Hmmm… I think I made a wrong turn…I’m discombobulated. I had a plan that I stuck to

And it worked!

Just a few weeks ago I paid off all of my credit card debt, $28k worth, on that plan.

Then, somehow, I ended up with dollar signs in my eyes.

I started sending even more towards my mortgage principle with the prospects of paying off my mortgage in April of 2014. I said I’d wait until May to get this started, but I started already to get a jump on things…

Then I started sending more towards savings seeing my $10k goal this year as *finally* possible.

I even thought up a way to send more towards my auto loan to finish it off too — even set-up a recurring e-payment just this week to get that one moving too.

All of these sound like good financial moves.

But I spread myself too thin. Way too thin.

In the now distant past, I had 5 credit cards with roughly $5k on each one. I was paying them all down aggressively — for a few years. Yes, the balances were falling, eventually I had them all down to around $4k each.

Progress? Yes, but it still felt like I was spinning my wheels.

Balances weren’t really falling. Finance charges weren’t falling. The balance in my checking account was the only real thing falling at a decent clip.

But once I set out targeting one thing at a time, I was knocking stuff out in a matter of months.

When I started with a real plan back in October, I still had three of those original credit cards. Coincidently, all three had a balance hovering around $5k.

With a real plan in place, the first card was wiped out by the end of November. The second was gone in January. And the third and final balance was gone a couple days before the end of March. One, two, three…

Now it’s April.

Today was my first paycheck since becoming credit card debt free. My auto loan balance sits at roughly $6670.

Eh, what’s that, like 3 months until it’s paid off?

Well, that should be the case…if I’d stuck to that original plan.

I hinted at it earlier this week, but I’ve come to realize that my current priorities are definitely backwards. I started attacking the mortgage ahead of the auto loan and that was the wrong course of action.

In an attempt to compensate, I overstretched myself.

So from here on out, again starting in May (for real this time) so I can catch my footing, the auto loan comes first, then the mortgage (until PMI is eliminated), and then savings.

With the summer season coming, and lower utility bills as a result, the combined monthly budget for these goals will remain $2000.

Best of all, this strategy still makes achieving all of the 2008 goals possible by year’s end.

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7 COMMENTS

  1. You only made the wrong move if your car loan’s interest rate is higher than your mortgage interest rate plus PMI. Since I couldn’t quickly figure out your rates, I used our own (back when we had a car loan) and they were very close – it’s not necessarily a bad move unless you’re going strictly by the Dave Ramsey snowball method.

    • Obrigado, Eduardo. Muito ineanesstrte a leitura que você indicou. Causa um desconforto quando nos lembramos que poucos contratantes realmente se interessam pela dinâmica de trabalho nas equipes, preferindo acreditar em uma inexistente linearidade nos projetos de software. Abraço!

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  2. Hi Trent!
    The rates are very close. The mortgage rate is 6.375% and the auto loan rate is 5.35%. The real deciding factor for me right now is freeing up more monthly cash — obviously I’m thinking more short term.

    Paying off the car will eliminate a minimum monthly payment of $289 right off the bat. Paying down the mortgage quickly to eliminate the PMI wouldn’t net me anything until the mortgage company re-assesses my escrow account. Best case scenario, that would only free up $85 per month.

    So I’m thinking it would be wiser to free up the $289 first (paying off the car), then throw that new found money at the mortgage, at which point I’ll probably just be reaching the point to eliminate PMI just as they re-calculate my payment…

    I dunno, short term, it just seems like the smarter move.

  3. It’s good that you’re so focused on paying off your debt, however, have you made sure you have enough in your emergency savings account?

    Most say that you should have enough for 6 months worth of expenses, however I think that rule of thumb should vary with the surrounding economic and job environment.

    If you have a 30-year fixed note on your house, I’d put paying that off early at the bottom of your list. Same with the car. Make the required monthly payment and put the rest in savings until you’re comfortable with your cash position.

    Then, you may want to consider investing with what’s left over. Traditionally the stock market has returned an average of 10% over tens of years. 10% beats your mortgage and car payment rate by quite a margin.

    My point is, it’s great not to have any debt, and it’s wonderful that you’re taking drastic efforts to get to that point, but don’t underestimate the power of a huge pile of cold hard cash, just sitting in reserve in case you need it!

    -Grant

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