During my most recent review of Credit Karma, I clicked on the tab for “credit tips” to see what suggestions they had for increasing my credit score. CK suggested that if I could reduce my credit card balance by $2350, I would move up to the next credit worthiness tier. Over the last 6 months I have seen my credit card balance go down consistently, but I have also continued to charge things on the card, mainly for the cash back rewards. So, for every $500 I might send for my payment due, only $350 is actually being applied to the balance.
But something about that number - $2350.00 - stuck with me, and I kept thinking about it over the next couple of days. I think, because, for the first time in my life, it was an attainable number. I mean, I have been working a strategy - part Dave Ramsey, part my own, in terms of how much my baby ER fund should be, and now I have enough money to make that debt reduction number a reality.
In my previous post, I shared my thoughts on why $1000 would never be enough for my family, so instead I was going to start with $5000. I am just shy of that goal, and so this month I will begin paying 100% of the extra money I have toward debt.
But what if I just went ahead and paid that balance down?
But something is stopping me. I finally have a savings cushion and it pains me to think of losing it. It’s funny how I had lived for so long with barely any personal savings aside from my 401K. But now it feels crazy to think of being cash strapped even for one day. I can see very clearly what I will be losing by paying down the balance by that amount - my savings will be cut in half. But convincing myself of what I will be gaining is the real challenge.
It dawned on me that maybe I am not motivated enough to make real changes in my life. I talk about not having debt anymore, but maybe I’m not really prepared for the work it will take to get there. The fact that I am not technically living paycheck to paycheck, that I can still comfortably pay all of my bills each month has allowed debt to become a permanent fixture in our household.
I wonder what life could be like if we really gave debt the boot . . .
No more debt interest - I calculated the interest we are paying on 2 cars, 4 credit cards, and 2 personal loans. The total interest in an astonishing $655! Almost $700 being burned every month, money we could use for so many other things. Like building our savings by over $7000 per year!
Gain back all my working hours - It takes me about 10 hours a week, just to pay that interest. I work nights, about 20 hours a week. So half of that is time I spend just paying off that interest. When I think about how hard I work at night, how tired I am by the end of the week, I am shocked to realize that I am only really seeing half of that as household income.
Increase to my credit score - Credit Karma has already confirmed this for me, but paying off that consumer debt would dramatically increase my buying power. This is probably one of the most important things for my family because we are considering buying a house in the near future. An increased credit score will help lower our housing costs, one of the three biggest expenses most budgets cover.
Less stress and worry - taking center stage these days is talk of the nation’s next recession, and ways that we should begin to prepare our finances. If my household income were to be affected by a recession, it would be great to know that our reduced income would not need to put toward debt payments, and could instead be used to cover current expenses until we had a chance to recover.
There are probably half a dozen other benefits from me paying my debt down that I haven’t even thought about. And the drop in savings will most likely be unnoticed in another month or so. Going through this exercise, and seeing tangible benefits written down has convinced me to take a more aggressive stance on paying down my debt.
What will convince you to focus all your time and energy on becoming debt free?