PocketCoinage

It’s been almost two months since my last posting and I’m sure many of you are wondering where I’ve been.

Well, I’ve been killing my student loan debt.  Just this past week I paid off one of my loans and have two more to go.  If you look in the right-hand column of my blog, you will see my countdown.  The $700 is what I calculated the average monthly payment to be.  However, in the last two months alone, I’ve been putting my payments into overdrive.

I’ve been sacrificing by cutting back my lifestyle, selling things, and budgeting to become debt free sooner.  Guess what?  It’s working! I can see the light at the end of the tunnel.  In the past three months alone I was able to allocate almost $4,000 towards my loans!  The feeling is incredible.  Before I got fired up, I was on course to pay them all off in 4.5 years.  I never thought I would pay my student loans off in a year or less.  Now I’m on target for Summer/Fall of 2011!

The key is staying motivated, having a plan, and staying focused on one goal; not a few.  I think that was my main problem.  Now with the one goal in the crosshairs, I can take it on!

After my most recent posting about Bad v. Good Debt, I got all fired up about paying off my student loans as quickly as possible.  I mean, I only wasted $1,520.48 in interest alone!  Before this posting, I really did not run the numbers to realize how much money I was losing.  I told myself there had to be a way I can reduce the payoff time to less than two years.  Currently, I am on target to pay off the loan in about four years.  However, four years is not going to cut it with my vision for the future.  I needed to put the numbers down on paper and see the results.

So last night I sat down to work on an updated budget spreadsheet that worked with my varying paycheck.  I found out that by slightly modifying where each dollar goes (house fund, emergency fund, etc.), I am able to boost my school payment from $440 to $700 every month.

How did I increase my monthly payment by $260?  I was able to:

• Judge my base take home pay and budget based on that
• Slightly cut back on how much money each item receives
• Cut back on a few unnecessary items (wants)
• Use the extra money in my pay exclusively for debt reduction

This alone should bring it down to around 24 months.  However, I’m going to take this a step further in an attempt to knock it out sooner.  Since I save bi-weekly, this creates an extra “payment” every year.  For example, I put away money for the mortgage every pay period.  By the end of the year, I will have an extra payment to use for pure principal.  For a short period of time, I’m going to be using this extra mortgage payment to knock out my student loan debt.  I’m also going to allocate some money from my tax return to reduce this debt.  By going this route, I am on target to pay off my student loans by December 2012 (15 months).  Who knows, if I come across some money, it may be less than 15 months!  Unfortunately, once all is said and done, I will end up losing another $800 in interest.

There are many people out there that say there are two types of debts: good and bad.  Depending on who you listen to, good debt can mean carrying a loan for a home, an auto, or education.  Bad debt can mean carrying a balance on your credit card.

According to this CNN Money Article:

Good debt includes anything you need but can’t afford to pay for up front without wiping out cash reserves or liquidating all your investments. In cases where debt makes sense, only take loans for which you can afford the monthly payments.

Bad debt includes debt you’ve taken on for things you don’t need and can’t afford (that trip to Bora Bora, for instance). The worst form of debt is credit-card debt, since it usually carries the highest interest rates.

Take a step back using common sense and think for a minute:  How can any debt really be good?  You’re slaved to the lender!  Plus, you’re most likely paying interest on the item.  I know, your daily commute back and fourth to work would cease exist without that brand-new Infinity G37 convertible; taken out in a loan of course!  Trust me, that guy riding next to you in his 10+ year old, paid off beater car probably sleeps better at night.  Why you may ask?  He’s not worrying about how he’s going to pay the loan next month!

I had an auto loan once on my sedan and I absolutely hated it!  In fact, I hated it so much that I paid it off in less than two years.  After this, I have never felt the same way about loans again.  According to my final auto statement, I spent wasted over $894.83 in interest over the life of the loan!  That’s $894.83 lost for a vacation, investing, or anything really.  My next car will be used and bought in cash – not a loan!

My next battle with “good” debt is my student loans.  Since 2006, I’ve spent wasted $1,520.48 in interest payments and counting!  I have roughly $14,000 left on them and I’m looking at different avenues to pay it off in less than two years.  As it stands right now, I am on track to pay them off in about 4 years.  It’s going to take some cutting back, but once I send in that final payment, it will be worth all the sacrifices made to get there.

I know we all need a stepping stone and this is where loans can help us out.  Just a word of advice, try not rely on them your whole life.  You’ll never be rich making payments to other people.  Just ask your next door neighbor.