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Preparing for the 2010 Debt Reduction Challenge

9K views 97 replies 33 participants last post by  Greebo 
#1 ·
As 2009 is coming to a close and we're closing in on our $1,000,000 mark for debt reduction (KEEP UP THE GREAT WORK PEOPLE!), it's time to start planning for the 2010 debt reduction challenge.

It has become readily apparent that there need to be some definitions of terms for 2010, so there is clarity as to what constitutes actual debt reduction.

To me, "reduction" means it has to already be existing - so for next year, here is what I propose:

Debt
A debt is defined as:

  1. A formal agreement between a borrower and a lender; or
  2. A balance owed for a transaction which could not be paid for in full at the time of the transaction or within the normal terms of the transaction.
So that means a formal loan - credit card, mortgage, car, whatever, or a bill that you couldn't pay when it came due and is thus eligible to go to collections, whether or not it has actually done so.

Valid Debts
  1. Any debt already existing as of January 1, 2010 at 12:01 AM; or
  2. Any debt accrued in 2010 that has been owing for more than 30 days.
This means if you charge something on a credit card and pay it off that month, it doesn't count - you're just using the CC as a substitute for cash temporarily.

Qualifying Amounts

  1. Principal reduction ONLY.
Yes, I think it's time to call a spade a spade. Interest that accumulates does so on a periodic basis - usually monthly. If you have $5,000 in credit card debt at 15% and the bank charges you $62.50 in interest and you make a $162.50 payment, you are reducing your principal by $100 and the other $62.50 is going to charges accrued that month. Since interest is charged monthly, it does not qualify as a valid debt. It can only count as a valid debt if the payment is not made, and the interest is rolled into the principal on the next statement.

This is true of all debts unless the debt has a "prepaid interest" clause, in which case - wow, you poor sod...

What will this mean? It means next year it's going to be a LOT harder to get close to $1,000,000 in reductions. We'll need more people.

Why then am I suggesting this change? - Because it is important for people to REALLY BE AWARE of just how slowly their actual debt is going down. When one counts the interest paid on a mortgage for a year as debt reduction, it gives a false sense of accomplishment. Paying interest doesn't eliminate debt, it only stops new debt from accumulating.

So - those are my proposed terms. This is not a unilateral decision - I think the FV community should consider if these are reasonable terms and then we can decide as a group. (And then I'll just overrule you if I disagree with the decision... KIDDING!!!)

So - please discuss! :D
 
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#4 ·
If someone's already participating, I agree. If they're just coming into the challenge - new to FV or just joining up, then it may be unrealistic to expect this. I mean, could you remember how much debt you added 6 months ago if you were just getting serious now about debt reduction?
 
#5 ·
QUOTE/ Because it is important for people to REALLY BE AWARE of just how slowly their actual debt is going down. When one counts the interest paid on a mortgage for a year as debt reduction, it gives a false sense of accomplishment. END QUOTE/

You know what would really make people aware of what debt/interest does. Just a suggestion here. Along with principal list the interest also. People could go back thru the thread and see/total up what interest they have contributed to the bonuses of these a$$es. Example on month

House $2086.94

Principle $290.09

Escrow $233.84

INTEREST $1,573.01
The person could see that in 12 months the principle paid would be about $3500 BUT the interest would be about $18,800

Just a thought.
 
#7 ·
I really like that idea - and I'd be very willing to track interest paid along with debt reduced as side by side numbers.

Ohhhh I'm excited for next years thread. I will probably need help figuring out the intrest amounts on our mortgage and student loans as they are just an automatic fixed ammount each month. But that can wait 'till the time comes.

CC debt is much easier, but luckily we don't have much of that left :fight:
All you need to do is check your statements - they will spell out what you paid to interest and principal, or show how much interest accumulated, at least, which you then subtract from the payment to calculate principal.

If you can access them online, check periodically and see if the balance has gone down - the difference is the principal paid.

EVERYONE should learn how to read their statements - don't just focus on Due date and Minimum payment - learn what everything on the paper means. It's really eye opening!
 
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#6 ·
Ohhhh I'm excited for next years thread. I will probably need help figuring out the intrest amounts on our mortgage and student loans as they are just an automatic fixed ammount each month. But that can wait 'till the time comes.

CC debt is much easier, but luckily we don't have much of that left :fight:
 
#8 ·
Ohhhh I'm excited for next years thread. I will probably need help figuring out the intrest amounts on our mortgage and student loans as they are just an automatic fixed ammount each month. But that can wait 'till the time comes.

CC debt is much easier, but luckily we don't have much of that left :fight:
The interest part is totally up to Greebo. It was just a suggestion. It would be alot of work for him. Understandably.
But would definitely make the point needed. NO MORE INTEREST!!!
 
#9 ·
I think that those are reasonable stipulations. I didn't participate last year but plan on it in 2010.

For those of you who don't know what your principal/intrest/escrow breakdown is just call your mortgage company. You may even want to have them send you out an amortorization schedule for the rest of your loan. When you have it you can easily see how much intrest you save based on how much estra principal you pay. My three sheet paper is well worn now but has been a tremendous motivator.
 
#11 ·
Tracking interest is easy enough - just another column on the spreadsheet.

I'm actually tempted to track by person...now THAT would be a chore...
 
#14 ·
Tracking interest is easy enough - just another column on the spreadsheet.

I'm actually tempted to track by person...now THAT would be a chore...
Wow, and I mean wow...BUT talk about an eye opener. Alot of people wouldn't keep track thru the end of the year. For whatever reason. All they would see would be everyone's complete total. If they could see their own damage done, THAT would be many eye openers and maybe a lesson to people just coming on or new to FV.

If someone new saw the interest we're paying out a month, much less a year, my god, what a lesson could be learned. One credit card is almost $500 in interest. ( Business)
 
#13 ·
You know, we didn't start 2009 with a goal. Since we're firming up the rules, I think maybe we don't think about goals for 2010 until we have a better idea of the impact of the changes. What do you think?
 
#17 ·
“Without goals, and plans to reach them, you are like a ship that has set sail with no destination.”
“First you write down your goal; your second job is to break down your goal into a series of steps, beginning with steps which are absurdly easy.”
“Goals that are not written down are just wishes.”
“When it is obvious that the goals cannot be reached, don't adjust the goals, adjust the action steps.”

:D I think we need a goal.
 
#15 ·
I don't think you should be including debts accrued in 2010, unless it someone who just joined and is starting to get out of debt. It's a debt reduction challenge, not a debt payment challenge, so your contribution for the year should be equal to your total outstanding debt on 1/1/2010 minus your total outstanding debt on 12/31/2010.

Definitely agree with no interest, although some people may have no way of knowing for their mortgage. I know I only get a statement in January for the previous year. There are spreadsheets that we can share with those who can access the information from their lender so they can estimate.
 
#19 ·
Truly, I agree with Russ, was just trying to make it easier for you. We need a goal. Slightly out of reach so you have to stretch a little farther.
 
#20 ·
I like the guidelines set by greebo. I understand the importance of a goal, but as mentioned, we don't know who will participate and how much of their previous posts were interest. I would say set the goal after the first quarter as suggested. I also know not too long ago the 2009 goal was $500,000 and then 650000 and then 750000 and then 1,000,000 in all like 2 months. It is great to surpass a goal, but hard to predict a group thing like this....

Regarding opening eyes... I have a low morgage in a low cost of living area-$550 a month. Of that only $150 goes to the principle.

As far as my 2010 contributions, I will not have much. I love this thread and plan to continue to read it and encourage others. I will make my last cc payment in about 10 days. I only have my house payment right now. It is possible we will have to add a car payment, but hoping to save up much of the money. I will continue to include my house payment (and work towards extra payments).
 
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#23 ·
i am also not going to have very good numbers in 2010...(reduction wise) coz all the cc cards will be gone and we will be a 'cash only society' in this household from here on forward...we lived this way for all of 2009 and proved that it works so into 2010 we go....no plans of new cars...(i'm driving my 1999 into the ground)...then i will just ride my moped ...lol...dh gets a new company car every few yrs...and if that stops...his job has stopped... and then it will open a whole new world for us and we will require nothing more than t-shirts & flip/flops....hm..... no new furniture...(i'm good for the rest of my life on that one...based on $33,000 worth of CC debt already paid and gone this yr....(and no..that's not what i SPENT this year...that is what i continued to carry forward, pay down, add to...for the past 15 yrs)....till i saw the 'error' of my ways.....

all i have left is my rental properties...and 'I' personally am a renter to my own company so i have no 'personal mtg'.....being in the early stages of the mtg's i am still paying considerable chunks of interest over principal and my accountant won't let me pay too much x-tra towards principal (i HAVE to have the deductions or the IRS takes what the banks haven't already)....no win...i swear....

so i won't be a huge contibutor...but if you want to calculate interest into the mix.... i may be a huge help..... but i will post what i can...it all adds up....
 
#25 ·
i am still paying considerable chunks of interest over principal and my accountant won't let me pay too much x-tra towards principal (i HAVE to have the deductions or the IRS takes what the banks haven't already)....no win...i swear....
Oh no. You have one of those accountants that doesn't understand that paying $10.00 to save $2.50 isn't a good deal, don't you?

;)
 
#24 ·
You can get good estimates on your P&I portions by running this calculation and showing the amortization schedule.

Set it up as if your mortgage was brand new and then go find your current balance on the schedule and that'll give you your "what will my next payment be" numbers:
http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx
 
#26 ·
I will go on record here also as saying that our debt reduction numbers are not going to be great next year.

We've only got mortgage debt and for the first few months, all of our would be extra mortgage payment money is going to an upcoming disney trip.

We'll be paying extra after, but even then, not as much as we used to - the 15% to retirement took a chunk out of our snowball.
 
#30 ·
I don't know how the whole of 2010 will be for us, but our debt reduction totals wont be too great either at least at the beginning. NOT because we have already paid so much off (congratulations to all you guys by the way) but because for at the moment I can barely balance a budget with NOTHING going towards savings and NOTHING going towards extra debt reduction payments.

Hopefully our cash flow will increase at some point in time, but we shall have to wait and see. Trying to balance DH's huge pay cut and maternaty/parental leave etc (which we figured out ends up costing less than child care for now).
 
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#31 ·
I don't know how the whole of 2010 will be for us, but our debt reduction totals wont be too great either at least at the beginning. NOT because we have already paid so much off (congratulations to all you guys by the way) but because for at the moment I can barely balance a budget with NOTHING going towards savings and NOTHING going towards extra debt reduction payments.

Hopefully our cash flow will increase at some point in time, but we shall have to wait and see. Trying to balance DH's huge pay cut and maternaty/parental leave etc (which we figured out ends up costing less than child care for now).
All ANYONE can do is the best they can do. I hope things get better for you. And sounds like a new baby...congratulations!
 
#32 ·
mabyn09, sorry to hear, but participate and you will be congratulated for what you can do and encouraged to do more as you can, and reminded to not waste any extra money you do manage to come across.

especially with nikosans999's excitement and participation
 
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#34 ·
sabrelvssammy

I can understand needing the deductions to make sure you have a survivable tax bill - after all if you pay down the principal but don't eliminate the loan completely then your monthly cashflow still remains the same but your tax benefit gets smaller and smaller...so I can see how such a situation can happen.

I'm no where near there yet though - from my perspective, next to you, I'm the small speck. ;) We're doing corporate and personal as well, but it's still small enough that I can manage it in TurboTax. Thankfully. :D
 
#35 ·
I agree it makes sense not to include interest, but it makes it a bit does more a chore to post. Right now, I have an amount scheduled and I wait for it to clear the bank and the post that amount. It's easy to add to the post and be done. If there is more work involved, I'm not sure I will keep up with it. Just me being honest. I don't want to do it for 2010 if I'm not posting 100% like this year.

Not trying to make trouble, just something I'm thinking about.
 
#36 ·
Get out your mortgage papers (that is if you don't know exactly what you borrowed and the interest rate and how long) go to a site that has amortization schedule or go to your bank/credit union and ask for one. I saw mine on my first mortgage very early on and that is how I had the incentive to have paid off 2 houses. Consider when your payments have $75 - $150 principle EVERY time you pay that much extra you have knocked off a whole payment.
 
#38 ·
The mortgage is the least of my worries honestly as for as figuring what is principle and what is interest. I've got a HELOC that the balance is divided and has 2 different interest rates. I've got one AMEX in collections...do I consider it all debt? It's a set balance and what I pay all goes toward it, but in there somewhere is some interest from ages ago?

I pay toward 14 debts a month let alone reoccurring stuff like power and insurance. I would love if I just had a mortgage to worry about and then there wouldn't have a question.
 
#42 ·
s. I've got one AMEX in collections...do I consider it all debt? It's a set balance and what I pay all goes toward it, but in there somewhere is some interest from ages ago?
I just 5 minutes ago got off the phone with the new American Express collections. I finally got American Express to talk to us instead of the collections. The last collections lost a payment and they got taken off the case and a new one put on. The old guy I dealt with said they would take the payment online. He said I did not HAVE to deal with the new collections, that AM WOULD take the payment.

This one was telling me we were in default now. Started with demand in full. Not going to buffalo me anymore. I can be mouthy with the best of them. Not to go into all of it, I let him have it. Told him to make sure it was being recorded. He started and I told him if he felt froggy just leap. No judge in this county is going to do anything more than what we're doing. It is being paid as agreed, on time and I have proof. Said you would be laughed out of court. He said the phone calls would continue as it was to collect a debt. I asked how often and he said they are automated. Told him plain and simple, make sure they are regulated cause if it becomes a point of harassment I will sue you and I will win. Then I will owe nothing. Thank you and have a wonderful day.

Tried to tell me how it would be. bull...I'll tell him how it will be and that is the end of it.

Also that interest free is only for a period of time. It won't last. Ours goes to 9.9 in Feb.

Can you believe they offered him another credit card guaranteed if he paid off the balance on this one in full. Kiss my patootie
 
#39 ·
Mahalo Greebo for setting this up now - have been slowly working my way to doing just what you have suggested - need to take it from an emotional perpsective to a factual one.

I am definitely committed for this for next year - and had already planned to spend time getting the 2009 facts down on paper and really face them - I've already got the denial part down too well.
 
#40 ·
Mahalo Greebo for setting this up now - have been slowly working my way to doing just what you have suggested - need to take it from an emotional perpsective to a factual one.

I am definitely committed for this for next year - and had already planned to spend time getting the 2009 facts down on paper and really face them - I've already got the denial part down too well.
Welcome back Maui and hope you're doing better. Missed your mahalo
 
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#41 ·
Mahalo - I am well on my way to recovery - yeah!! Of course I am learning that my 'expected 24 hours to recovery of everything' does not work here. Ah, the lessons of life never stop, do they?

As soon as I finish my Christmas cards, my attention will go to factualizing our finanaces for 2009!!

ps - you don't have to live in Hawaii to use mahalo and aloha!!
 
#43 ·
Niko- Ours might be different, I dunno. We maid monthly payment from early 2008 until this spring of about $232 then they called and said the payment plan was ending. I was sure they would demand it in full. Instead, they gave us another 12 months at $246. Still no interest. I had to make a $25ish payment that made the payments fall where they $246 would pay it in full. I think it's through March. They told me at the point we could "re-up" again at no interest with a slight increase again. This is one account I am considering paying with our tax return.
 
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#44 ·
Thanks TG...that's a help. Tells me I might be able to negotiate a few more months of 0% for Feb on for awhile. We'll see. Least they are working with you on the 0% for quite awhile. It was only offered to us for 6 months. We got a letter from AM saying it would go to the 9.9 in Feb I believe. I may have to give in to the new collections in order to do that. Grrr....Thank you tho, I appreciate the info. It might help us also accomplish what we are trying to do. Hugs!
 
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