I’ve Paid For This Twice Already…

Reliability - Is It Just A Feeling?

I have a Saturn. A 2001 Saturn L300 that we bought used in 2004, to be exact. The Saturn is completely paid off.

And there ends my list of nice things I have to say about it.

Those who have been long-time readers of the blog know that we have a long list of problems we’ve had with the car in the past three years. There’s the fact that it is impossible to keep in alignment and therefore eats tires. There’s the time the engine self destructed. There’s the time we had to abandon it 200 miles into an 800 mile trip when it kept shutting itself off and rent a car to finish the trip. And so on.

Why do we still have the car? Because we’re dumb. Well, that’s debatable, but the fact of the matter is, I want to be out of debt so badly that I decided it’d be better to keep the devil we know instead of taking out a loan to get a different car. The wisdom of that is, as I said, highly debatable.

Among the list of small (and not so small) crises the car has contributed to was the time we were stranded at one of my son’s soccer practices because we couldn’t get the key to turn in the ignition. That required a locksmith to repair and actually, all told, wasn’t so bad after all from a financial perspective. However - two years later, and the problem has returned. Yesterday, when preparing to drive to my son’s bus stop to pick him up (he goes to school in a different district than the one we live so his bus stop is a few miles away) I couldn’t turn the key. Eventually I did manage to get the car started and got there just in time to meet the bus (I followed the bus in, in fact) but the fact remains - the car has decided to drive me crazy yet again.

So another locksmith visit, another round of staring at the Saturn in my garage thinking - what price am I willing to pay for reliability? At what cost does dependability come, and even if I did decide to replace it, how do I know I won’t end up with another stupid lemon that claims it isn’t technically a lemon? All this is starting to make me want a brand new car with a warranty. Must. Resist. Stupid. Car. Ugh.

What I wouldn’t do for my little GEO Tracker back. That car was 14 years old when we replaced it with the Saturn and in those 14 years I owned it, I spent less on it in maintenance than I have in the 5 years I’ve owned the Saturn.

Bah.

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Tell All Thursday, Day Late But Not Dollar Short Edition

Yesterday when I posted my latest post, I was reminded of all the things that frustrate me about blogging - the technological side. I’ll be the first to admit that technology has far outpaced me - when I was a kid with my Commodore 64 I was cutting edge (really!) but as things have become more complicated I have somehow become… less so. I posted that post originally at about 1:30 pm, and when it posted it went from the nice, ordered thing I had created with formatting and spacing to a big blob of type that had no form, rhyme or reason. After almost 3 hours of tinkering, re-editing, and basically pulling my hair out, I finally got it to behave. Losing a comment in the process by mistake.

Ah, computer technology. How you thwart me so.

Luckily, I found paying down my student loan this month not as complex. After starting with four debts 2 years ago - a credit card, a car loan, and two student loans (one for me and one for my spouse), we’re down to just my student loan. After paying $800 towards it this month (and $1000 last month) it is down to $5392.09. A far cry from the over $12000 it was at two years ago.

This means we’ve paid off a little over $31000 of our debt as it stood in June 2007. Our total percentage of debt paid off is now 85.21%, which means we only have ~15% to go!

To pay that off by the end of the year, with only 3 months of payments left, we’d have to average almost $1800 a month in payments, which unless some crazy economic thing happens to shower money upon us, is not going to happen. But, paying half that each month, or about $900, may indeed be doable. Paying off the student loan by March 2010 doesn’t sound too bad to me.

Of course, something could happen to derail that - but for today I am an optimist, and I’l got this thing in my sights. No more Ms. Nice Gal. or something.

And now to see if posting deletes all my formatting…. Heh.

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The Home Stretch Can Be As Difficult As The Start

My family has come a long way in the past two and a half years since we started this serious debt elimination journey. When we started, almost half our monthly income went straight to non-mortgage debt, and it had a huge impact on our everyday life. The idea that someday we’d pay off over $30,000 and have less than two hundred dollars a month that *had* to go towards debt was a dream I wasn’t sure we’d realize. But we have, and even though we’re almost done - the journey isn’t over yet.

The final stretch, when you’re at the start, seems like it’ll be the easiest part. As you eliminate debt, more resources become available, and more can be allocated to fight the good fight. Momentum is on your side - the snowball rolls downhill faster and faster until it seems nothing can get in the way.

But, that isn’t always the case. Just as any other part of the debt elimination journey, setbacks can appear at the end as easily as the start. The length of the journey itself can be daunting - that initial adrenaline about completion can only last so long. And as more things creep into sight, debt elimination seems like it might have been the least complex part of the puzzle.

I haven’t completely lost focus - we’re still making progress (which I need to update on the numbers page, we’re closer than that currently reflects). But it has been much easier to get distracted into dealing with other things. As the debt becomes less, it almost seems less urgent - at the beginning, it was so much as to be overwhelming, and put a serious weight on our finances that felt almost inescapable. But as we’ve beaten back that debt monster, the threat of imminent destruction to our finances has become less (or at least, has felt less) because of debt. It has been easier to prioritize other goals before the final debt elimination. It has, in a word, become less urgent. Not in fact, but in feeling.

And the less urgent the debt elimination feels, the easier it is to not focus on it when other things get in the way. And that’s how the home stretch becomes an endless silent struggle. A lot of things have changed for us in the past two years. A lot of good, and some bad as well. But even though there may be other things affecting our lives that we never anticipated, this final debt elimination stretch will not continue to drag on. The refocusing of our finances back to where it began starts now.

First on the list - making this month’s student loan payment and then updating the neglected numbers page. Nothing like a Tell All Thursday to get things back on track. I doubt we will completely eliminate the non-mortgage debt by the end of 2009, but I’d like to beat the original December 2010 goal by as many months as possible. And figuring out where we are is how we’ll get to that point.

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Savings Vs Debt Elimination: Saving’s Side of the Story

While most of the time I’ve written this blog, I’ve made debt elimination my primary focus, there is much to be said in favor of putting money into savings even while still in debt.  From a small emergency fund to a full-blown savings plan, debt elimination isn’t always the first course of action.  While I do generally fall into the debt elimination camp, even I saved a small emergency fund before I began aggressively eliminating over $30,000 in debt, and I recently upped that emergency fund in light of recent events and our economic situation.  Here are a few of the reasons that creating some level of savings may come before debt elimination in a person’s or family’s priorities:

Saving money doesn’t commit it

When you pay money to a debt, you are doing just that - letting go of money under your control and giving it to someone else.  This reduces your obligation to that person or entity, but it also commits that money.  The money’s gone, and you can’t take it back and make another choice with it.  When money is put into savings, it is flexible.  There are many possibilities for the money you save.  Which leads to the next point…

Preparing for the unexpected keeps the unexpected from destroying you

One of the things, maybe the main thing, that throws a person’s or family’s finances off track is the occurrence of something unexpected.   From a home repair to a car repair to a job loss to a health problem, there are many unexpected things that can happen.  Having money in savings allows you to deal with unexpected things without going deeper into debt.

Security happens in many ways

Having money in savings provides a level of security and a feeling that one can handle life’s challenges.  This relates to the above unexpected comment, but is different because it is the provision of peace of mind even if nothing unexpected happens.  That level of security is sometimes necessary even more than the security of eliminating a debt.

Interest rates don’t lie

What happens when your savings rate is higher than your debt rate?  While that might not be common in today’s economy, it has happened before, and will happen again.  In fact, some people currently have student loans at a low enough interest rate that their savings rate at some point may exceed it.  While that may not be a big enough reason for some to save vs aggressively pay down debt, it can make financial sense.

Should you pay down debt aggressively or save money aggressively?  Only you can really answer that question, by really looking at what makes more sense for you.  What makes your heart feel good?  What mix of savings and elimination work for you?    Where does your perfect mix lie?

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The Case for Debt Elimination Over Savings

Focusing energy on debt reduction (or elimination, as I like to term it) or savings is an ongoing debate, not only for society at large, but in my own life.  Once I started taking control of my finances, instead of just going with the flow and barely scraping by, I’ve prioritized different things at different times, and it all comes back to which is more important to me at that point  - eliminating debt or putting money into savings?

This seems like it should be a clear cut process with a easily defined answer, but it is not.  Every situation is different, and the factors that come into that situation will vary.  Instead of looking at a cookie cutter one-size-fits-all solution, here are reasons I’ve prioritized debt elimination over savings.  Later I’ll look at the other side of the coin - when savings is prioritized over debt elimination, and then finally, what decisions I’m currently making as well as the future of our financial life.

Debt elimination reduces obligations

The most dramatic and immediate affect of reducing (and eventually eliminating) your debt is reducing the amount of financial obligations you have.  The less you owe, the more of your money is actually yours and not promised to someone else.  The more decisions you actually get to make about your money that aren’t made for you.

Debt elimination has a snowball effect

As you reduce and subsequently eliminate debt, there is more money freed up in your budget that can be applied to remaining debt, producing a snowballing effect.  The more money put towards debt, the less that debt becomes, and if you keep building upon that, the path to debt freedom gets shorter and shorter.

Debt elimination makes an immediate difference

$100, $10, or even $1 paid towards debt is that much more you do no owe, that much more you are no longer paying interest on, and in some loan cases, can immediately reduce the amount you are obligated to pay in a month.  This is a difference that can be immediately felt in your monthly budget, and paired with the snowball effect can have drastic positive consequences.

Debt elimination frees funds for emergencies

Money that is not obligated to pay towards existing debt can be, if needed, used towards other events, emergencies, or obligations.  If you now have to pay out $800 a month vs $1000 a month, that $200 can be, if need arises, diverted to a pressing immediate need.

Of course, many of these reasons can be turned on their head and used to defend a position of savings over debt elimination.  Which is why the path to take is a uniquely personal one.  And Next time I will be doing exactly that - turning things upside down and seeing where that gets us.   I’ve been on both sides of this debate, and mostly somewhere in the middle.  Finding that middle ground that is the right balance for you is the trick.

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