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Writing about money, starting a business, and getting out of debt.

Debt Review

Debt Reveal Day: First Monthly Review of My Finances

Its Debt reveal day. I have been collecting and listing my debts, and honestly, it isn’t as bad as I thought it would be. But before we get to the numbers, I read an article in the Wall Street Journal about the lack of financial literacy in America called “How Financially Literate Are You Really?” By Meir Statman and until now I never really thought about my lack of ability with money as a poor financial literacy.

There’s a financial-literacy crisis in the U.S. And it is probably even worse than it seems.

Study after study shows how poorly Americans understand money and investing. Consider this common question posed by surveys: “Suppose you had $100 in a savings account and the interest rate was 2% a year. After five years, how much do you think you would have in the account if you left the money to grow: more than $102, exactly $102, less than $102?”

This is one of three questions typically used to measure financial literacy. Incredibly, only one-third of Americans older than 50 answer all three questions correctly.

As I started the article, I worried I would find myself described inside, thankfully I passed the test. But just because I show a small amount of financial literacy doesn’t mean it crosses over into demonstrating real comprehension through action.

Is getting out of debt like losing weight? Something you learn about and think about more than once before you apply the principals to your life? I hope so because I have thought of getting out of debt before. I have learned a bit about finances from books, but also through trial and error.  Maybe that makes my current debt worse because I knew I was acting stupidly. I wasn’t  thinking at all. I was just living by whatever I wanted. Without regard to finances.

I am about to go through my accounts and provide you with a rundown of my debts and a light overview of my plan to eliminate them. But after reading that article this morning, it occurs to me that getting out of debt is only part of the answer. If I don’t go forward and purposely increase my financial literacy, comprehension, on and action, then I am doomed to get back here.

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Thoughts On All This Debt

I am missing a few interest rates, which I will dig out and update. But for now, it is quite shocking to see that without my mortgage I am worth a negative $101,098.75.

Yes, I am aware that the mortgage is a debt, but since the house also has a value and since the mortgage will be the last thing we pay off I am not worried about it. If you want the details, it is a 15-year mortgage meaning we are already paying it off faster than the average person with a 30 year. The car has value too, but we won’t be selling it. More likely than not it will go to my daughter when she gets her license.

I am comforted that most of our debts are not stupid spending choices, but educational debt. That doesn’t make it less daunting to pay off. But I feel like I am a lot less financially stupid.

The Plan

Pay off all credit cards first, in the snowball method- husband’s card first, then my card 1 because it has a higher interest rate than my credit card 2 which was a promotional rate for 2 years same as cash. The two credit cards that are gaining interest (his credit card 1, + my credit card 1) total $5,114.65 which is a lot. But I’m sure I can pay that off next year. Hopefully early in the year.

After the credit cards are paid off we are going to go after the student loans. And I’m going to have to do some math and figure out what is best. Should I prioritize balance or interest rate? I didn’t realize until putting this post together that some of our student loans were getting such high-interest rates. 6.8 – 7.5 is pretty high for a student loan, even 5% is high.

These loans are grouped into 3 consolidated payments, which is then split up and applied to the individual loans. I can pay on each loan separately, and I can pay extra above the minimum payment. But as I looked into the details of these loans I can tell you that some of the lower balance loans get only $7 applied to them and that is split between interest and principal. At that rate, they will take forever to pay off. I am inclined to pay off the lowest balance ones first and then go after the larger loans. I feel a little bit like it doesn’t matter, as long as you are paying something off.

To start dealing with the student loans I am going to call and see if there is anything I can do to lower the interest rates – especially on those with the higher balance. I hate adulting and talking to the loan companies but debt won’t just magically disappear without work on my part right?

I’m going to be honest, collecting this list was kind of stressful, and I need a little room to breathe. So I’m going to take a few days to look at our household budget to find places we can trim excess spending and look at our sources of income to see how we can bring in more money.

 

Until next time,


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