Recs

0

Resolve to Be Debt-Free in 2007

Were you to see me in public, you'd have no idea I'm in prison. But that's me: a two-time offender with a track record so poor that it's the shame of my family.

There was no blood. No car chase. No all-points-bulletin. No warrants. No victims, save for me, my wife, my kids, and, if I'm not careful, our retirement.

You see, we once were more than $45,000 in debt, which we paid off within three years. The good times didn't last. Today, we owe more than $60,000 to creditors, not including our primary mortgage and the minivan we use to take the kids to school. Add those in and the total rises to roughly $240,000. That's a lot of red ink.

Stop me if you've heard this before
And we're not alone. Over the summer, the Federal Reserve reported that consumer credit rose by $10.3 billion to $2.19 trillion. By September, that total rose by another $210 billion to $2.4 trillion.

Not that I can point fingers or anything. Here's what we owed in August:

Obligation

Balance

Interest Rate

Washington Mutual HELOC

$39,000.00

8.00%

American Express

$2,786.79

18.24%

Citigroup

$14,775.80

2.99%

TOTAL

$56,562.59

N/A



Here's the tally today:

Obligation

Balance

Interest Rate

Washington Mutual HELOC

$47,979.37

8.25%

American Express

$0.00

N/A

Citigroup

$14,746.23

2.99%

TOTAL

$62,725.60

N/A



What happened? Taxes. We owed the Feds and the state of Colorado five digits' worth of back taxes as of October. Now that debt and our Amex card obligation have been paid off, thanks to savings and additional borrowing against our home equity line of credit (HELOC).

I'll understand if that sounds crazy. Here's the thing: With retirement savings and income, we're in no danger of defaulting on our mortgage. And we'll save hundreds in interest with the HELOC tax write-off.

Room for further improvement
But I could still do so much more. Witness Foolish poster DeterminedMom, who reported more than $50,000 in revolving debt, a $24,000 car loan, and a massive $535,000 mortgage as of November. (Find the details at our Credit Cards discussion board.)

Her situation appears dire, and yet I admire her deeply. Unlike me, she's crafted a specific budget for debt. And she's reporting progress monthly to a community that demands accountability as it offers support. How remarkably Foolish.

I, on the other hand, have done the opposite. My reporting has been limited to the few missives posted to the site. And our debt payments were the result of extra income more than deliberate planning. How remarkably un-Foolish.

I can learn something from DeterminedMom. So can you. If you're in debt, resolve to create a 2007 debt budget. What's that? It's a budget with debt repayments built in.

Let's say you make $6,000 monthly after taxes and that your minimum obligations equal $4,000. That's $2,000 in so-called disposable income. With a debt budget, you'd use that money to amplify your payments. Let's say $1,500 works best. Spread that $1,500 among your monthly payments and create new minimums, focusing your attack on the most costly debt. That way, you'll not assume that your $2,000 in "disposable income" is disposable. As a result, your balances will decline faster than Mickey Rourke's career.

Follow the money
My prison is entirely of my own making. And I'm just as capable of breaking free. Fortunately, we're living below our means once again, but there's still more I can do. As fellow Fool Stephen Ellis wrote on the boards in June, when I first revealed my blunder, "...[Tim should] post regular updates on the [Credit Cards] board ... Not only will he get good advice and a built-in support group, but it will hold him accountable to his plan on a regular basis." Point taken, Steve. I'll write my first post this week. And thanks, DeterminedMom, for showing a Fool what real commitment looks like.

Have other money tips? Tell me. I'm writing new articles on personal finance and investing basics every week as part of our new money management service, Motley Fool GreenLight. It's tailor-made for Fools like you who aim to take control of their financial destiny. Click here to learn more.

Fool contributor Tim Beyers, ranked 845 out of 16,362 in Motley Fool CAPS. He's grateful for the Fools at the Credit Cards discussion board. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. Get a peek at everything he's invested in by checking Tim's Fool profile. The Motley Fool's disclosure policy won't charge you a penny in interest.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 534540, ~/Articles/ArticleHandler.aspx, 12/22/2014 8:43:25 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Tim Beyers
TMFMileHigh

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At Fool.com, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at timbeyers.me or send email to tbeyers@fool.com. For more insights, follow Tim on Google+ and Twitter.

Today's Market

updated 2 days ago Sponsored by:
DOW 17,804.80 26.65 0.15%
S&P 500 2,070.65 9.42 0.46%
NASD 4,765.38 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes


Advertisement