We’re now a third of the way through my debt reduction plan. If you’re just joining the blog, one of my 2008 financial resolutions is to pay off $40,000 in debt. March was a good month for debt reduction. We managed to pay off one credit card entirely. April wasn’t quite as good, but we still made solid progress. Thanks to snowballing, we may be able to pay off the full $40,000 by November.
Debt Reduction Successes in April
This month we paid another $1700 towards our debt, in addition to our regular monthly payments. We were hoping to pay off another credit card, but car repairs got in the way.
Debt Goals for May
Thanks to our economic stimulus check, we should be able to pay off the second credit card this month. If we’re lucky, we’ll also pay off the last of a small medical loan.
Changes in the Debt Plan
Thanks to falling interest rates, one of our small student loans has seen its interest rate plummet 5% in the last four months. That gives us some extra breathing room, and has also made us change our plans slightly. Even though it’s the smaller of the two loans included in our debt goal, we’re going to pay off the larger one first. Its interest rate has only dropped 1%, so it’s still up around 11.5%.
We’re also going to fall a little short of our debt plan in June because we’re pre-paying our December vacation in order to save 40% and use our airline miles to get free flights.
It looks like we won’t be getting one of the two windfalls we were expecting this year, but we will hopefully have the other one by the end of the summer. If it arrives, that will eliminate a student loan entirely, and then we’ll start saving for the taxes on the two windfalls.
After we establish an emergency fund, we’ve decided to tackle a third small student loan in early 2009. It’s not a major dent in our finances, but it’s around $80 a month. With those three loans, the medical loan, and the credit cards paid off, our debt-to-income ratio will be nearly 40% lower than it was in January of this year.
After that debt is paid off, we’ll focus heavily on savings and retirement. The rest of the loans are so large that accelerated payments won’t put much of a dent in them, and won’t have any effect on our DITI when it comes time to apply for a mortgage.
Progress on Other Goals
Except for small increases in my retirement contributions due to fluctuating paychecks, we haven’t boosted our retirement savings yet. I’m also reconsidering where we should put the money when we do contribute. Neither of us gets a match, so we may opt to open Roth IRAs and only contribute a small sum to our 401K plans.
We haven’t yet opened the emergency fund, but we’re currently making more than we spend. We’re able to cover most emergencies by delaying our debt payoff plan by a couple weeks.
Our goal of buying a house is also looking further off. Prices are still falling in Los Angeles, and it looks like they may fall another 20% in the next year. On the other hand, our income is reaching a point where the lack of a mortgage interest deduction could bring us into AMT territory. It’s a tough call. The home purchase delay is another reason we’re vacationing this year. It will also allow us to really build up our emergency fund and save for taxes.
How was your debt progress this month?