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When I wrote my last quarterly debt report, you had no idea I had decided to separate from my husband. There were no clues that my finances were being rocked and ransacked for various expenses. Since it is no longer a secret that I am getting divorced, I can be open about how my finances have changed and where my priorities are now.
Becoming debt-free is still a priority. Since I am managing my finances alone, I have more power over where my money goes, and I believe my debt pay-off journey will be easier and faster. Losing my ex’s income was difficult, but now I can prioritize my needs and wants – making hard decisions and living drastically different without worrying if another person is on board.
On another positive note, I have a roommate splitting the bills with me. This has been life-saving and allowed me to continue making extra payments on my debt. Still, my debt payments are smaller than they were before. Not accounting for possible raises and promotions, if I stay vigilant, I should see financial freedom in 2.5 years.
First, a look at the old and new numbers!
At the end of June, my total debt was $65,202. I mentioned that I wasn’t happy with that number, but as I said above, my life was in a rough place, and Mike and I were just beginning to separate our finances.
As of today, my total debt is $61,636. I have made progress, though it hasn’t been much. By the end of the year, I will be less than $60k in debt. I am so excited for that day.
1. I paid off the Discover card.
As I mentioned in my Spending Fast review, I was able to pay off the full amount of my Discover card. It is officially done for and I will never charge on it again. I may take advantage of a balance transfer offer if a good one comes along, but for now, this account is non-existent. I am so happy!
2. I went on a Spending Fast.
A few weeks ago, I wrote a post about September being a no-spend month for me. This was partially successful. The first two weeks, when I was dog/house-sitting for a friend, I spent $0 on non-essential items. The last half of the month had me spending like crazy, with and without my credit cards. I need to cut up my credit cards – especially the Quicksilver. I’ll post the full review of my spending fast next week, but ultimately – I spent money on items that I could have purchased later.
3. I restarted my TSP contributions.
Since deciding to get a divorce, I have re-evaluated my priorities. I never wanted to stop my retirement contributions, but I did so there would be more money in my paycheck to pay off debt. However, my debt interest rates are all at 5% or lower, and saving for retirement has always been a top priority for me. That being said, I changed my TSP contribution to 15% for the Traditional TSP. I plan on increasing that again by putting 5% in my Roth TSP in the new year when I get a raise. Putting 20% in my retirement every month is worth the smaller paycheck and slower debt pay-off journey.
4. I’m changing my debt plan to the CFI plan.
You know I change my debt plan all the time. I have switched from snowball to avalanche back to snowball. Now, I’m changing it up again. I recently read a post by Abandoned Cubicle that talked about cash flow index, or CFI. I had never thought about this before, but the gist is this: Each loan has a CFI, or cash flow index. To find this number, you take the amount of your loan and divide it by your minimum monthly payment on that amount. Do this for each loan. Whichever loan has the lowest number is the one you would start to pay off first.
For me, it is my auto loan. This loan sits at 4.95% and has a monthly payment of $340 over the course of 72 months. Crazy, right? I already know my choice to finance the vehicle over 6 years was a bad idea, but I’m fixing that now. Ultimately, this means that most of my cash flow for debt is going to the car. If I could pay it off first, it would open up way more cash for my next debt than if I paid off my piddly student loan from AES at $25/month and a 3.5% interest rate. Make sense?
So, not only am I underwater on my car, but it’s taking a lot of my monthly cash flow. This is my new debt priority and my goal is to pay it off by August 2018. That would be 3.5 years early.
5. My emergency fund is low.
I dug into my emergency fund to pay off the Discover, so now it’s at $500. I haven’t prioritized bolstering it again because I have a large chunk of extra income to play with every month. Typically, I put it towards debt. However, if a small emergency did happen, I would have plenty to cover it in my regular income. I still have an automatic savings plan with Capital One 360 (get your own free checking and savings account here!) that puts in $100 on the 1st and the 15th. So, it will grow, but not quickly. This is my trade-off to continue contributing to my retirement funds.
So that’s what the next three months look like for me. 1) Save for retirement. 2) Save $200/month for emergencies. 3) Make big extra payments on the car loan. Rinse. Repeat. The holidays are coming, so that’s going to put a dent in my financial plan, but I’m still going to throw extra money at the car. What do you think? Are you working hard on your financial goals?