💸 The Debt Diaries (5): The Reboot
On showing the whole picture, facing the number, and beginning again.
I took a few months away from my Debt Diaries series, but now I’m back.
I lost some steam and motivation for a while. Managing money can be exhausting, especially when it feels like every payment disappears into a balance that barely moves. But I am ready to get back on track, pay closer attention to our finances, and start documenting the journey again.
As before, I will publish one update each month showing the progress we made during the previous month. This time, however, I am getting really real. Instead of tracking only a selected portion of what we owe, I am listing every penny of debt, including the debts people often describe as “good debt.”
I am also adding our savings account and emergency fund to the monthly updates. I will show what we add, what we need to spend, and how the balance changes from one month to the next.
Sharing all of this feels vulnerable. Money is personal, and putting our exact balances online is slightly terrifying. Still, I consider us a fairly typical middle-class working family. If sharing the real numbers helps motivate even one person, or makes someone else feel less alone in their own financial journey, then the discomfort is worth it.
So here we go. These are our starting balances going into April. In May, I will return with the progress we made throughout the month.
💳 Consumer Debt
This is what I consider our consumer debt, or our “bad debt.” These are the balances we are most focused on eliminating because they either carry higher interest rates or represent purchases and expenses that are already behind us.
Our top priorities right now are the Visa card and the personal loan. The Visa is small enough that we should be able to eliminate it relatively quickly, while the personal loan represents the largest portion of our consumer debt.
We took out this personal loan through our bank over the winter to consolidate several higher-interest debts. The loan paid off Jerry’s Amazon card, my PayPal Credit balance, our Visa, and another personal loan we had taken out the previous summer when Jerry traveled to California for his father’s funeral.
The interest rate is approximately 11%, which is higher than we had hoped. Even so, the consolidation should save us money compared with continuing to carry several separate high-interest balances. It also made the monthly payments more manageable and simplified our finances by replacing four payments with one.
We initially borrowed $15,000. The minimum payment is approximately $233 per month, and the official loan term is ten years. We have absolutely no intention of letting it hang around that long.
This is one of the cards we originally paid off with the personal loan. Unfortunately, a balance crept back onto it after we had unexpected car repairs two weeks in a row. The interest rate is between 9% and 10%, and our goal is to knock this balance out within the next few months.
This loan is scheduled to be paid off in April 2020, with monthly payments of $233. It will most likely remain on that schedule. I do not foresee us paying extra toward it unless the Visa and personal loan are eliminated first, which is unlikely to happen before this loan reaches its natural end. Luckily, the interest rate is low at approximately 3%.
Jerry’s Jeep is scheduled to be paid off in August 2021, with monthly payments of $171. Because the loan is in his name, the interest rate is somewhat higher than mine. Like my Jeep, this one is unlikely to receive extra payments unless our other priority debts are paid off first.
🏠 “Good” Debt
These are debts that, in my opinion, are unfortunately part of life for many people. While I would love for us to become completely debt-free someday, that goal may take a long time because of the two enormous balances sitting here.
For now, we are not focused on paying these debts down aggressively, and we are not sending extra money toward them. The consumer debt comes first. Still, we pay a substantial amount toward the mortgage and student loans every month, so I want those balances represented in the full financial picture.
Our monthly payment includes the mortgage principal and interest, homeowners insurance, and property taxes all rolled into one payment.
We are finally building some equity, which is encouraging, but it still pains me to see how much of each payment goes toward interest rather than principal. The amount applied to principal increases slightly each month, so at least the balance is beginning to move in the right direction.
We are not currently paying extra on the mortgage. The interest rate is fairly low at approximately 5%, and we hope to move within the next few years. Once we are in what we consider our forever home, we may begin making extra mortgage payments again, as we did in the past.
The bane of my existence, right here. Student loans are the worst.
A small portion of this balance came from my undergraduate degree, but the majority came from earning my master’s degree. That is why the balance is so high.
I am not paying more than the required monthly payment of approximately $400. I am enrolled in an income-based repayment plan, and because I work as a public librarian, I also qualify for the Public Service Loan Forgiveness program.
Under that program, my remaining eligible federal balance should be forgiven after ten years of qualifying, on-time payments. I began working full-time in September 2016, which is when I became eligible, so I am currently projected to complete the program near the end of 2026.
It is sickening how little of my $400 payment actually reaches the principal. Until very recently, the balance was increasing every month even though I was making payments. It has finally begun decreasing slightly, which is at least a small improvement.
💰 Savings
For now, I am including only our emergency fund. We generally maintain other sinking funds for recurring expenses, but those accounts are not our priority at the moment.
We are preparing for my maternity leave in the fall, so our current goal is to direct as much as possible into the emergency fund. We want one accessible pool of money available to help cover expenses while I am out of work.
The balance is embarrassingly low right now because we started rebuilding it from scratch only a few months ago. We also have several retirement accounts, but this section is focused only on cash savings that we could access immediately in an emergency.
💭 Facing the Number
That is where we stand.
The grand total is undeniably frightening. Seeing more than $153,000 written out in one place makes me want to close the spreadsheet, turn off the computer, and pretend numbers were never invented.
Still, the total consumer debt feels more manageable, and that is where our focus will remain for now. We will continue making the required payments on everything, but the Visa and personal loan will receive the most attention.
The number may be intimidating, but hiding from it will not make it smaller. Tracking it gives us a starting point, a plan, and a way to recognize progress that might otherwise be difficult to see.
Next month, we will find out how much movement we managed to make during April.
Explore the full series on the Debt Diaries landing page.
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