Reality check

Since deciding to put all extra debt payments on hold until after we receive all of the medical bills from DS L’s procedure, I’ve been thinking about how little progress we’ve made in the last year. On one hand, I know that the decision was prudent in order to make sure we could cover the unknown expenses we will be incurring (tomorrow is the big surgery day). On the other hand, a big part of the debt pay-off mission is psychological and it kind of feels like putting extra payments on hold is damaging what little momentum we have left after last year’s debt increase.

After a few days of stewing on this, feeling like we were never going to get back on track and wavering on the decision we made, I realized I needed to adjust my perspective on the debt payments we make each month. Using the terms “minimum payments” and “extra payments” has been a great mental motivator to upping the amount we are paying each month. I feel really uncomfortable doing the “minimum” when it comes to anything in life. Every dollar of “extra” we have been able to pay is like a quantifiable measure of how much better than minimum we are achieving. So deciding to cut extra is like deciding to be an underachiever (at least in my mind).

The reality is that over the years we have done a lot to refinance our debt and we’ve been fortunate in that we’ve been able to access low interest rates. Because of this our minimum payment makes a good dent in our principal balance each month. Our minimum payments total $771, $188 of which goes to interest. So each month we are paying off nearly $600 ($7,000 a year) on the principal and these numbers will only increase is the principal balance decreases.

Another reality is that when we started this journey we weren’t even making the minimum payments on some of our debt. All of the student loans were either in default or deferment, meaning they were growing instead of shrinking and digging us further into the hole. Before starting the debt reduction journey, we were in a downward spiral and truly believed that we would never get out of debt, that we would always be dragging around a 100k and growing ball and chain. Just being able to make the minimum payments on half the income we used to have is an incredible achievement for us let alone having paid off over 26% of the debt!

If we were to keep making only monthly payments of $770, holding our current minimum and snowballing the payments, we would be debt free in 9 years. Obviously our goal is to pay off the debt as soon as possible by making the extra payments. It still helps me feel better about making the minimum payment for a few months, realizing that we are still moving towards our goal even if it is a little slower than I would have liked. At least now, I can actually see an end in sight where a few short years ago I believed debt was a given part of life.

extra debt payments on hold

When I laid out my goals for the year I had wanted to push everything I could at the remaining cc debt to try and pay it off this year. This is a lofty goal and will require some major sacrificing and work, and it may not be achievable depending on what unknowns occur throughout the year. I was able to make a fairly sizeable payment in January but it doesn’t look like I’ll be able to pay any extra for February which has me wanting to re-examine the goal. Another factor I recently wrote about was upcoming medical expenses and whether to take on new medical debt in order to put our tax returns towards the cc.

The more I thought about it the more I felt like increasing the medical debt and putting the tax to our cc was not the best solution. Potentially raising our monthly minimum payments for some unknown amount of time would make our tight budget even tighter and probably make it harder to pay extra towards the remaining cc. This decision also got me thinking about our current medical debt.

While paying off the cc this year is a pretty tall order, paying off the remaining medical debt is totally achievable and will free up $86 per month to throw at the cc and give us a little more breathing room in our budget to deal with the unknowns. On the other hand, the promotional 0% interest rate on the cc expires in June. The longer it takes to pay it off the more we will pay in interest. I ran a conservative scenario were we increase the pay-off time on the cc to the end of 2016 and it will cost around $345 in interest.

For now, I’ve decided to take a wait and see approach. My reasoning is that neither the medical debt nor the cc are accruing interest, so only making the minimum payment for a few months will not cost us. Another driving factor here is the unknown cost of the upcoming medical expenses, I want to make sure we can cover every bill as they roll in. All additional payment money will go into our savings account and once all the new medical bills are paid, we will make a decision on which debt the remaining lump payment should be distributed to.