Debt Snowball Update

We're still pluggin' away at our goal to be debt free. It has has been close enough to a year so here's another update.

Debt Snowball Progress

	February 29, 2008	February14, 2009	Change
Total Debt	$182,890.00	$163,971.00	($18,919.00)
Mortgage	$138,489.00	$135,813.00	($2,676.00)
Consumer	$44,401.00	$28,120.00	($16,281.00)
Number of Debts	12	3	-9

A footnote about the Consumer Loan balance: Right now we are banking our extra payments into savings so the balance is current IF we made a lump sum payment right today. We're banking until June or so and then we'll make the final payment on our next debt which is $6,100 right now.

Be Ready to Start a Debt Snowball Plan

What's the process for getting the snowball rolling toward paying off consumer debt?

Before starting a debt snowball plan there needs to be a short term plan for getting ready to pay off debt. The idea itself of being totally debt free is exciting and provides a rush of transforming motivation for any one willing to see the dream. Yet, once the idea settles in, there is also an awesome sense of urgency that could lead to premature action in the way of foolishly allocating money toward debt when it is needed elsewhere. I believe certain requirements need to be met before applying extra toward paying off personal debt otherwise being in debt continues on as an endless, fruitless cycle of trying to get out of debt. I think these are the essential steps:

1. Stop, stop, stop, stop using debt to fund life. Cut up the credit cards - all of them. There is no need to have a credit card for emergencies. In a time of great want the definition of "emergency" changes too easily. At the very least, keep one credit card, place it in a large bowl of water and place the bowl in the freezer. Next time you want to use your credit card, think deep about your needs, wants, and emergencies as you watch the ice melt.

2. Create a zero-based spending plan. In other words, create a budget on paper that allocates every penny before it is actually spent. I've read advice that says to track what you spend for 30 days, then you'll know where it all goes, and then you are better able to create a budget. I disagree. It's a waste of time. I'll be doing more posts on this topic but essentially budgets are never set in stone. A personal budget is fluid and the bottom line changes from month to month. Create the budget first and work it for three months, that will give you an idea of what you're spending and create great habits for running the budget as you begin a debt snowball.

3. Sell something and apply the money to step 4 or 5. This is not an official step in Dave Ramsey's plan even though he does suggest selling stuff. I am making it a step because is proves commitment and of course it creates cash. Most households have something that can be sold on ebay or in a garage sale. Also, what about the car you are making payments on (sorry, that might have stung)?

4. Get current on all past due bills. Past due bills like utilities, phone, etc are vicious enemies of any debt snowball plan. In essence they are debts but they're probably small enough to catch up on in a month or two. If they would take longer than that then perhaps these past due bills need to be placed in the debt snowball plan (as the first items to get paid down).

5. Save $1,000 for a savings account as fast as you can. This is Baby Step 1 in Dave Ramsey' s plan. This is a short term reserve so that you don't have to use a credit card. This may take a while but with the prior three steps in place first saving $1,000 will happen sooner than later. Sell more stuff to achieve this step.

For my family this process took about two months but if you're starting totally from scratch it's plausible that it could take six months or even a year. We already had a zero based spending plan in place, we just needed to pay more attention to it. We cut up our credit cards two years prior as well. Oh, I also sold $1,500 worth of stuff on Craigslist for steps 4 and 5.

The three years prior to starting our debt snowball plan I believed the only answer to our problems was to make more money. I decided to let go of that thought while my wife and I went through Financial Peace University in January 2008. I realized that the drain on our finances had to do with not having the above requirements in place.

Debt Snowball / FPU Update

Before I get right back at it I probably should offer an excuse for my absence. I haven't posted at all since September 2nd and the last post on my family's progress on our debt snowball plan was June 26th. Really? Well things are always much more complex than a single answer so I don't have something as simple an as excuse like "I hate blogging". Rather, I've been focused on three areas: 1) Family, 2) Work, and 3) Sleep.

Debt Snowball Progress

	February 29, 2008	December 4, 2008	Change
Total Debt	$182,890.00	$168,347.00	($14,543.00)
Mortgage	$138,489.00	$136,440.00	($2,049.00)
Consumer	$44,401.00	$31,907.00	($12,494.00)
Number of Debts	12	3	-9

On the consumer debt side of things we're down to two items, the second mortgage and a personal loan. The amount of the personal loan is $6,847 and we're applying over $1,000 per month to pay it down. I have a goal to get it paid off in April 2009 by finding some more money to throw at it. The money will come from budget cutting and a tax refund.

After the personal loan is gone we'll have the second mortgage to content with. With the balance still at $25,000 we'll be working on paying it off over the next two years. Rather than applying our entire debt snowball payment to the second I'd like to take some of it and start on babystep three - cash savings to cover 3 to 6 months of expenses. With the economy the way it is I really feel the desire to have much more in savings. The great thing is, for the first time since deciding eight years ago to have my wife Carla be a full-time stay at home mother, we're finally in a spot to be able to save any money what so ever. I've made no decisions on this because all I care about right now is kicking that personal loan out of our house. I'm a tired of living with it.

The plan is to keep working the plan. Keep working, keep giving, and keep shrinking debt.

Take Financial Peace University Online

If you can't find a local session of Financial Peace University, enroll in the online version.

My wife and I took the classes locally through our church. I liked being with other people going through the sessions together, but yet I found the small group times to be less than I expected. I suppose it comes down to the leaders and the willingness of each participant to truly commit and be real in the groups. I personally was almost sleeping each night by the time the groups started as Wednesdays at that time were very long days for me.

One aspect I really like about the online version is that you don't have to wait for each weekly session (I think). I believe you can watch as many sessions in a row as you'd like.

Another Ramsey Rant

I really like it when Ramsey does this kind of rant. He is rough around the edges but dead on with wisdom.

Check out his rant called "Butt Scratching and Bass Fishing" in either written form or audio. I suggest both.

Debt Snowball Update

Haven't blogged much lately because I am working the part time job and the kids are home for the summer. But, I am happy to report that with our most recent debt snowball payment we have now paid off $10,000 of debt since starting our snowball back in Feb 2008. This is total debt including mortgage but just over $8,000 is consumer. Things keep rolling. We now have $750 a month getting applied to the next item on the list.

Maintaining the monthly cash flow plan (budget) has been the key. We have our income spent on paper each month before we spend it for real. I check things out once or twice a week and make adjustments when needed. Food and gas expenses have definitely gone up and so has home repairs, entertainment, and our giving (because we want it to.) No worries though, we've just cut back in other areas for the summer (i.e. a good budget allows us to capture and redirect the higher amounts that would go to the heat bill in the winter, etc.)

There's Something About Benjamin

Okay..this is close to being stupid silly but it's not totally so check it out:

Debt Snowball Status Update

The $840 per month we've been paying toward 9 debts is now being directed to just 3 debts - it will be 2 debts on June 15th when we kick our dentist (bill) out of our house. Since Feb 2 we've paid off $6,500 of debt and saved up $1,000 for an emergency fund. The small balances are essentially gone and now we need to dig into the next balance, which is much larger at $8,800. This will take us until April 2009 to pay off.

The money to pay down the debt came from:
1. Monthly Budget
2. Tax refunds and rebates
3. Selling stuff

I have started working part time. It's been three weeks now. I got my first check today and it went straight to debt.

We're going to increase our monthly giving budget. This money will come from reducing the debt snowball payment. On paper the snowball end date will extend a bit but I am not going to fret.

My oldest son got glasses. We paid cash. We had the money in the bank one week before we needed it.

The budget shows we're over spending in some areas but I'll get it under control.

FPU Update: Debt Snowball Stimulated

The Federal Government made an electronic deposit to my bank account this morning - the economic stimulus rebate. Today I am going to stimulate my debt snowball. Two thousand four hundred dollars of consumer debt will be stimulated to oblivion.

Here's how other people are spending their stimulus money.

FPU Session 14: The Great Misunderstanding

This was the last session. I posted a picture of our completion certificate here.

Right down to the last minute of the last class Ramsey sticks true to his style. Straight talk about the basics fueled by intense motivational language that calls for action.

"The Great Misunderstanding, the paradox, is that we believe that the way to have more is to hold on to what we have more tightly."

Ramsey drives home the biblical stewardship principle in this lesson - that we are merely managers of the money God allows us to work with, in order to show and test our faithfulness. He discussed giving in general but he does not get into theological hair splitting on what Tithing really means.

It's funny how so many church goers like to argue (or, rationalize) about the tithe with studies have shown for decades that the typical evangelical church member family gives less than 3% of it's income. Tithe means 10%. When you are tithing, you are giving 10% off the top of your overall household income. Perhaps I'll post on this sometime in the future but I am persuaded that I should be giving away as much of my income as possible - as much as possible, much more than 10%. I would love to do this but I must also take care of my family first (or I am worse than and unbeliever, Timothy 5:8). Tithing is not a rule but a guideline, or rather a place to start, something to shoot for. Amazingly, its a guideline that currently no one is meeting! There should be no arguing over what Tithing really means, no one is doing it by definition anyways!! Eventually, but sooner than later, I want my family's giving to far exceed 10% of gross income. If we work hard to get out of debt in the next 24 months, we'll be able to give much more.

I so often lose touch with biblical stewardship principles on a daily basis in the midst of rising gas prices, rising food prices, falling home values, rising (you fill in the blanks). It is so easy to think my job in life is to try to get a head, to always be looking for ways to maneuver through fast flowing turbulent financial times of my present life. What I need to do more of is rest, trust, and depend on my Lord. I want to recall more quickly that my wife and I do not own a thing, but, for our own good, God entrusts us with resources and ordains the circumstances so that we are drawn closer to Him, or so that the idols of our hearts are exposed as the usurper kings that they are. This is the big picture that puts perspective on everything. Debt snowballs, part-time jobs, baby steps, etc are not the end of the matter. In the midst of them though, the heart of giving comes before all else. It is through giving that the heart changes and becomes more like Christ the King. In the end, the goal with money is to become more like Christ by giving it all away.

FPU Completed

Debt Poll

Check out the debt poll in the sidebar to the right of this post.

How much debt do you and/or your household have?

Tell me in a comment what you are doing about getting out of debt?

FPU Status Update: Emergency Fund Restored

I just transfered money to our Baby Step 1 Emergency Fund savings account. We're back on track since this set back on March 24th.

My wife and I have decided to build up the baby step 1 fund a little bit more. We are going to split the extra payments we've budgeted for our debt snowball in half until the emergency fund has another $750 to $1,000 in it. Yes this will slow down the debt snowball but its so minimal compared to the extra security. Anyways, I think we will be using some of the extra funding for some bills that have come up. One big expense for sure is a pair of glasses for my oldest son.

By the way, it's his birthday today, he's eleven. Glasses - what a great birthday present.

Happy Birthday Bud!!!

He'll be so happy to hear about his present don't ya think? It is all in how I sell it to him "Josh, for your birthday, how'd you like to get your sight back?"

FPU Session 13: Real Estate and Mortgages

This session was all about real estate. Ramsey certainly loves real estate. I'll just be honest, I was way too tired and stressed from the day to sit through his story telling this time. I was the most disengaged from this session than all the rest.

Ramsey covered the ins and outs (his ways) of buying and selling real estate. He approaches all of it like either a retailer or investor. There were some good tips but they were not relevant to my present situation because I am not planning to sell or buy a home right now.

As far as mortgages go, Ramsey strips away all consideration for any type of mortgage other than a conventional 15 year fixed. Also, payments should be no more than 25% of your income. Again, this session contained good information that can be tucked away for future use.

I did really appreciate one part of the session as it attacks a widespread myth.

Why keeping your mortgage for a tax deduction is a bad idea.

Baby step 7 is Pay off Mortgage early. What's the first thing that comes to your mind when thinking about this step? What about the tax deduction? The benefit of keeping a mortgage just to get a tax deduction is a myth - the math does not add up. Yet, financial professionals advice against paying off your mortgage early all the time (I was one of them.) Yes, there is a tax deduction for mortgage interest if you itemize but what does it really mean. Here is an example of the bad math:

• You have a mortgage of $200,000 at an interest rate of 5%. So, each year you are paying the bank $10,000 in interest.
• At tax time you would get to deduct $10,000 from your adjusted income. Depending on your tax bracket, you are only saving a percentage of this amount.
  
• Let's say you are in the 25% tax bracket. You would then be saving 25% of $10,000 - or $2,500.
• You sent $10,000 to the bank so that you wouldn't have to send $2,500 to the government?
• The math does not work. It doesn't make sense.
• You can get the same tax deduction by making a charitable donation instead.

Ramsey skipped an entire section from the workbook in this lesson on refinancing. Looks like he would have just covered a simple break even analysis on closing costs.

Questions That Need To Be Settled About Money

I've been reading Facts of the Matter for years now. This week's column is on money. Dwight Hill gets to the heart of the matter with these questions:

"In your heart of hearts have you settled the issue that your primary purpose in life is the pursuit and knowledge of the Holy One? Is knowing Him your consuming passion? Or are you still wallowing around in fear and anxiety as to where the resources for survival or opulence will come from? Just what does your daily schedule reflect about your priorities? One of idolatrous pursuit of the temporal? Or of a passionate pursuit of the Eternal One?"

Read the rest of the article here: The Vexing Issue of Money

Help From The Pastor About The Extra Job

Below is an email my Pastor sent me about the extra job decision I am processing through. He was going to comment on my last post but asked me permission first beforehand. I appreciated his email so much that I asked him if I could feature it in a post instead and he agreed.

Pastor Porter knows me very well. When he sees me perseverating he inserts himself into the process with great effectiveness and always helps me clarify what's most important.

The email:

Pat, I am interested and a bit concerned. Does anyone know how many people after going through FPU get a part-time job to fix the debt issues?

Also, when I ask about sacrifice issues, I try to ask is this a sacrifice for me with little collateral damage to others? Or is there great collateral damage for others? If there is great collateral damage then, of course, it is not mainly my sacrifice, others are sacrificing, and thus, those others need to be completely on board with sacrifice.

I suppose another way to look at it is which is the greater responsibility: to be out of debt as quickly as possible or to love your wife? These are not mutually exclusive, of course, but by investigating this biblically, the Bible talks about the woes and dangers, and also at times the necessity of debt, and paying it off, while also specifically commanding you as a husband to love your wife and instruct your children in the discipline of the Lord. Is getting a part-time job loving your wife and Lord? Possibly. Are you being enslaved by the Ramsey command to get rid of debt as quickly as possible? Possibly.

Wisdom, is indeed called for here. I will be praying for you.

I love you, man.

Porter's words are very helpful because:

1. They point to the freedom that is in Christ. I am free in Christ to choose with wisdom what I think is honoring to the Lord. This does not mean the decision is easier. It just clearly points out that even this decision means something more than just making more money. This fact lifts me out of the perseverating very quickly - it gets me out of my own head.
2. The freedom in Christ then points me to the grace that Christ gives me every minute moving forward.
   
3. They point out an idol of the heart. In everything there is an idol to war against. The war is in the heart and it is about the choice to turn something good into an ultimate thing. The extra job, the extra money, the quicker debt snowball payoff - good things. But, as Porter reminded me in another side conversation I had with him following the email, "The goal is not to be a Ramsey success story, but to be faithful to our Lord."

I place loving my wife and raising my children ahead of an extra job that will require too much sacrifice for us all. My wife and I have been walking through this decision together. She has expressed to me that something where I could work 10 hours a week or less is doable and worth it.

Have I decided yet? Closer but not yet. There is an opportunity for work right now. But, I want to first review again what the extra job will look like as in: When will I fit in the extra hours in? What will be the standard schedule I can communicate to my family? What defines success? How will I deal with my already waning energy levels? I've already addressed these issues but I am feeling little confidence in my answers.

Isn't this painful? To read about the process of a very slow decision maker?

FPU 11: Working Your Strengths

Mostly, personal finance problems are due to too much money going out the door. Overspending, high debt service levels, and disorganization are common factors. Sometimes though personal finance problems are related to there not being enough money coming in the door. In this session Ramsey looks at solving income problems. He teaches that raising income over the long-term (3 years or more) is a career track issue and raising income in the short-term means working a part-time job with the goal of attacking debt (with gazelle intensity)

I'll break my reflections on this session into two posts. This one will be about the dreaded part-time job and the next will be on career choice.

Dealing with sacrifice is what it takes to win with a short-term part-time job. The goal is to apply all the income to the debt snowball plan. I think too the key is to have a definite end date. I've been tossing around the idea of an extra job for a while now. I am hung up on the sacrifice to my family. Frankly, I am very concerned about the negative impact on my wife with me not around to help her with our high intensity, outgoing children. I keep telling myself "It will only be for six months" but I am just not confident the extra income will be worth it. We'd cut the time on our current snowball plan by eight to nine months. I guess this is where I see my real commitment level. How far am I willing to go to get out of debt? A part-time job will be an extreme test of faith for me and my family. Is it wise for me to enter so boldly into the test?

I really want the income but man I do not want to endure the pain (I think) the sacrifice will bring. As you can see, I am perseverating (one of my finest abilities.)

FPU Status Update

With the small debts quickly paid off during the initial momentum created by getting started on Baby Step 1 and 2, I am feeling somewhat like things have stalled out. But that is not true. I just need to get the focus back on to where we are at and look forward. We are by no means stalled out with nothing to do.

April is an important month because we are:

1. Working on restoring the emergency fund after having to put new tires on the family van. The amount to restore is $506. I am placing half that amount from this recent paycheck and the other half will come from the next check.
   
2. Still contemplating a second job. The extra money that would go straight to debt is very appealing but the time away from family is not. Also, my wife and I already feel completely exhausted with life as whole, how would we deal with the time stress of an extra job. I am still thinking about it but I should come to a decision soon just to get it off my plate.
3. Continuing to tweak the monthly budget. This weekend I am going to run some month end reports for March. My gut feel is that although we did not spend more than our income for the month, we did spend too much in some categories like food and entertainment.

I am out of town on a business trip. Nothing big. Overnight in Bemidji, MN. Either way, I really miss my family.

Oh...something else very exciting, the MN Wild captured their first division title last night. Playoffs start later half of next week. The Wild will start at home.

No FPU Class This Week Because Of Snow

The last three times that I've laced up my skates this year and went for a little stroll, snow has covered everything within 48 hours. I am itching to skate and start training for this years marathon plans but I'll have to remain patient. I am also itching to move on through Financial Peace University but patience is called for here as well I guess. Last nights session was suppose to cover Career. I was really looking forward to it.

Why is Money So Important To God? Part 2

From the post last Friday, here is the first part of the answer to "Why is Money So Important to God?'

Because how it's handled is an indicator of salvation.

I believe there is a second part of the answer as well.

Luke 12:15-21

What attitude toward wealth did the rich man reveal?

A dissatisfaction with what he has and a completely unbalanced, greedy approach toward the stewardship of his possessions.

In what specific ways did he demonstrate it?

Building more barns.

Living the "high life".

Thinking of only this world.

Mark 12:41-44

What does Mark 12:41 indicate about the way Jesus observes what we do in our giving?

Jesus assessed how people gave in a very deliberate way. He sat down to watch – he was not just passing by and he happened to glance and notice someone giving something.

Jesus is still watching with serious concern what you and I give because the nature of our giving reveals so much about our spiritual character.


Why is money so important to God?

Because the way it is handled is an index of spiritual health.