Here come the numbers we’ve all been waiting for! The wife and I put together our plan this week to pay off all of our private student loans and consumer debts using my previously written about plan of a mixture of the avalanche and snowball methods, with my own flair. Using a mix of balance transfer offers and cash back rewards we’ll use our cards to their full advantage to pay things off as quickly as possible. Here’s our list. Between the credit cards and loans, we have about $101k in debts to start.
We will still carry our government student loans and our mortgage when our plan is complete, but this is all of our private debts that we are putting together our payoff plan and getting started this month. The cards are in the order we intend to pay them off or balance transfer them if a good opportunity to do so arises. With our current budget, we are directing an extra $102+/mo toward our payments. We’re in the process of refinancing our house to remove our private mortgage insurance (PMI) now that we have over 20% equity. Some conventional loans you only need to ask to have it removed, but because we used a USDA loan for our first home, we have to refinance out of it to remove the PMI. Once this is completed and our new payments start in September, we will have an extra $209+/mo. This is just monthly income that we intend to immediately divert to paying these debts down a bit faster. We will snowball/avalanche payments as one card or loan is paid into the next card until everything is paid off. Based on only this extra starting payment amount, below is how those extra payments would affect the next payment.
The additional snowball amounts will look vastly different for us than just rolling up a minimum payment based on my prior Credit Card Hacking post, so be sure to check that out if you’re not familiar. Also, due to the nature of the snowball and avalanche methods, there will be months where one card gets paid off and additional funds are available to pay on the next one, but not the full amount of those additional payments. The payoff schedule, and those additional amounts are as follows.
The plan that we’ve put together is shooting for max of 5 years and 3 months, or 63 monthly payments on the last debt. We should be able to achieve these goals significantly sooner using balance transfers and cash back. We are also tracking our spending with a newly updated budget, and all money saved on main buckets for each month (housing, gasoline, etc…) will be split 50/50 between savings and extra payoff. We just had to burn most of our emergency fund on a new transmission, so this strategy will continue until we have 3 months of expenses saved, and then 100% will go toward payoffs.
Future raises and bonuses will not contribute to lifestyle creep. They will follow the above 50/50 rule going toward savings and payments and will also push up our payoff schedule. We also have some things we intend to sell to fast track a couple of payoffs, such as baby things and a nice dining room table. I will get more into our overall budget in a future post, but our budget builds in some fun money, and some folks may say to remove it and concentrate on the debt payoff as it’s all that matters. We disagree. We have to do both. We will not remove all fun money from our budget and only be able to do free activities with 7 kids. There are a LOT of free activities that we can all enjoy. There are also a lot of lower cost things what we can enjoy while on this path and help keep the kids happy. Begin with the end in mind, but be sure you can enjoy the journey without burning out as well.
I intend to post a progress update monthly, and we’ll get through this together. I hope you are able to get some value from following along with our path, even if nothing more than encouragement and confidence. Seeing the numbers on the spreadsheet is both eye opening and scary, but also provides confidence after the initial shock. We now know what our goal is, and a path to reach it.