If you’re a current reader of my blog, you know that I’m not the most prolific blogger. I post whenever something (financial or otherwise) happens, or when an idea strikes me. And so I guess my life has been boring, and I have no new ideas? No, that’s definitely not true. My younger sister just graduated from MIT, and I’m so incredibly proud of her!
But in terms of financial things happening, I feel I’ve sort of just let things mellow. Even though it’s important to get everything on autopilot (direct deposit, auto-transfers to savings, 401(k) and IRA auto-withdraw into funds, etc.), I feel like I’ve gotten TOO hands-off with my money.
I’m not aggressively paying off my debt. I know I should be, but I’ve just been letting my student loan and car loan automatically withdraw the monthly payments. What I should be doing is paying more than the monthly payment (i.e. more than the minimum). I feel kind of ashamed that I haven’t been working harder at paying off my debt. I think I felt more compelled to aggressively pay my student loans off back when my interest rates were hovering around 8.5%. But now that they’re around 3.5%, I don’t feel that same urgency.
I think I need a plan. A goal. A due-by date. If I’m following the general mantra of: 1) Start emergency fund, 2) pay off all debt, 3) finish emergency fund, then I have probably already taken care of 1 and 3. My only other option besides (or in addition to) accelerating my debt payoff is further increasing my 401(k) contribution. So that’s comparing a guaranteed return of 3-5% (if I pay off my debts) or a possible 8% return (the supposed return people quote on investments if I invest more).
And so I’m reaching out to you, my dear readers. Help me! How did you set your goals? I was thinking if I figure out how much extra money I have each month, I could direct that at loan payoff, and keep going until the loans are gone. Or I could set an end date (that is achievable) and make sure it’s all paid off by then. Or I could split the “extra money” into half (or some other fraction) leaving my paycheck to go to my 401(k) and put the other amount against the loans. I just don’t know! Advice, please! How did you pay off your debt loads?
Hm, I pretty much did the math first, and if all other things were equal (low interest, etc.) then I determined it by how much the debt irritated me and when I wanted that cash flow back in my own pocket.
Then I’d balance that against the market (investing, savings rates) to see if I could do both in a reasonable amount of time. Usually my tolerance level + ambition usually level out to one to two year goal timelines.
It was either 40/60 (savings/debt paydown) or 50/50 since the more you pay down, the more cash you have to put towards savings later down the road.
follow Dave Ramseys baby steps. pay off debt in order, smallest to largest, ignore interest.
-FinancialBondage.org
Well … I realized that I don’t need a whole year of emergency fund all of the time, so I aimed for about 3 months and then started paying off my car loan as often and much as possible. When expenses popped up, I stopped paying off the loan and paid the expenses instead, and dipped into emergency fund if necessary. Then repaid emergency fund then went back to paying off loans. Once I pay off the loan (soon!), then I’ll continue building the emergency fund to 6-9 months and start saving for house down payment or something …
[...] I mentioned in my last post, I have been thinking of doing something else with money besides putting it into savings. So, [...]
[...] of the comments on some of my older blog posts (like on I’m okay with being wrong sometimes, Personal Finance Stagnation, and Fighting Lifestyle Inflation), I realized I should be more aggressive with my student loan [...]