Day 374: More than a year, and no closer to being paid off

I have read a lot of doom and gloom articles online lately. How can you not, though, given the current economic situation. But more important than the articles themselves are the comments that follow them. They truly paint a picture of the American psychie, or do they?

Last week, I read an article about how the personal savings rate should be 16-20%. Although it did not state whether that was 16-20% of gross or net pay, I don't think it was really relavent. My initial thought was "How on earth is anybody supposed to save 16-20% of their pay??" And then, I looked at my own personal finances. I currently throw $200 a paycheck into my savings account, and another $25 per pay into each of my children's savings accounts. There is very little return on investment right now, but I am not confident enough in our economy to save money any other way. After combining mine and my husband's salaries, I discovered that I am currently saving about 15% of my gross income and about 9% of our combined gross income. That doesn't sound like much, in comparison to the recommended 16% savings rate but, there are weeks that we have extra money after paying bills. I leave $100 in our checking account to spend for the week and throw the rest into a savings account. I do this on two different bank accounts. By the end of the year, I will have saved approximately 11% of our gross income, based on current projections and IF we face no emergencies that require withdrawal from those accounts.

Based on last years tax return and my current withholdings, I estimate we will receive a $2000-$2500 tax return this year. It is considerably less than the $4000 we received last year, but that's because the other half of that money is already being put into savings. This is the first year I have claimed more than zero exemptions, but I kept reading about how I should get that money now and not let the federal government have it for free, so I did what was suggested. Next year, I'll bump it up and hopefully break even.

Once we pay off some of our credit cards, loans, etc, we will have eliminated about $500 in expenditures, half of which can go into savings as well.

In taking steps to consolidate our debt, I applied for a consolidation loan. I didn't originally plan to, I just contacted my credit union to find out the terms of the consolidation loan, but when they gave me a call to discuss the terms of the loan, they pulled up my account and filled out the application. I was approved immediately, and within two hours, had the money deposited into my account for me to distribute as needed. I paid off one credit card, a loan, and the majority of a second credit card. That second credit card will be paid off this month as well.

I went back and forth on the consolidation loan, because there is an early pre-payment fee that if it is paid off in less than 2.5 years, I am charged a $50 fee. I did a quick look at how much I was paying in interest on these cards and loans, and determined that it was well worth it, even with a $50 prepayment fee. We will likely pay a chunk of the loan off with my bonus next year, and continue to make monthly payments before and after that time. If I ever get the raise that I am expecting (hoping for), it will help significantly.

I also decided on the consolidation loan because I have learned that if we have a zero balance on a credit card, we are a lot less likely to use it. Something about putting a balance on a card that was previously paid off just bothers me psychologically, but if there is a balance, I know I'm making a payment on that card anyway, so I am more inclined to use it for random spending. At least with the consolidation loan, I will not be able to amass any more debt on it. There is a fixed amount that I will be paying on for a predetermined amount of time and once it's paid off, it's paid off.

Another fun thing that I learned, that has bolstered my confidence a little, is that we have finally reached a point financially where we're not spending more than we're making. I know it seems a little backwards to be putting money into savings when we were using credit cards to meet basic financial needs, but I felt like (and still do) that if either of us were to lose our jobs, I would rather have money in the bank than a paid off credit card. I can negotiate with a lender, but if I have a $0 balance credit card and no income, it won't be long before access to my card is shut off. So I have been using my lowest interest credit card to pay for basic necessities, like gas and groceries, and then making the same $250 payment every month.

That said, here is a picture of my current debt totals for June.