Monday, January 7, 2008

Arming ourselves for the new year

We've made it a weekly ritual, sitting down in front of the computer with our budget spreadsheet, checkbook and mail pile on Sunday evenings just after dinner and The Simpsons. We've been very good about discussing our future spending habits and how we're trying to remedy our current crisis. I'd like to think we've both learned that we can trust one another now with the checkbook.

We've learned a lot over the past several months. It's been a very difficult time. I'd be lying if I said I wasn't often depressed about the status of our bank account at the end of the week. But we've studied our trends, the subject we've gotten ourselves into and our capabilities and I must admit that we're now a lot more prepared.

I've torn through quite a number of blogs, personal finance sites and books on the subject matter.

I'm convinced that we're capable, both mentally and financially to begin to really attack our debt on a very aggressive level. Up until now we've been tolerating our situation and dealing with it on a day to day basis. But it's been mostly a defensive stance, only taking on each blow as it was thrown at us.

We've drawn up a rather ambitious plan to get ourselves back on track so we can reach our ultimate goal, qualifying for a home mortgage so we can finally have a home, instead of just a place to live.

We've crunched the numbers and we've come to the conclusion that it's possible with a lot of hard work and conservative living it's possible to have more than half of our debts paid off within 1 year's time. After that things should fall into place a lot faster, some estimates putting it at another half year. This is a far cry from the three year estimate I scribbled on the back of a piece of scrap paper three months ago.

I'll be elaborating a bit more on some of these subjects in the coming weeks, but I think I'll outline the basics of our plan. Do you have some advice? Constructive criticism? Post in the comments and I'll link back to your blog in my next post!

Here's the low down in more or less sequential order:

  1. Clear the battlefield: Our nonprofit Credit Counseling Service has served us pretty well during the past three quarters. They've managed to get all but two of our creditors off of our backs, they've lowered our interest rates and they've greatly reduced our finance charges. We're no longer scared to answer our telephone for fear that it's American Express looking for their monthly dues.

    However, they're taking their own cut of our monthly payments and while it's a mere drop in the bucket compared to the over all balances they've been paying for us, we can use that money to better ends.

    Furthermore, they've created a buffer between us and our finances. This was absolutely the plan in the beginning of things, they were a great shield when things were very hectic. But now that we're ready to begin to rain the hurt down upon our debts, they're only going to get in the way.

    My experience with them leads me to believe it's a good solution, but only if you have no better alternatives and only for a short period. This will put us in the right position to launch a full scale assault.

  2. Gather ammunition: We currently have two jobs a piece. One that's fairly tolerable and brings in the money (desk jobs) and one that sucks, but helps pay the bills (service jobs). We're going to continue this trend to the best of our abilities. And while it may mean a couple of sleepless nights, it'll mean we're that much closer to our goals.

    Conservative number crunching reveals that they will provide us with an extra $9,100 if we keep them for one year. That's just under a third of our current debt.

    We're also aggressively searching for a new vocation for the missus. She has a dual major in education and accounting, so she's capable of earning a significant amount more than she's currently pulling in with her primary occupation.

    We're also on the look out for even more sources of income. I have a couple of leads and plans, but they need to be investigated and finalized.

    We received a huge tax refund check in the mail a couple of weeks ago. We're planning on putting most of it into our savings account so we have some sort of safety net should be slip and fall, but it'll go a long way toward our end goal.

  3. Arm ourselves and attack: We've discussed the matter extensively and we've opted to employ the "debt snowball" approach in our efforts, as devised by Dave Ramsey. I've heard nothing but good things about this approach from my fellow debt laden bloggers and the over all plan seems quite simple.

    I like simple. Occam's razor rocks.

    Essentially, the plan is that once we gain direct control of our finances we'll pay everyone their monthly minimums and focus our efforts on the lowest balances instead of those with the highest interest rates.

    The underlying logic is that we'll see results immediately and it'll give us specific one-at-a-time goals. It'll give us direction. Which makes sense, because we had no goals, direction or results when we originally found ourselves in our mess.

  4. Rebuild: Our credit score has suffered in the wake of this mess. Once our remaining balances reach a yet to be determined critical level, we'll begin the process of rebuilding our credit scores.

    We will accomplish this by:

    • Obtaining our credit reports and finishing off any missed creditors and disputing any false claims.
    • Aggressively paying off one our cars (likely mine) to eliminate a monthly payment.
    • Possibly taking out a small, secured loan.
    • Canceling all but one or two credit cards, opting to keep the very best after all things are considered.
    • Using the credit card(s) heavily, but responsibly. This means never carrying a balance.

    I know I've sworn up and down about how horrible they are, but I believe it'll go a long way to rebuilding our credit. The literature I've read seems to suggest that simply having one or two cards with zero balances will do its own fair share, too.

    The plan is to stick to a tight budget and funnel every dime into our checking account, even after we've eliminated most of our shackles. We will then make our purchases (groceries, gas, et cetera) and pay off the balances IMMEDIATELY through use of online payment options.

    Since we'll never carry a balance, we'll never have to pay interest. This will have to be monitored very closely, as to not repeat past mistakes. But I feel confident we're capable of it.

  5. Planting the flag: After everything is said and done, it'll be time to shop around for a mortgage plan and find the nice home we've been dying to have for such a long time. I'm employed in the real estate industry, so this likely won't be very difficult at all.
Is a year and a half too liberal of an estimate? I don't seem to think so, especially if we stick to our budget and play it safe. We make a significant amount more than many of our peers and our expenses are considerably lower as well.

Here's to my celebration post in July '09!



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