Preparing for the 2010 Debt Reduction Challenge

**Greebo** · 12-10-2009, 09:45 AM

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:

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 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!

**Russ** · 12-10-2009, 09:49 AM

Also adding debt ( you will be smacked if it is avoidable) should be put in the thread if you are participating in the debt reduction thread.

**ktsmama** · 12-10-2009, 09:49 AM

I think that these "guidelines" are right on target. Thank for your help Greebo.

**Greebo** · 12-10-2009, 10:03 AM

Originally Posted by rcannon

Also adding debt ( you will be smacked if it is avoidable) should be put in the thread if you are participating in the debt reduction thread.

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?

**NikoSan999** · 12-10-2009, 10:16 AM

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.

**mabyn09** · 12-10-2009, 10:19 AM

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

**Greebo** · 12-10-2009, 10:23 AM

Originally Posted by NikoSan999

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.

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

Originally Posted by mabyn09

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

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!

**NikoSan999** · 12-10-2009, 10:24 AM

Originally Posted by mabyn09

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

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!!!

**TheRootedNomad** · 12-10-2009, 10:29 AM

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.

**NikoSan999** · 12-10-2009, 10:33 AM

Originally Posted by Greebo

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

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.

Eye opener...End of 2010..

Debt reduction...$1,000,000.

Interest paid...$4,500,000...maybe more with mortgages especially new ones.

thank you for being willing to track interest. Know it would be a chore.
Also we have 2 leases that only send amount due, no breakdown. Have to call them from time to time to see where they are at. Fortunately, one is close, very few months and other is about a year. Then can also drop the high insurance down to something reasonable. But won't know principle/interest. So know what the other poster is saying. Some statements just do not break down.

**Greebo** · 12-10-2009, 10:35 AM

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...

**Russ** · 12-10-2009, 10:39 AM

Originally Posted by Greebo

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.

What would be a reasonable goal for 2010?

**Greebo** · 12-10-2009, 10:41 AM

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?

**NikoSan999** · 12-10-2009, 10:44 AM

Originally Posted by Greebo

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)

**monkeywrangler71** · 12-10-2009, 10:45 AM

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.