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Jun 15 2011

Paying off debt

Approximately 2.6 seconds ago, I finished calculating our total debt and it was not pretty.

For the first whole year of our marriage, I was focused on paying off credit card debt. I was angry with Eric for bringing it into our marriage and it was something I constantly held over his head. My “free” spending money was suddenly being used to pay off his debt, and I was more bitter than a grapefruit.

And now I sit here, a little dumbfounded actually, by how much debt I own in this relationship. Eric’s credit card debt is trivial compared to my own total debt.

But I never saw my debt as a whole–I saw it, naively, as monthly payments that I could comfortably afford. Yes, I can afford that car payment. Yes, I can afford that student loan.And yes, I can afford to go out to fancy meals with friends every weekend.

It seems wrong that as a sorta, kinda, maybe personal finance blogger that I always just sort of ignored the total debt number and rather focused on the credit cards and monthly payments. But here it is:

$29,534.96

As of June 13, 2011. Ouch. That large number isn’t even really what is driving the stake in my heart. I just logged into one of my student loans, that is just automatically deducted from my bank account every month. I never get a bill, except every two years, when they tell me that my graduated payment is increasing.

I’ve always been fine not knowing anything about this loan. They take the money out of my account every month, and life goes on. But in an effort to face my debt, I logged online, and found out this gem.

I have been paying off this account since January 2007. In those four and a half years, I have paid $3,570.19 toward this loan, of which $2,716.68 has gone toward interest. That’s right, folks. In those four and a half years, I have only paid $853.51 toward the principal of my loan.

It’s enough to make me want to vomit. How could I have been so naive? How could I have ignored Mysti’s pleas to focus on paying off those loans? I just kept thinking, “oh big deal…they don’t cost a lot a month, it’s fine.”

So after a little pity party, I sprang into action. I came up with a plan.

Rather than focus on paying off that CitiCard, which currently has a 0% interest rate until April 2012, I am going to focus all of our efforts into paying off the car loan by the end of this year. And we will do this, despite Eric not working for four months (he’s entering the fire academy in August). Once we hit our $8,000 savings goal, I will roll our monthly savings into paying off the car.

Then when the car is paid off, I will roll that payment into paying off the CitiCard. And when the CitiCard is paid off, I will roll that payment into paying off the student loans.

What do you think of the plan? Would you do it differently?

15 comments

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  1. Ella

    I so can relate to the I-am-paying-it-every-month-so-I-dont-need-to-know-how-much-it-is thing. My behaviour with money really started to change for the better when I went online and faced my debt and all the numbers. It scared me to see how much I was paying and how much interest I paid. But it fortunately scared me into paying faster :-)

  2. Angie

    I’ve been reading through your blog – you are an inspiration.

    I’ve had the same thoughts about my student loans – I have two between 2 & 3% interest, so I’ve never worried about them. BUT I get sick every time I look at the statement and see that we have paid just about as much interest as I have principal left. Disgusting. We’ll be looking to pay those off, once credit cards and car loans are paid off as well. I hate this process, but I am determined to get it done!!

  3. City Girl

    Great tips by CMC! I’m in the “highest interest rate” first camp, too. xoxo

  4. EK

    i just intentionally clicked on the side ads for you! :)

  5. Teacher Girl

    Gosh, I need to add up my debt including student loans. The thing is that I am sure, like you, the number is going to surprise and sicken me. Especially when I realize how little has been paid off. I think your plan is pretty smart and it will allow you to pay things off in a decent amount of time. Like Mysti said, you are still very young. You have time!

  6. MAH

    My recommendatation is the write the debt balances in order for smallest to largest and start knocking them out.

    I am not debt free yet, but not having the burden of $1100 in minimum payments is a relief. The min is now $268.

  7. MAH

    My recommendatation is the write the debt balances in order for smallest to largest and start knocking them out.

    I am not debt free yet, but not having the burden of $1100 in minimum payments is a relieft. The min is now $268.

  8. prettylittlereckless

    I suck at money management so I have no real opinion lol, but I just saw my car loan balance yesterday for the first time since buying my car. I roughly knew the amount through calculations based on when I refinanced and how much I had paid since then, but seeing the amount was an eye opener. It was slightly less than what I thought and just seeing the amount has made me super motivated to pay it off. If I add another $80mo to my payment, I can shave off 14mo of car payments. Um- THAT’S HUGE. A year less of paying on a car? Yes please. I still have a school loan, but that is interest free and I have a flexible payment plan with that. So my biggest thing is to pay the car off sooner than later! And I can’t wait for the day where I can say I don’t have a car payment!

  9. Paula @ Eat: Watch: Run

    Funny you wrote about this because I’m planning on doing a money saving post of my own. I think I’m pretty good at it! I keep putting it off tho, because it really has nothing to do with the subject matter of my blog. But eh…it’s my blog, right?

    House loans are very much the same in that you pay mostly interest. It’s really sickening.

    I do the same as you. I focus on one thing at a time. My car payment a few years ago was $240 a month, but I always paid $300 or $350. I ended up paying it off 9 months early.

  10. Tabitha

    Oof. It’s a tough realization, adding it all up! I was in a similar situation, with a hefty credit card debt and my student loans (just no car loan, since my cars have always been super old and super cheap, haha). I think my ultimate approach was paying off the smallest debts first, regardless of interest rate. It made it feel like I was achieving things more quickly, which motivated me to stick with it and pay more whenever I could. I calculated up my interest paid on student loans and it wasn’t too pretty, either! But once it came down to the last 6-8 months of payments, I was putting a lot more toward the principle balance, which saved me tons of money! :-)

    You can do this, girl.

  11. Laura Lewis

    You’re noticing everything we noticed as well! It’s sick when you see how much of your money is going to interest instead of the principle. One thing you have to make sure of is you pay your minimum just normal but when you pay the extra for the loans you have to put in the memo section or whatever that you want it to go STRICTLY TO PRINCIPLE. Many of those will just “credit” your account and pull from that in future months rather then tackling strictly principle. Does that make sense? Great job! You are in a little better shape then Brad and I and I know you guys can kick this debts ass!

  12. Daisy

    YAYY for crunching those numbers. It hurts but it helps you in the long run.

    I think it’s always good to pay off whatever has the highest interest rate first. Interest sucks – I used to gain over $100/mo in interest on my credit card and it made me want to cry every time, because all I could pay off was like $120.

    Go you!

  13. A Super Girl

    Ugh, that is so depressing! I’d be wanting to throw all my money at that damn student loan just to start making a dent at the principle. But, I think your approach is right. Having the car paid off will be a huge add on to the monthly budget that you could then roll into something else, in addition to the money you were rolling into savings. Now, in theory (if I’m understanding right) you’d have two pots of money to potentially throw at the debt, which is great!

  14. jobo

    Ouch. When you add in student loans, the number really does skyrocket! I can relate to that…though I am lucky that my loan was only 11K (since I went to community college before going to a private school, so it was much cheaper), I am STILL PAYING IT OFF and I graduated in 2002! It’s silly, I should have paid it off faster, but I am almost there now, at least. I think your plan is awesome!

  15. Mysti

    Thanks for the link love!!

    It is an eye-opener when you put it all together, huh? Tis ok lovey…..you faced it now, and now you can do something about it. Sounds like a solid plan. Yeah…those low monthly payments lure you into thinking you are actually getting somewhere. Not so much.

    Love ya….you are still young, and have the world at your feet. You will pay those off and move on. Promise. Don’t end up like me……I graduated college in 1996, and my Master’s in 2002. And here I am….STILL $29k in student loan debt.

    The remainder of my student loans will be the last debt paid in our snowball. We still have too much credit card debt.

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