Month 2 Kicking @$$

I can almost say bye-bye to my student loans this month.  Due to a hearty bonus and some other factors that worked in my favor, I was able to pay nearly $17k towards my student loan debt.  I have a little over $1400 dollars remaining – and it feels GOOD.

 

2015 Debt Albatross – Debt Payoff Progress

Month 2 spending update

 

Our discretionary spending increased a little bit this month. We spent significantly more on travel, arts & entertainment, and pets compared to last month.  We’ll have to cut back next month to make up for it.

 

Month 2 Spending

Education $17,392
Home $2,890
Food & Dining $1,048
Bills & Utilities $549
Auto & Transport $695
Arts & Entertainment $196
Travel $489
Shopping $74
Pets $202
Other $232
Total* $7,095

*excludes extra student loan payment

 

The past two months were easier on us due to sizable tax returns and bonus. Staying on track to meet the year-end goal is going to be very difficult going forward.  We need to pay nearly $8k per month through year-end and we’re not bringing home that much per month after taxes. We need to find a way to increase our income.  The side hustle with AirBNB and VRBO didn’t pan out.  I received inquiries but not serious offers.  We need to make some moves, and fast.

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Month 1 Goal Exceeded

I am happy to announce that Mr. Debt Albatross and I exceeded the $8,800 payoff goal that we set for our first month.  In total, we paid $9,405 towards our debt!

What helped us:

  • A nice tax return
  • Keeping to our $110/week grocery budget
  • The pup getting kicked out of doggy day care (poor pup!)
  • Filling up our cars at the same time so we can both use our acquired fuel points
  • Self control

What hurt us:

  • The $675 vehicle registration fee for the new car I bought last year
  • A $68 interest charge on my credit card and the $63 I spent on tax filing
  • The $113 bi-weekly charge for home cleaning services
  • Our restaurant spending

We decreased our total spending from previous months but we still haven’t cut spending enough to meet our year-end goal.  We still spend an exuberant amount of money on bills and utilities and we haven’t cut out some unnecessary luxuries including restaurants and home cleaning services. We did use gift cards when we went out to eat but that didn’t cut out the cost completely.

Month 1 Spending
Home $3,303.28
Auto & Transport $1,279.68
Food & Dining $652.18
Bills & Utilities $582.36
Pets $171.11
Fees & Charges $68.34
Taxes $62.60
Shopping $41.00
Personal Care $21.50
Other $377.00

Although we are not “hardcore” yet, we did change our mindset which in itself is encouraging.  On a few occasions, we turned down plans with friends or suggested less costly alternatives. We stopped ourselves from buying some unnecessary items.  We made dinner every week night and I stopped buying lunch at work, introducing major cost savings but also improving our health and nutrition. Overall, it was a successful first month. It’s inspiring to see our total debt go down and encouraging to know that we are nearly 10% closer to our goal.

Taxes, Hooray!

Mr Debt Albatross and I need to pay off over $8 grand of debt each month in order to meet our payoff goal. We’re on track to meet this month’s goal due to a hefty tax refund. Since our lives became more complicated in the past year (bought a home, started grad school, etc.), it took us three days to finish filing our taxes. Thank you, Google.  The following is what we learned in the process:

  • When you own a home with someone as Joint Tenants, you can each deduct the portion of the mortgage interest you paid.  Alternatively, you can have one person deduct all of the mortgage interest.  It may make more sense to have the person in the highest tax bracket deduct all of the mortgage interest.
  • In addition to mortgage interest, you can deduct private mortgage insurance (PMI) payments if you have them, loan origination points, and property taxes.  The PMI deduction phases out after you reach $100 grand in income. It also doesn’t matter if you paid the points or the seller.
  • You can compare the tax form you receive from your lender with the HUD form you receive at closing to ensure you’re deducting the maximum amount possible.  We found some discrepancies and were able to deduct more by using the amount on the HUD form.
  • If you don’t take the standard deduction, you can itemize.  First time itemizers like us will wish that they had categorized their expenses throughout the year. It was tedious searching through emails, bank accounts, and Mint to find tuition payments and donation receipts. Although I didn’t mind hunting for more money.
  • Education credits, tuition and student loan interest deductions phase out after $60 grand in income.
  • If your employer reimbursed you for part or all of your tuition, it can be complicated to figure out what to report. I googled this topic significantly. You need to determine if the reimbursed amount was included in your W2, if it was over the $5250 you can receive tax free, or if it was a working condition fringe benefit. Additionally, you can only deduct the dollars you actually paid, not any dollars reimbursed by your employer.
  • If filing taxes online, search for coupon codes. We received 20% off due to a promotion we found on Retailmenot. If you are under a certain income limit and filing a basic return, you can likely file for free through some of the major tax sites.

Our federal refund is currently pending. It took less than a week from filing to receive the refund. We’re still waiting to hear on the state refund. I’ve already scheduled a credit card payment for Monday. Can’t wait to see that balance go down!

A Tale of 8 Student Loans

I did the math this morning and it’s depressing.  Mr Debt Albatross and I have been paying our student loans for years and have made very little progress on the principal balance.  I feel like we’re trapped in a 5th grade math problem.  A frog falls into a well with a ladder.  He can climb two rungs every day but then must drop back one rung.  How long will it take him to get out of the well?

 

Mr Debt Albatross graduated in May of 2008.  Six-and-a-half years later, he has only paid $2,128 towards the principal balance.

 

Loan Rate Original Current Paid
1 4.17% $30,593 $32,610 -$2,017
2 6.55% $3,500 $1,784 $1,716
3 6.55% $5,500 $3,071 $2,429
$39,593 $37,465 $2,128

 

I graduated in May of 2011.  Three-and-a-half years later, I have paid $5,803 towards the principal balance.

 

Loan Rate Original Current Paid
1 6.80% $5,491 $4,415 $1,076
2 6.80% $6,500 $5,391 $1,109
3 6.80% $7,500 $6,437 $1,063
4 4.50% $2,009 $1,454 $555
5 4.50% $2,000 $0 $2,000
$23,500 $17,697 $5,803

 

Depressing.  We’ve never missed a payment and we’ve gotten nowhere.

 

The Game Plan:

1.  My loans automatically went into deferment when I started grad school last year.  I logged in to my accounts one day and noticed that my status had changed automatically.  I never notified my loan servicer that I was back in school,  it just happened.  I’m guessing that the school sends out the notification.  At the time, I was relieved to be rid of the monthly payment but I realize now it’s a bad thing.  Due to the deferment, I am losing out on the .25% interest rate deduction, making no progress on the balance, and racking up major interest. (3 out of my 4 remaining loans are unsubsidized. My one subsidized loan went to 0 interest during deferment but its also my smallest loan so its not worth staying in this status). Mr Debt Albatross’s loans went into deferment during grad school which is one of the reasons why he has made little progress on his loans.  Deferment makes no sense for me right now.  Time to change my status back.

2.  Pay off the minimums until our high interest credit card debt is gone.  As much as the loan interest is a bummer, it’s nothing compared to the APRs on our credit cards.  We need to get rid of that credit card debt first.

3.  Attack the loans with everything we have.  My car loan and our 0% interest store credit cards take a backseat.  Bye bye, loans!

 

 

 

Bitchy Texts and the Start of a Side Hustle

There is a point in your twenties where your social calendar starts to revolve around weddings – and its great.  I love going to weddings! I love spending time with friends and family celebrating a couple that we all love.  The only downside to this joyous occasion is the expense for the bride and groom and their guests. The wedding reality TV craze does not help the situation.  I personally love a good episode of Say Yes to the Dress or David Tutera’s My Fair Wedding but these shows increase the expectations around weddings and all of the events leading up to the big day.  Between the bridal shower, the bachelor and bachelorette parties, and the wedding – it gets expensive.  Forget it if you are in the actual wedding party.

This leads me to my latest dilemma, one of my best friends from college is getting married in May.  Her bridal party is throwing her a bachelorette party in my state. I am not a bridesmaid but I was invited to the party and will absolutely attend.  I just want to stay in my own house to cut costs. I offered the party planners the use of my house and car and they took me up on the car.

The bridal party ultimately booked a fancy Airbnb apartment near downtown with modern furniture, hot tub, and great views.  It’s a fair price for a large group of girls and looks like an amazing apartment.  I just can’t meet our goal of eliminating 97k of debt this year if I don’t stick to budget.  At the same time, I feel guilty skipping out on the apartment since I was very close to a few of the girls in college.

I had hoped my friends would be supportive of my decision, especially since I communicated it to them prior to booking, but not everyone has read Mr. Money Mustache and “gets it.”  Cue the bitchy texts:

 

bachelorette party text

bachelorette party drama

bachelorette party drama

I love my friends and I understand WHY they are reacting this way – it just sucks.  Achieving this goal is super important to me and I’m not going to let less-than-supportive friends stop me.

Also, if you get the irony of that last text you’ll like the following articles on two of my favorite blogs.

Your Debt is an Emergency

Teaching a Debt Perspective to Twelve Year Olds

 

Side Hustle Update:

Moving on, I decided to put our house up for rent on Airbnb and VRBO.  Mr Debt Albatross and I will be renting out our house for a few key events at the university near our house.  We priced the rental on the high end to make it worth the inconvenience of having to find another place to stay during that time.  I’m a bit creeped out by having other people live in my house and sleep in my bed – but there is a price that would make the heebie jeebies worth it for me.

We already got one inquiry! It’s a woman that wants to rent the house for a full month this summer.  I gave her a quote and will wait to see the response. Truthfully, a one month rental goes against our original game plan. We were planning to keep the rental under 14 days so we wouldn’t have to pay taxes on the rental income and so we could face as little disruption to our normal lives as possible.  If we go through with this rental, we’d have to find some other place to live for that month.  It’s doable if we spend some of that time visiting our families or need to go on a work trip.

In addition to the rental income, Mr Debt Albatross has launched his own weightlifting club which we hope will bring in some extra cash.  He already has one paying client!  We both work long hours and really value our free time so we used the “what price would make it worth it” method to price this business too.

We’ll see how these two side hustles pan out!

Week 1 Recap – How’d We Do?

The Good –

  • I paid $100 towards my Nordstrom credit card balance (Remaining Balance: $438)
  • I brought my coffee and lunch to work each day instead of eating out
  • We took the pup to doggy day care only one day last week
  • Gas is still under $2 a gallon

 

The Bad –

  • I had a $68 interest charge on my credit card
  • I registered the new car I purchased last year for a whopping $680
  • We spent a bit too much on dinner and drinks with friends ($65 for the weekend)

 

Overall, it was a good start to Debt Albatross. If you take out the car registration, it wasn’t such a bad week! We can only improve upon our embarrassing spending last year.

 

Our 2014 Spending:

*A few grand in the Travel, Food & Dining, and Auto & Transport categories was spent on business travel.  I didn’t have a corporate card until later in the year.

*The high spending on home included our down payment.

Category $$
Home $49,361
Education $15,532
Food & Dining $18,021
Travel $9,539
Shopping $8,665
Auto & Transport $7,265
Pets $5,373
Bills & Utilities $5,038
Health & Fitness $1,241
Business Services $1,257
Other $3,719
TOTAL $125,010
Merchants $$
King Soopers 6999
Vet 1848
Doggy Day Care 1561
Chipotle 750
Starbucks 834

 

Mr Debt Albatross and I plan to make significant cuts in the Food & Dining, Shopping, Pets, Travel, and Other categories. We set a $110 weekly grocery budget which should land us at $5280 for the year. We will limit eating out to weekends only and will suggest other plans with friends to try to avoid eating out whenever possible. We will stop taking the pup to Doggy Day Care which should in turn decrease the vet costs (he has been misbehaving lately at camp so we think it might be good for him to take a break). We will also cut out unnecessary shopping and travel expenses.

 

Dallas the pup

How can you say no to this little face?

 

I know 2015 will be a different year. I feel dedicated and motivated to eliminate our debt. If we can stick through this for one year, we will have greater flexibility in our future.

 

 

The Debt Albatross

I tallied up the numbers today. Mr Debt Albatross and I are 97k in debt, excluding our mortgage. How the F#%!! did we get here?!

There is one answer to that question – lifestyle creep.  Over the past three years, we transitioned from struggling recent graduates to successful young professionals.  We quadrupled our income through strategic career changes and  promotions.  On paper, we seem like we’re doing well for 25 and 28 years old.  Our bank accounts say otherwise.  In the past year alone, we got a house, a puppy, and a new car.  Our consumption has rapidly outpaced our income and we’ve made minimal progress on our combined $55k student loan debt.

It’s time to change that. The purpose of Debt Albatross is to track our progress on paying down that nearly 100 grand of debt – in 12 months! It seems crazy but so is our current spending.

Here’s the plan:

1. Attack the debt with the highest interest rates first

For us, that would be our student loans. The majority of the loans are at 6.8%.

2. Cut our spending drastically

The $800 we spent at both Chipotle and Starbucks last year is ridiculous. We have a problem.

3. Increase our income

We’re considering rental income or some other side hustle.

What’s our end game in all of this? Peace of mind.  Debt is trapping.  As much as I love my job, I know that I need to go to work every day to support my current lifestyle. I want to go to work because I want to – not because I have to.

Also, after paying down this 97k, we’ll hopefully be free to experiment in this “lifestyle design” that Tim Ferriss is promoting.

Here’s to Day 1!