It’s been almost six months since I caved and replaced my aging Volkswagen Golf with a used Subaru Crosstrek. While I was able to sell the Golf to a third-party and net enough to cover the down payment, and after taxes and fees I was left owing $18,335 on the new vehicle. Since then I’ve been diligently paying it off by allocating a portion of my disposable income to payments each month and sending 25% of my freelance income towards extra payments as well.
Why only 25% of my freelance income you ask? Well, I was trying this new thing where I attempted to balance my desire to be debt free with saving for the future and renovating my new house. Instead of throwing every last cent at my car loan, I saved a little, spent a little, and paid off a little debt.
So how is that working for me? Well, it’s been almost exactly six months since I took on this new debt and I’ve managed to bring it down to $11,714 owing, and it’ll be under $11,500 by the end of this month. That’s pretty good, almost $7,000 paid off in six months, and I’ve learned a lot about paying off debt slowly in the past six months.
Namely, that it’s bloody boring.
That’s right, paying off my car loan slowly and steadily has been just about the worst decision I’ve made for my finances since, well since my decision to buy the vehicle in the first place.
For one thing, I’m paying more interest than I need to. I originally got a loan for the car through the dealership purely because it was easy to do at the moment. It also gave me the opportunity to watch the salesman’s confusion when I told him it didn’t matter what the loan term was. My plan was always to pay the car off within a year to two.
A few months after the purchase, I transferred the remaining balance to my line of credit (which I’ve had for years but never used) at an interest rate of 4.7%. That resulted in about $50 per month in interest, which is a waste of my hard earned cash.
On top of spending money on interest, paying off my debt slowly killed my enthusiasm about my finances. As I’ve carried this debt over the past six months, I’ve felt like every other goal I’ve had (invest more, save for renovations) is just getting in the way of paying off the debt. As much as I’ve tried to slow down and enjoy having money for renovations, it’s left me feeling unfocused and like my attention has been split. I felt complacent in my finances, and I didn’t like that.
The thing is, I’m very good at tackling a single goal at a time. I paid off $38,000 in 24 months. I saved $10,000 for my emergency fund in five months. I dove headlong into saving for a home and scraped together $33,000 in a year and a half. What I’m not so good at is splitting up goals and saving for multiple things at a time. It’s annoying and a little bit soul-killing.
So, after consulting with my husband (since we have combined finances, big decisions like this need to be approved by both parties), I’ve decided to suspend saving for my big attic renovation and to throw 100% of my resources toward getting rid of this car loan once and for all.
By suspending saving for my big home improvements, I’ll free up $200 from my budget and 25% of my freelance income. The addition of this cash means I’ll pay $732 from our budget toward the car every month, and on top of that, I’ll throw 50% of my freelance income towards paying off the car. According to my calculations, this increase will mean I’ll have the car paid off by the end of 2017, exactly one year after purchasing it.
Here are my calculations based on my debt repayment spreadsheet:
I based this payoff schedule on a ton of if’s, and I’m not sure I’ll be able to pay off the remaining $11,402 in the next six months. If any of the following things go wrong, I’ll miss the target:
- if my house needs additional repairs
- if my car needs repairs
- if my freelance income drops off
- if my dog gets sick
So many if’s, but that’s the way I like it. I like uncertainty. I like standing myself up against an undoable goal and knocking it out of the park. That’s what I’m good at, and that’s what I’m going to go back to doing. Kind of like a certain superhero I recently fell in love with.
Screw balance, I’m a gazelle.
What About the Reno Fund?
Yes, what about the reno fund. Well, the good news is that I won’t be stopping home improvements altogether. While I’m no longer adding money to the Big Reno Fund, which is meant for contractor level renovations like gutting and finishing the attic into a master suite, I’m still putting away $200 every month towards smaller repairs that are more do it yourself in nature. That’s how I’ve funded the mid-century modern entertainment center and the fireplace transformation. I’ll keep doing those (in fact I’m getting ready to reveal a great one soon), and $200 is enough to keep working away on those projects at a reasonable pace.
After the car is paid off at the end of this year, I’ll use all of that freed up money to go full tilt with the renovations, and maybe increase the amount I put away for the future, too. But that’s six months away, and for now, I need to focus on eliminating this car loan as quickly as possible.
Now I want to hear from you guys. How do you tackle debt? Do you make your monthly payments dutifully, or do you hack away at your debt monster until you’ve slain it?
I want to know!