Thursday, October 24, 2013

Looking back on two years of debt reduction

Monday was officially the two year anniversary of my decision to start this debt reduction journey and blog.  I've been taking a little walk down memory lane today, reading some of the very first posts I wrote back in 2011.  It's kind of strange looking back and seeing the details of the little steps I have taken and as well as the big events that have thrown curve balls at my debt plan.  When I started all I had to think about was me- my money, my spending, my debt.  In two short years, I've added S and the babies to the mix and have to think about finances in a whole different way.  And even with all the ups and downs along the way, I was able to get rid of over 25k (40%) of the debt that I had been dragging around for years!

In my first post I talked about the shame and guilt I felt about my financial situation.  It's funny but I can't even remember the last time I felt either of those negative feelings.  I actually feel quite proud of my accomplishments financially and can openly discuss my situation with my loved ones without feeling embarrassed.  And my journey is no longer just about the road to debt freedom.  I am learning a tremendous amount about all aspects of financial planning from taxes, insurance, savings and investment options to living a less wasteful and simpler life.

What a wild ride it's been so far... exciting to see what the next two years brings me!

Friday, October 18, 2013

tax thoughts

A random thought occurred to me today: neither S or I have adjusted our tax withholding since the babies were born which means a bigger tax refund next spring.  The thing is... I don't want a big tax return in 6 months, I want a bigger paycheck now!  I know some people like getting a fat tax return but for me the idea of loaning the government money, interest free, seems unfair given that the government isn't about to extend me any interest free loans.  However, I don't know enough about taxes when it comes to having dependents to know whether I should adjust my withholding or S should adjust his.  I do know that the extra cash each paycheck would help us pay off our debt that much faster so it seems like this should be investigated quickly.

Other questions that flooded my mind once I started down the tax rabbit hole:

  • Since I was on maternity leave this year, S stands to make more... should he file as head of household with the babies?
  • Would I qualify for the EIC since I didn't make as much this year if I filed with the babies?
  • Is it possible to split the babies since we aren't married?  Is that the best bang for our buck?
  • What other kinds of credits are out there for people with kids?
  • What difference would being married make?  Is it significant enough to consider going ahead and getting married this year? 
I'm adding tax research to my to do list for this week but I have a feeling this may be complicated enough to warrant visiting a tax pro.  

Tuesday, October 15, 2013

Debt pay off priority list

Now that I have a clear picture of where we stand as a family, it's time to figure out how to pay everything off in an equitable way.  What I mean by equitable is that since S and I are not legally tied together we need to make careful decisions about how we handle finances jointly should something happen that leave us as single parents (like death or splitting up).  This may sound pessimistic but I think it's necessary to use a better safe than sorry approach, similar to getting life insurance, I obviously don't want either of us to die but we need our family to be protected should that happen.  

Our basic plan is to pay off joint debts first with the other debts receiving minimum payments only, from there we'll split the money we have to pay towards debt each month so that 50% go to each of our debts.  

Here's what I've come up with so far (arranged in order of priority and pay off time frame):

1. Credit Card 3: $2,657- This is a joint debt in my name.  We used my card to cover the household expenses accrued during the maternity leave and the budget shortfall we had.  It has a relatively high interest rate of 8.9% so we need to hit it hard and get rid of it as fast as possible. 

2. Medical expenses: $2,565- Also a joint expense from the birth of our twins, and also primarily in my name.  Even though this one has no interest we have set monthly payments for the larger bills and owe the smaller bills upon receipt meaning this one will get paid off fast regardless of whether we would rather be putting our efforts elsewhere.  Besides, it will be nice to just have all these little medical bills out of the way so we can move on to bigger debt chunks.

3. Student Loan 3: $5,628- This is one of S' student loans we refinanced it together to get it out of default.  We have a set monthly payment for the next 3 years to pay it off but can throw extra money at it whenever possible to pay it off faster.

4. Credit Card 2: $3,975- This is a debt in my name and although it currently sits at 0% interest thanks to a balance transfer it will eventually start accruing interest at a ridiculous 15.4%!  We're going to try to pay this off fast but may need to do another balance transfer to get it done.

5.  Misc. small debts: $4,284- This is a bunch of small debts of S', currently none of them are showing up on his credit reports and they are not accruing interest so they have become a lower priority.

6. Student Loan 2: $21,100 and Student Loan 1: $35,230- Loan 2 is S' and Loan 1 is mine.  

Friday, October 4, 2013

New numbers: combined family debt

As I mentioned in my last post I am revising the debt numbers on this blog to add S' debts to the mix.  As we continue to take baby steps towards marriage and a combined financial outlook it was obvious that I can't just focus on my debt and ignore S' mountain anymore.  So drum roll please (and you might want to sit down for this)....

Here's what the debt load would have looked like two years ago if I had included S' debts from the beginning plus I added in the medical debt we just accrued from the birth of our twins:

Student Loan 1 (My fed loan): $38,339

Student Loan 2 (S' state loan): $21,719
Student Loan 3 (S' fed loan): $5,454
Car Loan: $11,684
Credit Card 1: $10,577
Credit Card 2: $3,635
Credit Card 3: $0
Misc. small debts (S' small debts in collections): $5,443
Medical expenses (This number may change since there's still a couple bills that the insurance hasn't processed): $3,672
Parents: $600

Total: $101,123

And here's were we are today:

Student Loan 1: $35,230
Student Loan 2: $21,100
Student Loan 3: $5,628
Car Loan: $0
Credit Card 1: $0
Credit Card 2: $3,975
Credit Card 3: $1,858
Misc. small debts: $4,284
Medical expenses: $2,565
Parents: $0

Total: $74,640

Paid off to date: $26,483 paid off + $108 in savings

So we have a long way to go but have already paid off 25% of the debt in the last two years!  Next steps are to come up with a debt pay off plan that equitably takes care of both of our debt loads.