Tuesday, August 20, 2013

Debt Reduction Plan..

The plan has me paying off my debt in 5 years with the current projection at 63 months.  I will remain at the Bank, look for opportunities to increase my income and apply all extra payments, income, bonuses, tax returns, vested stock options, etc. towards debt.

Emergency/ Reserve Fund

I will be keeping my December 2013 year end bonus as an emergency and reserve fund.  I am hoping that my car will be able to survive another year or two but I just don't know.  I am also simply uncomfortable with just a $1,000 eFund. My car repairs this month alone were $1,050.  A $1,000 eFund is enough for small things but it is not sufficient for larger emergencies.  I am staying firm on that because I know I have been in a panic and unable to sleep with the no reserves.  It's a BAD feeling.  No good for me.  Others are okay with having a small eFund but I would be more comfortable with $10k-$15k in savings.


Of course I will be able to accelerate my debt reduction plan if I am able to earn extra income doing law work, etc. or if there is a life event like marriage where I will be able to share household expenses, reduce my overhead and direct free cash flow towards debt.

Chart Explanation

I used the free snowball calculator from Vertex. The link is on the side of my blog.  I am now at management level so I receive stock options annually with my bonus that vest in 3 years. My first allotment vests in December 2015 so you will see an extra $10k bump to the annual bonus amount. The Bank is performing well and the stock value is strong so I don't anticipate large fluctuations over the next couple of years. With the change to bi-weekly pay, twice a year I will receive an extra monthly payment. That will go directly to debt repayment. What isn't in the chart is tax returns because I do not know what those amounts will be on an annual basis. I will apply those as they come.

Payoff Methodology

I have 1 credit card, 7 private student loans with virtually the same interest rate and 3 federal loans at different interest rates. I will focus on paying off the credit card first because I keep having to transfer the balance each year to take advantage of a promotional rate. The transfer fee last year added $800 to the balance. Payoff progress on the credit card has been slow although I make monthly payments. So I'm hoping to knock that off first and snowball to the private loans. I will attack the private loans by the lowest balance first since they have the same interest rate. I will continue to snowball and then attack my federal loans by the highest rate first since they're fixed rate.

All of the numbers are rounded and this is a rough estimate but it will give you some idea of the plan. 

Total Loans & Target Payoff Dates

Snowball Schedule


Scooze said...

Good plan! I like your idea of increasing your emergency fund with your next bonus. Then you focus on paying off the debt. I would add that once your debt is paid off, or if your job starts to look shaky, it will be time to increase that to 6-8 months' worth of expenses.

I would also add that your bonus can be for the efund, the second maybe save for extra efund/new car. :-)

I love that you have a plan to add even more to the debt reduction from the extra paychecks and the bonuses. But you can manage this baseline regardless of how those come out.

I assume that the $600 snowball line item on your budget will go towards the credit card, which is how you will pay it off in 15 months.

Now that you have a plan, you can do everything in your power to 1) stick to it, and 2) find ways to accelerate it. If I remember from the distant past... you had a problem saying no to friends/family and did things outside of your budget because you didn't want to upset anyone. If I am remembering correctly, then now is the time to tell everyone you know that you're paying off debt, you're on a budget, and you will be seriously cutting back. That will make it much easier to say no or suggest less expensive alternatives in the future.

Good luck!

Chitown said...

@ Scooze - As soon as my debt is paid off, I will move to build up a 6-9 month eFund immediately.

Yes, the $600 is the extra cash flow that I will put towards the CC debt which is currently at 0%.

Yes, in the past I did have trouble saying NO but I am getting much better. I don't want to jeopardize reaching my goals. If I want something, I have to save for it out of my personal money which isn't much as you can see.

Scooze said...

Good for you! You're definitely serious and focused. Keep up the momentum and you'll be successful!

Theresa d said...

I am glad to see you back! Sounds like you have a good plan. I think you need to have some real strategies for reducing your spending money. When I was short on spending money I would make a list of things that wouldn't cost me money out of pocket but would occupy me over the weekends. From free museum days, organizing my closet, meeting a friend for a walk instead of a meal out to reading (a book from the library of course)... whatever it took to keep me out of Target and restaurants.

Also I would look at getting rid of cable tv. Netflix has A LOT of great streaming options. You are a busy woman with a newish boyfriend. How much time do you have for tv?

Also like someone mentioned- what about Christmas? Any plans to set some money aside? I know Chitown loves her family...

Jaden Allred@Irving A. Burton said...

The plan seems effective. You've covered the necessary allotments – paying debts, savings and the emergency fund. No matter how absorbed you are in getting rid of your debts, I believe the last two must be given utmost focus if you really want to achieve financial freedom. And not debt-free but almost broke.