Saturday, December 18, 2010

Debt Organization

The Next Steps to "Out with the Old, in With the New" are to clean up your debts and to create a debt repayment plan.  I've been working at this debt repayment thing since 2005, so my debts are pretty consolidated at this point.  I've got three left - 2 interest-free loans from family members, and my student loan consolidation at 1.65%.  So there's not much cleaning left to be done.

As far as repayment goes, I've decided to throw everything at the family loans first, because it bothers me way more to owe money to my family than it does to owe money to a big bank.  Basically, I'm putting aside enough each month to pay family debt #1 in full in June 2011.  Then I will start paying down family debt #2, but I don't anticipate being able to pay it off until July 2012.

In August 2012,  I will start on my student loan, although my plan for it is a bit different.  Since the interest is only 1.65%, I anticipate being able to make more than that, risk free, on a savings account when I can start throwing money at it.  So I plan to save extra money until I have enough in a savings account to pay it off in full, then make that my account for automatic withdrawals and leave it be for the next twenty years or so.

But the reason that my debt is so manageable now is that 5 years ago I did everything on the Simple Dollar clean up list, multiple times.  I played the card transfer game all the time.  Basically, I would find a card that would give me 6 months or more interest free, transfer my debt there, and then pay it  down as much as I could before it was time to transfer it to the next 0% offer.  Eventually, I got a 3% for the life of the loan offer from Amex, transferred all my balances there, and then didn't use the Amex card for years until I had the loan paid back (this was back in the bad old days when credit card companies were allowed to pay off your lower interest rate loans first).  I was always careful not to pay more in fees than I was saving in interest when I did balance transfers.  And it worked: I paid those loans back far faster than if I'd continued to pay off my original balances at the original rates.  So, if you have credit card or other high rate debt, I encourage you to spend some time on bankrate or a similar site and see if you can do any better than you are now.

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