The Payoff Plan

I started re-reading Dave Ramsey’s Total Money Makeover this weekend, while I was sick and unable to do much of anything else. I first heard of Dave Ramsey about 5 years ago, and have read several of his books (and watched some of his DVD’s) over the years. Overall I really like his plan, and am doing something very close to what he lays out myself. I’m kinda kicking myself that I didn’t put more effort into it when I first starting reading his stuff, but, better late than never!

The book advises you to lay out all of your debt information. I have 3 debts: My mortgage, my student loan, and my auto loan. Dave considers the mortgage separately from other debts, which works well for me, since I’m hoping to sell my house in the near future anyways. So, that leaves my student loan (~$6,800) and my car loan (~$21,900).

If I continued making the minimum payments on these two debts I’d be looking at being out of debt in December 2020. Ouch! And I was a little shocked to realize that the car would be paid off 1 year before the student loan. Seriously?!? Obviously I’m not planning to go that route.

My plan is to continue putting money towards the house until I get it sold. Right now that money is going towards some needed repairs to list the house. But once everything is taken care of, I plan to continue setting aside the $130 “extra” each week for any costs that may come up trying to sell the house. I’m hoping that when the time comes I can find an experienced Realtor who can help me list the house for a quick sell. If the house doesn’t sell, I might have to look at renting it out. I’m hoping it won’t come to that.

So, let’s assume that the house gets listed, and sells relatively quickly, so that by July I can start putting that $130 a week towards my debt. How long will it take me to pay everything off? Running the numbers, it looks like I’ll be debt free by September 2016. That means it will take me 31 months to pay off $28,700 in debt.

Call me an optimist, but I’m hoping that 31 months is worst case scenario. First off, that assumes an annual tax return of only $1,000. This year my total state and federal refund came to right around $2,200. Granted, some of that was due to educational expenses I had in 2013, so I can’t count on future returns being so high. Without those expenses my refund would have been closer to $1,600. It also doesn’t include any “surprise money” that comes my way. You know, the $20 here, $100 there that comes from refunds, reimbursements, etc? I’ve already had $380 in surprise money in 2014. Every penny counts!

Planning to have my house sold by July may be overly optimistic. But this plan assumes that I break even on the sale, with nothing left in my bank account but my emergency fund. Hopefully that won’t be the case. It also assumes that my living expenses won’t change, and $130 a week is all I’ll have to put towards debt. If things go as planned, moving will result in lower expenses, possibly much lower. And hopefully my income will rise in the next 31 months, even if just by a little.

I’d like to think that I can shave my debt repayment down closer to 2 years. If I throw myself into it, I think that’s doable. But giving myself a range of 24-31 months adds in some flexibility for the unexpected. Standing here today, that seems like a really long time from now. But, it is a light at the end of the tunnel. I know there’s an end point. And I’m excited to get this (snow)ball rolling!

– Cindy W.

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