Smart Money
Squad, welcome back! We last spoke about different ways to manage debt in our post “Attack Mindset”,where we dived into the snowball & avalanche methods
to effectively eliminate balances on your loans/bills. Both of these are solid
approaches to approaching the debt equation & I’ve personally tried both
while managing my own finances. I’ve continued to monitor how I approach my
total balance to my creditors while being cognizant of keeping overall debt
down.
I hope to continue to update this journey to being debt-free throughout
2018 and beyond, checking in periodically when I hit another personal
milestone. With that said, please enjoy the first few miles on this long highway
ride to eliminating my debt!
A Little
Background…
2017 was a
wild year filled with twists and turns in both my personal & financial
life. I got engaged to my best friend and had my best financial year-to-date in
terms of net wealth. Of course, with personal growth comes added stress. With a
fast-approaching wedding in the cards in October 2018 + car & student
loans, you could say my financial situation has been hectic over the past year.
Needless to
say, I’ve been busy “balancing the checkbook” while trying to figure out what
debt to attack first. There are many factors that play into this: interest
rates, total money owed, personal satisfaction, to name a few. To better grasp
my personal situation, let’s first take a look at the total balances I have
when deciding what debt to ultimately pay.
Debt
Breakdown
Ty's January 2017 Active Debt
|
|||
Debt Type
|
Dollars Owed
|
Min. Payment
|
Interest Rate
|
Car
|
$10,000
|
$299
|
3.10%
|
Student
|
$11,000
|
$129
|
5.30%
|
Before we
get into my debt, this doesn’t include the monthly expenses for food, rent,
utilities, etc. These are strictly balances I have with creditors, where I’m
not using my liquid cash to pay a bill up-front. As you can see above, I have
two loans to choose from when deciding where to divert my funds allocated for
monthly debt payment. This number differs for every person, but for me, I clock
in at roughly $1100/month I can pay on my loans and still live comfortably
within my current lifestyle. Keeping that lens, I know that I have $428 in minimum payments that I must make every
month. This leaves me with an additional $672 that I can divert towards either
loan-but how do I choose which one?
My
Decision-The Avalanche Method
When
deciding which debt payment method I wanted to use, I went with the option that
will ultimately save me more dollars-the avalanche method. If you don’t recall
from our previous post, the avalanche method uses your remaining money to
pay the loan with the highest interest
rate after taking care of the minimum amount owed on all existing balances.
When we take a look at my two loans, the option was simple; throwing the
remaining $672 towards my student loans (5.3% interest rate on average) was the
best option.
I have been doing a miniature version of this method with my
student loans already, as I have multiple student loans with different
creditors. I simply have paid the
balances with the highest interest rate first, eliminating loan after loan
until finally I was able to make the last payment in November. The avalanche
method ultimately knocked my remaining student loans out in 2.5 YEARS,
something I did not think was possible.
While this method may not be the best option for everybody,
it was the best option for ME, and
truthfully that’s all that matters. As long as you are paying down your debt to
the best of your ability while making informed financial decisions, who is
going to fault you? You’re saving yourself thousands of dollars in interest
down the road- a figure I do not take lightly. Paying my student loans off in
2017 was a goal I set at the beginning of the year and I’m proud to report I
achieved it.
Reflection
Needless to say, it was a freeing feeling leaving that debt
in the rearview mirror. Paying my student loans and gaining that feeling of
satisfaction ultimately was worth pinching some pennies in 2017. To those that
are on the fence of aggressively paying your debt, I hope this is a testament
that discipline pays off. I am the closest I’ve ever been to being debt-free
(until that pesky mortgage kicks in) and the most in-touch I’ve been with my
financial wellness.
As we kick off 2018, I hope to continue on the path that I’ve
laid out here and inch ever closer to that freeing feeling again. Hopefully I’ve inspired you to help set those financial goals at the
beginning of the year and stick to it. Trust me, life is much sweeter on the
other side!
Cheers,
Ty
As I visited Novascotiastudentloan.ca while looking for the best options for student loans Canada, it helped me to learn about government and non-government organizations that offers loan for students.
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