2010 Debt Reduction Challenge - Discussions

**Greebo** · 01-01-2010, 07:01 AM

Welcome to the 2010 Frugal Village Debt Reduction Challenge!!

This is the official discussion thread for the 2010 Debt Reduction Challenge. Any comments or questions about the 2010 Debt Reduction Challenge should be posted in this thread. Posts made to the 2010 Debt Reduction Challenge - Totals thread will be moved to this thread.

Challenge Rules

The goal of the 2010 Debt Reduction Challenge is to encourage all Frugal Villagers to make 2010 a financial success by eliminating as much debt as possible. In almost no circumstances but a very few is paying interest a wise thing to do with money, and it is never a good thing to be beholden to others, and so nothing could be more frugal than to eliminate debt!

For the purposes of this years challenge, some terms have been defined and rules set to make the challenge a bit more precise in terms of the elimination of actual debt.

Debt
A debt is defined as:

A formal agreement between a borrower and a lender; or
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

Any debt already existing as of January 1, 2010 at 12:01 AM; or
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

Principal reduction.
Interest paid.

Principal reduction is what really matters. When you have debt, interest is based upon the principal. If your bill is $100 and your principal portion is $30, the $70 in interest was accumulated in that statement period. Since that $70 is recent debt, it doesn't qualify as real debt reduction.

The amount of interest paid *will* be tracked - but the reason for tracking that amount is not to qualify as "debt reduction" but to show just how much money Frugal Village is throwing down the drain every year in new interest accumulated.

New Debt

Any new debt taken on by members participating in the challenge should be posted here. This new debt will reduce our debt reduction total. We cannot force you to tell us if you've added new debt, but within the challenge threads, no criticism of those adding debt will be allowed.

Posting Payments Made

Because principal reduction is the truly important amount, this amount is *required* as part of your post. You may choose to include how much was paid in interest, fees, etc. if you wish, but if you do not clearly include the amount paid towards actual principal, your post will not be counted.

Suggested style of posting:

Jan 2, 2010
Debt - Home First Mortgage
Total Payment: $1,000
Principal: $102.73
Interest: $801.12
Escrow: $96.15

That will clearly spell out what the debt was for, how much was principal, how much was interest, and whatever else you want to include is welcome, but remember, only P & I will be tracked.

Also acceptable:

Jan 2: $102.73 towards principal on 1st mortgage.

or

Jan 2: Paid a total of $307.01 to principal on multiple debts

Not acceptable:

Just sent a check for $500 to my credit card

Does not identify principal amount.

I realize that this challenge is going to require more effort on everyone's part. It will be worth it both for FV, and for you.

It'll be worth it for FV because everyone will get a much clearer sense of just how much money goes towards interest that could instead be going towards our futures.

It'll be worth it for YOU because if you don't already pay attention to this, it will enlighten you and motivate you to KILL THAT DEBT!

**mauimagic** · 01-01-2010, 01:18 PM

Mahalo Greebo - that sets it up so clearly. You're right that it will be more work, but the benefits will be tremendous. I am so ready to take on this responsibility!!

**pollypurebred39** · 01-01-2010, 01:44 PM

I like this thread Greebo. I'm going to be doing a bit of

on this challenge.

**qsaver704** · 01-02-2010, 12:44 AM

I pay my mortgage on the first, but wait until the 15th to see my statement to report. I will let you know....

**Greebo** · 01-02-2010, 03:11 AM

Originally Posted by qsaver704

I pay my mortgage on the first, but wait until the 15th to see my statement to report. I will let you know....

Do you have online access to your mortgage? That can give you faster results. If you're OCD about it like me, I mean...

**qsaver704** · 01-02-2010, 10:49 AM

Originally Posted by Greebo

Do you have online access to your mortgage? That can give you faster results. If you're OCD about it like me, I mean...

Nope, I guess I could ask them about it. I have a mortgage through the credit union. My other accounts are online, but not the house.

**Lady_V** · 01-02-2010, 12:31 PM

I was looking at the car loan... and I can't for the life of me see anywhere where it says what is interest and what is principal.

Loan Information Summary
Current Interest Rate - 13.45% (ya, don't start)
Principal Balance as of 05-11-09 - $8,654.03
Current Payment Amount - 271.17

**Greebo** · 01-02-2010, 02:12 PM

Originally Posted by Lady_V

I was looking at the car loan... and I can't for the life of me see anywhere where it says what is interest and what is principal.

Loan Information Summary
Current Interest Rate - 13.45% (ya, don't start)
Principal Balance as of 05-11-09 - $8,654.03
Current Payment Amount - 271.17

What about finance charges added this period?

**Luckybustert** · 01-02-2010, 03:17 PM

I sat down yesterday and gathered my beginning balances for this challenge. The items I show as my total debt are just the items I'm responsible for and do not include items my husband pays, such as the mortgage. We keep our finances completely separate...and yes, we know what Dave Ramsey has to say about that. We are sharing more financial information with each other these days, but until the finances become a joint venture I'm only going to post my stuff here. "My debt" currently amounts to $62,806.06

and almost $55k of that is from student loans.

**Lady_V** · 01-02-2010, 03:43 PM

Originally Posted by Greebo

What about finance charges added this period?

I copied and pasted what my online statements say (and then had to pretty it up because it didn't copy in order) That's all it says. Nothing separate about finance charge.

**monkeywrangler71** · 01-02-2010, 03:53 PM

Originally Posted by Lady_V

I copied and pasted what my online statements say (and then had to pretty it up because it didn't copy in order) That's all it says. Nothing separate about finance charge.

Do you get the statement every month? If so, just deduct the principal amount from the principal amount the previous month. If not, you can get the loan amortization spreadsheet and put in the details for the initial amounts and it will break down how much is owing after each payment.

**Lady_V** · 01-02-2010, 04:00 PM

I can get pay-off balances... but I want to be able to post correctly what is principal and what is interest. I don't see it broken down, and I admit, I don't know how to figure it out from the payment.

**Greebo** · 01-02-2010, 04:58 PM

Originally Posted by Lady_V

I can get pay-off balances... but I want to be able to post correctly what is principal and what is interest. I don't see it broken down, and I admit, I don't know how to figure it out from the payment.

Can you see the previous month's statement?

I can't believe they don't give a total balance. That's obnoxious. Who's it with?

**qsaver704** · 01-02-2010, 04:59 PM

boy oh boy! I went to the totals only page. It is only day 2 and already I can see how seperating the principle and interest really shows how credit cards and debt hurt people. Some of these people are paying well over half their payment to interest. Except for the house I have always been lucky to have a no interest cc and keep it paid off monthly now YEAH!!!!

**Greebo** · 01-02-2010, 05:02 PM

Oops never mind I see they did.

Ok here is what you do:

Principal Balance as of 05-11-09 - $8,654.03
Current Payment Amount - 271.17

Your annual rate is 13.45% - so to calculate the interest you take the current balance * (the rate / 12)

.1345 / 12 = 0.011208333333333333333333333333333
0.011208333333333333333333333333333 * 8654.03 = 96.997252916666666666666666666667

Round up to $97.00. That's the interest.

Your payment is $271.17, the interest is $97.00 this month, so subtract that and you get $174.17 in principal.

NEXT month your statement SHOULD show $8654.03-174.17 = $8479.86 as the new balance.