Paying off a half million in debt – Month 2
Welcome to my Get Out of Debt Blog
If you haven’t been following my quest to get out of a half million dollars in debt, I suggest you begin with My Journey to Payoff half a million in debt or check the Get out of Debt Blog master page.
After finally going through the budget and tracking every penny, it is obvious why I just can’t seem to get out of debt. Our family’s spending habits are way out of whack. We spend more money on incidental things that I didn’t even think to budget for. In my first post, I estimated what I thought our income and expenses would be and planned on identifying areas that can be cut in order to pay down more debt each month. Now that I’ve seen actual numbers, I’m hoping to just stay within my original estimates. Dave Ramsey would certainly slap me upside the head for reading his “Total Money Makeover” and not going “gazelle intense”. Let’s take a look at the numbers shall we?
Get out of Debt Goal Reminders
Goal 1: Achieve a Net Worth of $0 by paying down debt and increasing savings and investments.
Goal 2: Have $0, and I mean ZERO debt and liabilities.
Goal 3: Increase my net worth to $500,000. Basically, turn half a million in debt to half a million in assets…a daunting task to say the least.
Get out of Debt Status – Month 2
Let’s begin by defining my current financial status:
| DEBT | EQUITY | Asset Value | |
| Property | $275,993 | $320,000 | $44,007 |
| Remarks: This is our home plus our 4 unit rental property. I took the value of the properties from Zillow to determine equity and subtracted the remaining balances on the mortgages to figure the Asset Value. | |||
| Equity-Line | $39,450 | $0 | -$39,450 |
| Remarks: Took this line on our primary residence to fund the down payment on an investment property. | |||
| Credit-Cards | $3,689 | $0 | -$3,689 |
| Remarks: We paid down a good portion of our credit card debt this month. I thought this the best place to start. Due to use of our savings, I expect a decent reduction in debt but only a small gain in net worth this month. |
|||
| School-Loans | $155,815 | $0 | -$155,815 |
| Remarks: Yup, it's a lot. Between the both of us there are 13 years of schooling with no parental help. | |||
| Vehicles | $33,416 | $27,950 | -$5,466 |
| Remarks: I took the trade in values for both vehicles from Kelley Blue Book to determine equity and subtracted the remaining balances on the loans to figure the Asset Value. | |||
| 401Ks | $0 | $42,096 | $42,096 |
| IRAs | $0 | $6,633 | $6,633 |
| Investments | $0 | $7,000 | $7,000 |
| Remarks: This is a gamble on an IPO that still hasn't panned out. | |||
| Savings | $12,513 | $12,513 | |
| 529 | $1,526 | ||
| Remarks: I can't let my kids have the same burden as my wife and I with school loans. Our goal is to pay for at least half of their college education...which is not included as assets. | |||
| Totals | $508,363 | $416,192 | NetWorth: -$92,171 |
| Monthly Changes | $10,963 | -$7,504 | NetGain: $3,459 |
My Get out of Debt Monthly Budget
I’ve tracked our income and expenses for the month of June and below is a comparison to my estimates from last month. This is my first step in determining how the budget will be reformed and where cuts can be made.
| Income | This Month | Over/Under | |
| Salaries and rental income | $18,179 | $19,001 | +822 |
| Remarks: A tenant is playing catchup with rent giving us a bit more income this month. |
|||
| Other | |||
| Total: $19,001 | |||
| Deductions | |||
| Taxes | $3,841 | $3,841 | - |
| 401K | $1,240 | $1,240 | - |
| Remarks: We could put this toward debt, but I need to match company contributions and the investment market is just so under valued at the moment. I hope I'm making the right choice. | |||
| Life-Ins | $48 | $48 | - |
| Health-Ins | $465 | $465 | - |
| Dental-Ins | $30 | $30 | - |
| 529 | $100 | $100 | - |
| Total: $5,724 |
Remaining Income: $13,277 | ||
| Long Term Debt | |||
| Mortgages | $2,737 | $2,800 | +$63 |
| Equity-Line | $250 (min) | $200 | -$50 |
| Remarks: Turns out the minimum is only $200. I'll have to update the budget for next month. | |||
| Vehicles | $821 | $821 | - |
| School-Loans | $1,286 | $1,722 | +$436 |
| Remarks: We ended up paying one of the loans twice this month; it should even out next month. |
|||
| Total: $5,543 | Remaining Income: $7,734 | ||
| Expenses | |||
| Insurance | $415 | $518 | +$103 |
| Day Care | $450 | $450 | - |
| Gas | $500 | $380 | -$120 |
| Food + | $1,100 | $1,519 | +$419 |
| Remarks: The + means anything you would buy at a retailer, such as a shovel, toilet paper, lawn bags, clothing, etc. We went over probably because of a hosted BBQ and birthday party. | |||
| Electricity | $450 | $265 | -$185 |
| Oil | $800 | $0 | -$800 |
| Remarks: We ended up on a payment plan last year and when the price of Oil dropped significantly, we had a balance of a grand or so. Still haven’t needed to pay anything additional for oil yet. | |||
| Water&Sewer | $255 | $220 | -$35 |
| Trash | $20 | $20 | - |
| Internet/Tele | $80 | $85 | +$5 |
| Cells | $90 | $93 | +$3 |
| Cable | $130 | $150 | +$20 |
| COH | $400 | $1,948 | +$1,548 |
| Remarks: COH is Cash on Hand that is spent every month on lunches at work, fast food on the go, tolls, quick marts, incidentals, small apartment fixes, and the like. This month I finally see where my initial estimates went wrong. I forgot to account for how large this section could be. For example, we had to pay for school tuition, plumbing services, medicine, and other random things. This will be the hardest to budget for. |
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| Credit Card | $275 (min) | All of our extra income goes toward this. Therefore, the paydown is tracked above in the Debt status table |
|
| Newspaper | $10 | $10 | - |
| Gifts | $100 | $379 | +$279 |
| Remarks: It was our son’s birthday this month and we spoiled him with a large gift costing over $300. I’m hoping the $100 a month is enough to cover average year round costs of gifts to everyone. | |||
| Dinning Out | $200 | $105 | -$95 |
| Entertainment | $200 | $358 | +$158 |
| Remarks: Just added this month. Entertainment is for movies, day trips ie the Aquarium, video games, and other luxuries. Obviously, these aren’t needed, but for now we’ll keep it at a modest amount. We did much this month, the aquarium, the park, and 2 charity fairs. |
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| Total: $6,500 | Remaining Income: $1,234 | ||
Again, I bet many of you in debt are looking at this and shaking your head. I really need to revise this budget and add categories that can be saved for year round, such as school tuition. I’ll use these numbers and more accurate estimations for the month of July and see how we do. At the beginning of next month, our financial picture and spending habits should be clear enough to see where we need and can cut expenses. For June we used the remaining income and a big chunk of savings to make a decent dent in credit card debt. Hopefully, all credit card debt will be paid off by the end of the month and we will have started on the Equity line.
My Get out of Debt Progress
My Get out of Debt Conclusion for June
So I’ve paid down a large portion of Credit Card debt and identified much that has to be done to make the budget accurate and then confine spending to be within that budget. I may go purchase a piece of budgeting software that is comprehensive and does much of the work for me, such as Money Tree, but for now I’ll stick with the free budget tracking spreadsheet offered on MoneyStance. I look forward to hearing more from you. Call me a moron, tell me I’m inadequate to handle money, give me some advice, or just wish me well on this endeavor. You can comment on this blog below, or if you wish
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| < Getting Out of Debt May 2009 | Getting Out of Debt July 2009 > |
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I am shaking my head. You are not even close to gazelle intense. You really need to do some soul searching how bad you want to meet this goal. Since you read the Ramsey material you know what to do but what you lack is the behavior modification that makes the mess in the first place. My first suggestion is buy a package of 95 cent notebooks and you have to track every penny and I mean every penny of the so called COH category. $1948 is just plain rdiculous. After you get an idea where the spending is going you sit down with a blank piece of paper and brainstorm everyway you can reduce or elimate the spending.
I totally agree with you. I’m curious how much CoH will be next month when it doesn’t include any summer activities or school tuition for my son. I’m shaking my head at myself here. I’ll heed your advice and try to itemize the CoH category better.
was thinking maybe focusing on finishing that credit card (which should only take you a month or two), then paying off one of the cars as fast as possible might be a good strategy for you. with $821 in minimum car payments every month, you have a lot of dedicated budget right there. if you could free up just one of those payments, you'd have more budget flexibility and be able to go crazy on the HELOC. i don't know why, but those suckers make me intensely nervous!
We were initially tackling the HELOC first, but decided to target the smaller more manageable Credit Card debt that just sort of lingered there in the background. Do you really think paying down one of the cars before the HELOC is a good idea? Maybe I should start a poll.
Job security ,how does it look for you and your wife?
Luckily, Job security is not something my wife and I fear. Our skill sets are always and will always be in demand.
I pefered paying off my heloc before the car loan because my minimum payment follows balance down.
At least in my case it did
You need to list the interest rates before you get anywhere. It's hard to know which debt to tackle first without this information. Remember that compounding works against you when you are in debt.
I really like how you've put this together. I need to find a format that works for me. I am way into the negative net worth for two reasons: too much credit card debt and buying a house at the height of the market. I am upside down to the tune of $100K in it.
I'll be keeping track of you!
Vanessa
www.littledoughgirl.blogspot.com