Last week I wrote about the Plan for eliminating a big chunk of our debt. This week I want to write about the Rules I have set for us along this journey.
Plowing large amounts of money into your debt each week can get pretty intense and if you don’t have rules set up for yourself you will definitely fail.
When I was coming up with this plan I gave myself these following rules:
(RULE #1) As I am paying off one of the credit cards (right now its the Old Navy) I will pay only the MINIMUM monthly bill on the other two cards. I understand this is traditionally not sound advice and the experts would say pay the card that has the highest interest rate first.
I think that advice is stupid. Why? Because for me it’s all about cash flow. If I can get the lower or no interest rate card paid off first it frees up money quickly that I can put into another debt faster.
(RULE #2) While I am paying off one card I can still use the other cards in very small amounts.
Again not a good idea say the experts.
(RULE #3) If at any time we have an emergency, like the hot water tank goes or the car needs repairs I can take the amount we would have put towards the current debt for the week and use it for that emergency. Now, If I have a REALLY big emergency like something in the thousands I can take that amount for a month and just add that on to the end of my plan. So instead of 80 weeks to pay off my debt it may take me 84 weeks.
Does that make sense?
I know this plan is not fullproof and the experts say to have an emergency fund of six months salary or some other advice but realistically could I even save that much?
Also the experts say to pay more than the minimum each month on your credit card. I have paid more than the minimum for YEARS and it has done nothing for me. I called the credit company on one of my cards one time and asked…”I have been paying $200 over the minimum for over 2 years. Why has my cash advance balance not gone down in that whole two years?” You know what they said to me? “What you pay over your minimum payment is not enough to make up for the interest charged” What?? I don’t even own the car anymore I took the cash advance out for!
So I am done paying more than the minimum for the other two cards. Lets see what happens if I pay a lot on one card and the minimum on the other two.
As far as the emergency aspect of this plan, Let’s just use an easy number like $500. If I pay $500 a week into my Credit Card and an emergency comes up like the hot water tank goes and it costs $1000 to replace it, I would just take the $1000 I would have put into the credit card for the two weeks and pay the hot water tank bill. I wouldn’t charge it on my credit card and I would put the two weeks on to the back of the plan so it would take me two extra weeks to pay my debt. Not so bad, right?
Hopefully emergencies won’t come up very often but your never know.
Lastly I want to address using the other credit cards while I am paying off the one.
I am not talking about going crazy and buying a bunch of clothes and stuff. What I am talking about is while doing this “paying off debt” thing it can get pretty frustrating at times and instead of going on a super duper spending binge and blowing the whole plan, I am talking about blowing off a little steam and maybe taking the family to the movies some afternoon for $50 on the credit card. That’s all.
You have to give yourself some sort of reward every once in a while or you will have a breakdown and then you will give up.
I guess that’s just three rules but they are important ones.
Believe it or not I made my first extra payment to Old Navy last week and after paying the rest of the bills for the week I still had money in the bank account. That’s amazing for us! Today I will make another payment. Can’t wait to see what happens this next week!
Week 3 of 80 I will write about what is different this time around for us and why I think this plan will work. See you next week! -MM