There are a couple of things that could derail my plan, the first being unexpected expenses that will require me to re-fund my emergency fund any time money is used for emergencies. And I know they happen. Just a few months ago, we had to cough up an auto insurance deductible. I expect appliance repairs will come around at some point also. Our truck needed a new $100 plus sales tax battery unexpectedly just this month.

We’re at a point where we still don’t have the funds to fully fund any repair and maintenance categories in our budget. Frankly I’d rather not anyway. I’d rather just have a larger emergency fund for those kinds of things, but that’s just me.

I’ve been reading a book that I’m find quite eye-opening when it comes to organization and planning, and I’ve decided there’s definitely a point where we reach diminishing returns on our investment in pre-planning and over-organizing everything, including finances. A Perfect Mess is all about how some disorder and mess can benefit our lives… I agree.

Get a closer look at this t-shirt

…and then you get declined. ;-)

For example, my husband has been working a lot of overtime lately. We could have taken all that extra money and paid it toward our debts to get out of debt a few months earlier. Instead, we chose to spend some of it. He bought me a gift (a Nook from Barnes & Noble) and signed us up for the state handgun safety class so we could apply for our carry permits this year.

I’m not sure I’m quite ready to carry a gun around with me :), but he wants us to have our permits so we at least have the option.

We’ve gone out to eat a few more times than usual lately, and we’ve bought a few more things for the house.

I’m only spending what we have, not banking on future overtime. I don’t plan to get in the habit of overspending.

The thing is, the overtime has given us something to enjoy without impacting our debt payoff plans at all.

It really can be hard to decide what to do with extra money you come into. Sometimes, you just need to stick to your existing plan and treat the extra money as your chance to relax.

To start with, we cut off our satellite TV service. We installed an antenna we already owned and hooked it into our digital TV. I subscribed to Netflix and had them send me the free disk so I could stream it through my Wii. Since I won’t be letting my internet go unless I’m desperate, I figure I should make the most out of it.

We’re saving $40 a month and spending an additional $9.82 a month. That’s not a bad bargain, and the Netflix setup is amazing.

I cut my grocery budget from $110 a week to $90 a week. So we’re saving $80 a month.

Just these two cuts have given me an extra $110 a month to pay on debt. That kind of money adds up. It also means I can go from paying just over the minimum payment on the Amex to $250 a month. That’s $1,000 every 4 months!

I will certainly be on the lookout for more ways to cut. I want out from under some of these monthly bills, especially the debt payments.

Have you ever made drastic cuts to pay more toward your debt?

I think I just got pole-axed.

I’ve never been much into politics, although I’ve voted every major election and most minor elections since I turned 18. I’ve called myself an independent all this time, but in every presidential election I’ve voted for a democrat, and in most of the local elections, I’ve voted democrat.

Ouch. I hadn’t realized what I was doing, setting myself up for this.

I do not like the new healthcare law—not at all. Sure, there are parts I think are good ideas overall for regulating an insurance industry that’s held all the power against the individual over the last so-many years, but overall, those kinds of fixes shouldn’t have been part of an overreaching bill that is going to fundamentally change the way I think of federal government.

And it’s totally amazing to me that EVERY SINGLE PERSON I’ve asked has been unhappy that the bill passed into law. I must live in the wrong part of the country, because obviously we’re in the minority here or Congress would never have passed this bill.

And, yes, I know talking politics isn’t always the smartest way to start a conversation with family, friends, and strangers, but I had to do it. "So, are you happy about the new healthcare bill?"

Uh, "no" being the answer EVERY time.

My daughter’s 5th grade teacher was obviously not able to hold herself back when she told my daughter’s class, "We’re all doomed."

Of course, I’m not going to tattle on this poor teacher, not when I feel pretty much the same.

So, I’m in the middle of a political crisis, as I try to regroup and discover exactly what I’ve been supporting all these years and who and how I go about finding the right people to support in the future.

‘Cause you see, I believe in personal responsibility, and I believe my debt is my problem, as is my healthcare insurance, and that to have integrity, I have to own up to this and do what I can to get myself out of this mess.

But wait, maybe the federal government will make the credit card issuers forgive some of my debt, because you know, I didn’t really know what I was doing when I racked up thousands of dollars in debt to pay for personal junk.

Hmm, who should I lobby? Oh, wait, I’ll just get a list of democrats who can be bought with sob stories and get them on my side…

Check out: Repeal the Healthcare Reform Bill

I said the following at one point here on the site, and it turned out to be so true. Although my rates haven’t changed, more than one of my friend’s credit cards had favorable rates that were supposedly "locked in" and which subsequently jumped nearly 20%. Therefore, despite the lower interest rate, American Express remains the focus of my debt payoff plan. Once it is gone, I will start work on another debt. (Which will either be my RV or my home.)

The thing is, I would like to pay off the camper before the American Express bill because the interest rate is so much more favorable. However, with the current state of the economy and the ever-changing nature of credit card agreements, I worry that my American Express credit card terms will change drastically and unexpectedly and I’ll lose that lovely 3.99% interest rate until the balance is paid off….

I have friends who are dealing with unscrupulous credit card companies right now and I have little faith in them myself these days. My biggest fear is that before the new credit card agreement rules go into effect later in the year, many credit card companies might try to take advantage of as many loopholes in the credit card agreements as possible to keep from having customers locked in with very favorable terms long-term.

My debt repayment has been drastically slowed because I’ve cut my work hours. I went from working 3 days each week to 2 days each week, and I’m working towards quitting my job entirely and staying home to improve my family’s home life.

I have NOT accumulated any additional debt. My cash based living experiment continues to work well, but as yet, I won’t be able to actually quit my job for quite some time. I’m down to about 16 – 20 hours a week. I want to go to about 11 hours a week, but the budget just won’t allow for that yet so I’m still picking up some extra work hours from home through the week. (I work from home about 50% of the time for my job as it stands right now.) The 11 hours would allow for 2 days of work while the kids are at school.

So that’s where I’m at.

There is some bad news in all this. Last year my husband was receiving a miscellaneous payment from his employer that related to a health insurance rebate of some kind. That payment stopped on the first January 2010 paycheck. I knew it was only for the one year, but when I had reduced my hours from 3 days to 2 days, this money helped cover that gap. Now I don’t have that nearly $200 per month of income and it’s seriously hurting my budget.

Steps I’ve taken to ease the crunch

Got rid of caller ID and call waiting = $6 per month savings

Turned off the data package for my smartphone (I don’t have cell service at home anyway so the only place I could use this was when I was taking the kids to and from school so this wasn’t a big hardship for me) = $31.00 per month savings

Downgraded my satellite TV package = $22.00 per month savings

That’s $59.00 per month and I’m still looking for other cuts I can make.

I’m going to reduce my grocery budget but it won’t be by much, because I’ve always been pretty efficient with that anyway.

I’m about to read “America’s Cheapest Family” and see what tips they have but I don’t hold out much hope that I can reduce things any further than I already have.

Unfortunately, to pay off my debt faster, the only choice for me is more income, and that’s not on my agenda just yet. I need to take care of family and home first. However, I am still paying as much as possible and still have payoff of debt as my overriding financial goal.

Come bonus time for my husband (and he’s been assured that bonuses are coming) I plan to use that to pay off as much as possible of the only credit card debt I still have.

http://thehill.com/blogs/congress-blog/economy-a-budget/25427-pay-off-your-mortgage-early-for-a-fee-rep-marcia-fudge (I even left a comment back when it was freshly posted.)

I know I ranted already once on the blog, but I read this the other day and it hit me wrong. I already worry that there’s too much government interference in my life, but to know that they’re trying to take away all my responsibilities doesn’t sit well with me. I have the right to be stupid sometimes. In their effort to save people from lenders who might be trying to take advantage of others’ refusal to take responsibility for their own mistakes (such as not reading or understanding the fine print on a loan), they’re taking away my rights, little by little.

I do believe it’s unethical to offer loans to people and then encourage them to skim over the documents so they can be signed faster. However, I also believe this is where we have to be assertive and stand up for our rights to fully read and understand every contract we sign.

Yes, you’re likely to get a few evil-eyes when you take an extra half-hour to read the documents the lender wants to summarize to you in 30 seconds of chatter. That’s not your problem.

You have to be willing to walk away if that lender is behaving in a way that makes you feel uncomfortable. I’ve done it before, when I was negotiating the price on a car purchase, and it was a very trying experience. The salesman/lender (who was the same person in this instance) kept trying to question my offer because if I could make a certain monthly payment, then how could I not afford the car if they stretched out the loan term so that the payment stayed the same. He was pushy and his backhanded questioning of my financial know-how made me angry.

But I’ll tell you this: When I walked away, I had never felt more powerful. It was a heady experience. And before I left, the manager of the dealership tried to get me to take the car at MY original offer of $4,000 less than the asking price. I refused. No deal is good enough for me to put up with less than ethical and courteous service from the get-go.

The point is, we should all be willing to walk away when we don’t understand what we’re being asked to sign. We can’t expect others to pass laws to protect us from our own laziness and fear of messing up a good deal by balking at something in a contract. Once you put your name on that contract, you’ve ethically obligated yourself to the terms even if those terms suck as nothing has ever sucked before. Seriously.

And allowing government legislation to continue to pick up the slack where personal responsibility is concerned is dangerous in the extreme.

What do you think?

After having my husband’s car die a horrible death a couple of weeks ago and having to buy another one (because my husband is/was positive this car could not be fixed for less than it would cost to buy another car) it occurred to me that I might just be going about my debt snowball all wrong.

First, let me say that we replaced the dead car with a more expensive car, at $8,990 plus tax, title, etc. The loan ended up at $10,589. However, we got a 2008 automobile that still has warranty, and we’ve agreed that our goal is to make this car last 10 years, so we can get it paid off in 5 years (if it takes that long, and it might) and have 5 more years to save for another car.

Several things about this purchase bothered me though, and the main one was my husband’s inability to separate out the fact that affording payments does not mean you can afford the loan.

The thing is, when you have a spouse who believes you’re able to afford something just because you can make the payment, you really have to watch out when you start paying off debt.

As one payment falls to the debt snowball, I worry that my husband will want to buy something else to take its place. (History shows a track record for this and I’m not one to argue with history.)

I’m sure I’m not the only person trying to deal with a somewhat uncooperative spouse who just doesn’t seem to get it.

I’ve discovered that there might be a way around the fighting and worrying. It’s less like a row of falling dominoes and more like the collapse of a house of cards, but it just might work.

Don’t pay off your smallest debt first. Pay off the debt with the longest term first (with the possible exception of your home loan, depending on how much benefit you see from the tax-deductible interest).

By choosing to pay off the debt with the longest term, you eliminate the worry that freed up cash will be diverted from your debt snowball and used to make another payment for something your spouse wants to buy.

Without true cooperation from your spouse, it’s unlikely you’ll ever be truly debt free, but that doesn’t mean you can’t try. I certainly intend to do my best at it!

In the future, I will be able to spend less time worrying about what will happen when we get some of our debts paid off and we have cash available to make bigger extra payments.

Until now, my strategy has been to pay off some relatively short-term debts that should be paid off within the next year or so. However, I’m already hearing rumblings from my husband about that boat he wants to upgrade to—and how wonderful it would be if we had just a little extra money so he could make the payments.

Since I have no intention of letting this happen (if he really wants it, he’ll have to find a way to start saving for it!), I have begun to rethink my debt payoff strategy.

My camper has a higher interest rate than many of my other debts and a relatively low payment (about 1.1% of the principal). I intend to start putting any extra payments I can make toward it, instead of the other shorter-term, higher payment credit card (about 2% of the balance).

This way, I stop the “we have enough for a new payment” problem before it even becomes a problem.

Unlike with a traditional debt snowball, where you use freed up cash to pay extra on other debts in a rollover fashion, where your debts begin to fall like dominoes, this method will pay off your debts with the shortest terms on their regular schedule. This means that you’ll see more debts fall at about the same time.

Basically, I can put off the obvious freeing up of cash by saving on future interest, reducing the term of the debt by paying more principal each month, and having several debts paid off at around the same time frame. Paying extra on the camper loan should allow me to knock down 4 loans at about the same time.

I also believe this will give my husband the encouragement to save that he needs when we finally have free cash, because he will be able to “see” how possible it will be to save for a large purchase when we have so much cash freed up.

That’s the plan, anyway.

This might reduce the motivational boost I would get from paying off smaller debts faster, but it just might get me significantly closer to my goal of paying off as much debt as possible without having to worry about my husband eyeing the extra cash!

No matter what decision you ultimately make, you’ve had to make a tough choice.

These are actually quite minor choices when compared to the choice I’m talking about today.

I’ve been struggling with the problem of how to decide what’s most important to me and my family: pay down debt or save for emergencies.

I realize how important it is to have a substantial emergency fund to tide you over when you’re trying to get out of debt. But I want to make the most financially beneficial decision I can make for my family, and one pat answer doesn’t seem to fit all situations.

Assuming you’re disciplined enough to follow through on any particular plan you make, you have options other than the standard idea of saving up $1,000 before you start paying off debt (Dave Ramsey’s famous “baby step 1”).

Assuming you have $1,000 of credit available for use in an emergency, and assuming your interest rates on the cards where you’re carrying a balance are on the high side, you can save plenty of interest by paying off debt before you start saving up an emergency fund.

However, that said, there are some things to take into consideration.

1. A cash emergency fund can be used in situations where credit might not.

Say you need to rush your dog to the veterinarian after he’s hit by a car. Your local vet is cheaper and closer, but he doesn’t take credit. A cash emergency fund might be the thing that gets your dog the care he needs for a price you won’t mind paying in the long term. This situation might be a stretch, but then again, I live in a rural area and I know several vets who don’t take credit cards and who need to be paid when services are rendered. The closest “big” city is an hour away.

The way I’ve found to get around this is to make use of the cash I have put aside for my budgeted irregular expenses. Although this cash is technically already assigned a task, in a pinch, it gives me cash reserves to tap into in the event of an emergency where only cash will do.

2. If you can’t repay the emergency expenditure quickly, your emergency will end up costing you interest, which you could have been paying toward your debt.

In simple terms, if you save up an emergency fund in an account that compounds daily at a 1% annual interest rate instead of paying on a debt that compounds daily at a reasonable 7% annual interest rate, you’ve lost 6% of your money to interest payments.

However, if you then have to charge something on a credit card because of a true emergency and it takes you 6 months to repay the money, your emergency has cost you 3.5% more than it would have if you’d paid cash.

Here’s what it looks like in dollars, roughly.

$1000 in the bank + $10 interest earned if you save a cash emergency fund

$1000 less debt + $70 interest saved if you pay debt first

$1000 debt + $35 interest paid if you have an emergency that would have used all your emergency funds and you’re able to repay within 6 months. If it takes you 12 months, you’ll pay $70 interest.

However, if you don’t have a card with a relatively low interest rate, there’s another possible downside. The interest paid on a card with a relatively high rate could be damagingly high.

You could get into a cycle of debt that takes many more months to pay off than you might ever have saved by paying debt before saving for emergencies.

If you pay late, you could be subject to high penalties, usually starting around $39, and your interest rate could jump even higher.

Net savings by choosing to pay off debt instead of saving for emergencies

Here’s a summary of the financial impact of one choice over the other.

Best case

The best case assumes you have no emergencies while you’re paying off your debt.

Pay off debt: Net worth up by $1,070

Save for emergencies: Net worth up by $1,010

Worst case

The worst case assumes you have an emergency that uses your entire “fund” and that you take 12 months to repay your emergency charge.

Pay off debt: Net worth down by $70

Save for emergencies: Net worth up by $10

Somewhere in the middle

Somewhere in the middle assumes you take 6 months to pay off your emergency charge.

Pay off debt: Net worth down by $35

Save for emergencies: Net worth up by $10

My decision

All that said, I made my decision not long after I’d decided to pay off my debt as quickly as possible. I chose to put as much of my discretionary funds toward paying off debt as soon as possible. My irregular expenses savings remains my only cash reserves at the moment, and although I rethink the issue every month or so, just to be sure nothing’s changed that might impact my decision, I believe I’ve made the right choice for me for the time being.

Truly, it’s somewhat of a gamble, but the payoff of getting out of debt sooner than I would have otherwise seems worth the risk to me.

Have you had to make a similar decision? What did you decide? Comments or questions are always welcome.