get out of debt

So, as 2009 comes to a close I am looking back at this year and am pleased with my progress on debt. I was in such a terrible position a year ago, and since then I’ve paid off a big loan from Citibank and also one from my 401k, and gotten a start on the first credit card out of five. As a result of the paydowns and a balance xfer, I am close to paying half the monthly interest that I was a year ago (not counting the mortgage and the HELOC). Meanwhile, I saved a month and a half of expenses in an emergency fund.

Next year I may be able to get three of the credit cards knocked out if all goes well, while continuing to build the emergency fund. It’s slow going and often I feel impatient and want to go out and buy something expensive, but so far so good.

Well, moving to Portland did end up turning into a spending binge, especially at the end of 2008. Also I spent a lot on the house before moving, racking up a bunch of home equity line of credit debt. The recession shocked me back into awareness and starting in January of this year I renewed my efforts to climb out.

Currently I have five credit cards, mostly low interest stuff from balance xfer offers. After that is the HELOC, but it’s variable rate and if rates start rising again it may move ahead of one or two of the cards. If not, I think I can pay the cards off by mid-year 2011 if my life manages to stay consistent (no moves, job changes, etc.).

More progress the last six months, paid off 20% or so of the original amount. I am not going to make it out by the end of 2007 by a long shot, though. Partly this is just spending too much, partly it’s that I have made some investments in my house.

Things are going to get interesting in a month or two as I will be moving temporarily to Portland, OR and renting out part of my house for a year. This is a great opportunity for me to do something different, but I want to be careful it doesn’t turn into a spending binge. I’m looking at 6/30/2008 as a target date now.

I started tracking this in Sept. ‘05. The total of my interest payments for this month, including credit cards, loans, mortgage, and mortgage insurance (MIP, which I group with interest since it’s a charge for having debt) is now more than $200 less than it was back then. That’s an annual savings of more than $2400!

I did it by paying minimums on everything but the highest interest debt, which I tried to send as much as possible to.

At some point I realized that I was close enough to owning 20% of my house (which is when they stop charging MIP), that it made more sense to pay the mortgage down to that point than to pay off other debts. If you only have, say, $3000 to go before getting rid of MIP, and MIP is $50 a month, it’s essentially like paying 20% annual interest on that $3000 ($50×12 / $3000 = 20%). Whether it’s worth it depends on how fast you can pay off the $3000 and how high the interest is on your other debts. For me it definitely was.

I’ve made solid progress the last three months, paying off somewhere around 18% of my remaining debt. December will be slower, with Christmas and some end-of-year things like personal property tax due. But it’s still looking like end-of-2007 is attainable.

It’s helped to be travelling a lot for business, since my meals are covered and I leave the thermostat turned down at home. But I am also trying to exercise as much discipline as possible. I try to ask myself if I could do without X (some thing I’m seeing in a store, for instance) for another month, and generally the answer is yes.

I started digging out in September 2005. Since then I’ve worked on bringing down monthly expenses (no cable tv, for instance), always having a net gain for each month, and targeting my highest interest debts first. I’d like to be out by the end of 2007, but I will have to be vigilant on expenses in order to make it.