I use July as the benchmark for looking at the progress on our overall debt. This practice started in 2007. Why July 2007? Simple. Because that was the time that our debt was at its absolute highest.
Why was our debt highest in this particular month? Because that's the month we assumed the 30-year mortgage on our house. Happy to say it's been all downhill from there.
At this point in time we had:
- Mortgage – 100% of our mortgage balance remained since we hadn't paid anything yet
- Auto Loan – We had about 30 months left on a 48 month car loan
- Student Loan 1 – This loan had the higher balance and the higher interest rate and higher monthly payment
- Student Loan 2 – This was the other loan we had. Both loans were 15 year notes starting in 2005.
During the first twelve months of living in our house, we did pretty good. We paid off 5.5% of our debt balance, leaving 94.5% of the original debt amount. My wife and I were both working so we were able to pay a good chunk extra each month.
All loans were paid with their regular amount except for the auto loan, which we reduced by 97%!
My wife had quit working in March in anticipation of being a stay-at-home mom. As such, we knew that the days of applying a lot of extra money each month to debt would be reduced. This was sad, but on the upside, we eased into the budget so that the last few months she was working, all of her income went to debt, which allowed us to reduce the balances plus have worries about being able to pay the monthly bills once her paycheck went away.
The tiny bit on the auto loan went away, leaving just the two student loans. All extra went toward the higher balance student loan.
In this twelve month period, we paid another 5.4% of our debt, reducing our original debt amount by 10.9%
With my wife not working and raises on my end being scarce (read: non-existant), the only extra payments we were able to make were by applying a portion of our tax refund, as well as a portion of a small inheritance received from my grandmother who passed in late 2009. All extra amount again went toward the higher interest rate student loan, but the good news was that we had paid off over 90% of the original balance on that loan!
In this twelve month period, we paid 3.9% of our original. This was a drop-off but we'd actually anticipated it to be a higher drop-off before applying part of the inheritance, which raised it a few fractions of a percentage point. All told, we had paid off 14.8% of our original debt balance.
July 2011 (Today)
With another year of no raises, we were able to pay off 3.4% of our original balance. Again, this is another drop-off, but because the previous years had been helped by an extra income and later supplemented by a one-time influx from the inheritance, this was really along the lines of what we'd been expecting in 2010 and 2011. The good news is that we paid the first student loan balance in full. The monthly amount that had been going toward the student loan was added to our mortgage payment, meaning we never even saw the money once the loan was paid. As of now, we've paid off 18.2% of our original debt and we've paid off two of the original four loans we started with. Slow but steady progress.
I'm hoping that raises finally kick in and that we can apply a little extra from there (we'll see toward the end of the calendar year). In addition, I've started making a little money from the blog, a portion of which gets applied to either the mortgage or the remaining student loan balance. Plus, every month we make payments without taking new debt, the amount paid to principle increases steadily. I think we can start trending the line back upward in terms of what we pay off for the year starting a year from now.
Do you track your debt over a long term period? Does it encourage you or discourage you?