Debt

Debt Reduction Goals and Plans – A Starting Point

September 2, 2020
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Introduction

It seems a lifetime ago that I wrote my first post, a rambling, wanna-be philosophical discussion about balance, mindful spending and frugality. That was back in November 2019.

Well, it’s now September 1, 2020. And I think we all know what has happened to the world in the intervening months.

I’ve been one of the lucky ones. I’m an IT consultant by trade, and I’ve been able to keep working full-time during lock down. A road warrior in “normal” times – visiting client sites and spending at least 4 nights every week in a hotel – I have enjoyed my time at home for the most part.

But I’ll be glad to get back on the road when the time comes. I miss the rhythm of travel, heading to the airport, checking out a new town, finding a good sushi restaurant. And earning miles and points – don’t forget that!

During this forced respite from travel, however, I have started a major undertaking: reducing my debt.

Starting Point

I started 2020 by setting up a simple spreadsheet to track each of my debts, the ending balances each month, and my progress by month and in total. I was never a person who was unaware of how much I owed – I’ve been a Quicken devotee for years – but I had never laid it out in such a stark way.

Almost all my debt is with credit cards. I have some student loan debt from law school, but, thankfully, my car is paid for. And with extremely low mileage for its age, I’m resisting the lure of a new car.

Student LoanCard 1Card 2Card 3Card 4Card 5Total
$23,516$47,076$28,858$4,576$6,622$15,252$125,900

Pretty terrifying, right? Yeah, that’s what I thought, too!

How did I get here? Inattention, dismissing the total cost, lack of discipline. All the usual suspects. But the time has come to address reality. Especially since I am seriously considering buying a house in the next couple of years.

BTW, I have two other credit cards that have zero balances. I keep them for reasons such as age of account and certain benefits for simply holding them.

My Approach To Cutting Debt

So how do I approach such a massive number? Bit by bit. It’s taken years – decades, actually – for things to get this bad.

I did kick off the year by taking a controversial step: I took a withdrawal from my IRA to knock off the balance of Cards 3 and 4. Yes, I’ll have to pay a penalty with my taxes. But Card 3 has the highest interest rate by far out of the lot – the interest savings will at least partially offset the tax hit. And the psychological benefit – for me – is worth the cost.

If you’re thinking of making a similar move, do your research! Don’t copy my move unless you know what you’re getting into.

Going forward, I won’t be doing anything revolutionary. It’s a matter of making these strategies work for me:

  • Decrease spending
  • Increase earnings

As they say: simple, not easy.

Progress So Far

Being stuck at home has done more good than bad in terms of my finances. Early on I did find myself ordering online too much (didn’t we all?). But I’ve really cut back on shopping overall as compared to my usual habits. Who needs another work outfit when all your meetings are on Zoom?

I drove less than 1,000 miles between mid-March and today, which has certainly cut my gas and maintenance expenses. Plus the reduced mileage helps maintain the value of my vehicle. Yes, I get reimbursed for mileage on business trips – even the drive to the airport – but that doesn’t take back the miles I put on my car.

My food costs have certainly gone up, both because I’m at home so much and because food prices have increased dramatically this year for everyone. When I’m traveling all my meals are paid for as a business expense. But at least I’m cooking more at home now instead of going out to restaurants.

In the expense column I have also been doing a bit more spending for a side hustle I’m working on. It has both short-term and long-term profit potential, and I’m trying to balance that in my related expenses.

Last month I decided to take some cash from a general savings account (my vacation account – who knows when next I’ll get on a plane?) to put toward the balance on one card.

Some months have been better than others, but so far I have seen a drop in my overall debt every month since the beginning of the year. As of August 31, 2020, I’ve reduced the total by $17,468!

Student LoanCard 1Card 2Card 3Card 4Card 5Total
$21,682$45,454$27,352$94$132$13,718$108,432

I would love to get below the $100K mark by the end of the year, but I’m not sure that will happen. My billable hours will be lower for the rest of the year, and I need to balance my cash flow for immediate expenses against the debt reduction goal. In the end it will probably depend on how the side hustle endeavor pans out in the short term.

What’s Next?

This will be a long project that will call for various tactics and strategies.

I’ll be cutting expenses as I can and looking to various resources for ideas and approaches. For example, I first read Your Money or Your Life back in the 1990s, and I appreciate their suggestions for identifying where your money just seems to disappear. I can certainly name a few off the top of my head (fabric, books, fancy kitchen equipment, makeup), but it’s time to delve back into the numbers.

I might go for some “extreme” frugal tips (check out the classic Tightwad Gazette!), but also take more passive approaches such as simply not buying that new piece of luggage or eye shadow palette. It comes back to balance and understanding where I can cut without feeling like I’m deprived.

The other big part of my plan, however, is to build up a side hustle or two. My eventual goal is for these “side” endeavors to be full time, but while I’m building up my own business I can direct part of the profits to debt reduction.

I’ll post my balances here every month and discuss key factors in how I did. Hope you’ll follow along!