months, $3250.00
  • H.F: $1000.00, $19 per mo, 9.9%, 70 months, $1330.00
  • Car: $3571.69, $245 per mo, 7.9%, 16 months, $3920.00
  • Capital One: $984.43, $19 per mo, 9.9%, 68 months, $1292.00
  • BoA: $4588.00, $51 per mo, 9.52%, 159 months, $8109.00
  • Perkins: $2027.15, $40 per mo, 5.00%, 58 months, $2320.00
  • Direct SL: $5786.44, $52.52 per mo, 4.22%, 140 months, $7352.80
  • Mortgage: $48175.00, $413.06 per mo, 6.25%, 181 months, $74,763.86

The total amount paid when everything is paid off according to the normal way of doing things…$102,339.86!!!

 

That $102,339.86 figure does not even include what I already paid when I had my head up my butt! Remember I mentioned that I quit playing around and got serious with this July of 2001? Well of course based on the payoff time, I would have paid almost all of these off by now (November 2009).  However, I’d still be paying on the Direct SL (Student Loan), Bank of America and the mortgage. That’s $518 on top of utilities, food, gas and whatever else for everyday living. That might not seem like much but when your income has been slashed by 50+ %,  which it had been at the time I first wrote this post, that’s a heck of a lot of extra money to have to come up with.

Also when I was writing this post, I had heard on YouTube,  a news clip from MSNBC that credit card companies are trying to jack up rates ahead of legislation going into effect to stop these practices. Well, credit card companies have always had this power and all they’ve had to do was give you a 15 day notice which is one of the reasons why I chose to get rid of them first.

In the next posts, you’ll see the RDRP- Rapid Debt Repayment plan, better known as the debt snowball plan in action.  I used that same $889.58 to not only pay off all debt except for the mortgage but to pay off all debt including the mortgage. Yes folks, it is possible to pay off all of your debt and not take the rest of your life doing so.  And you’ll see how you save not only money but your sanity as well.  But you’re gonna have to check back in to this series to see how I did it.

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How I Got Outta Debt: Resources I Used To Become Debt Free pt 2

This is part 2 of a series that I wrote August 10, 2009 when this blog was on Blogspot.com. I feel that it is as more relevant now as it was when I wrote it then. It is my hope that it is of inspiration and motivation that yes, an ordinary person can do this.OK, I’m back to continue talking about the resources I used to become debt-free. I mentioned 3 books in the last post and I’m going to talk about what I liked about each and what I used from each on my journey. Now this is not going to go along in a linear fashion as my brain does not work in that way.

I used “Debt Proof Living” by Mary Hunt and “Your Money, Your Life” by Joe Dominguez and Vicky Robins together, but I’m gonna start with “Debt Proof Living” first. “Debt Proof Living” is a really good basic how to on the way money works and how to get your money to behave as Dave Ramsey would say.NASHVILLE, TN - MARCH 06:  (EXCLUSIVE COVERAGE...

One of the things I really like and will talk about today is what Mary Hunt refers to as “Freedom Accounts”. Back in the day this was the good ole “envelope system“. My Mom & Moma (my mother’s mother) used the envelope system religiously and taught me the value of it. I had been using a version of the Freedom Accounts when I would take a certain amount out each month and set it aside for my renters insurance for the apartment I was in before I bought the house because that’s the only way the insurance company offered it. It was either a 6 month or 1 year policy…no monthly payment option. These “accounts” are also great for those “unexpected expenses” like car repairs, car tags, licenses fees etc. Anything that is not actually paid on a monthly basis.

I place “unexpected expenses ” in quotations for a reason. Whether we want to see it or not, these things are part of your monthly living expenses and if not recognized as such, can wreak havoc when they come due sending you running to the credit cards. Nothing wrong with credit cards if you use them in the right way by paying off the entire bill before it’s due but terrible if you don’t.

This is where many people trip themselves up because they do not have an accurate number on what it takes to maintain their lifestyle each month. When I say accurate, I mean including all known liabilities. If you drive a car in most states, if not all, you must have at least liability insurance, license plates/stickers which must be renewed yearly where I live, driver’s licenses every 4 years, tires that wear out, oil changes needed, and the list goes on and on. Y’all  know what I’m talking about! 🙂 By getting all of this down on paper, you’ll begin to see that it really takes $2500 per month for you to live on.  But you’re only accounting for $2000, thinking you have $500 to “play with”. Then you go and blow it on whatever has caught your attention.  End of the month Day 30 rolls around with your car tag or homeowners insurance due. Now you wonder where in the heck am I going to get the money to pay this? Add in the refrigerator breaking down along with the car.  See how this can get one in trouble?

Doing this also allows me to have overdraft protection on my account without having to pay the bank for the privilege, saving me money as well. What I did was to look at the due date for the “fixed” cost items like the license plate tag for instance, estimate a little bit higher than what I paid last year and divide that up into 26 payments because I got paid on a bi-weekly basis. I would deduct that amount from my checkbook balance as if was going to write check for the bill and mail it off. When the time came to pay it, I would add the total of the deductions back into my balance and write a check for whatever that amount was and start the process over at the next pay period. This is mucho easier if you use financial software such as Quicken. I did this the old-fashioned way before I got a computer, let alone financial software. For things like car repairs which don’t have a “due date”,  I started out with an amount like $50 a month and put it in the “account” religiously. Time and time again, whenever something came up and y’all know with cars, SOMETHING is going to need fixing/replacing etc at some point in your ownership of the car, more often than not I usually ended up with enough money in the account to take care of the problem. You can use a separate savings account but I only did it for the large things like car repairs, homeowners insurance and property taxes which in my case while I was still paying a mortgage, were not escrow-ed for the first 2 years.

Before getting serious about taking charge of my money instead of it taking charge of me, I was one of those folks I talked about earlier. Many a car repair, you name it, ended up on a credit card which in the long run cost me more money because I was not able to pay off the balance charged when it was due. Yep, “stupid tax” borrowing from Dave Ramsey again…I done paid a plenty.

Stay tuned for part 3.

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