Today, I will focus on creating and implementing a concrete action plan to erase my debt. Now that C. and I are planning on moving in together during the summer, it's more important than ever. I've gathered inspiration from various personal finance sources including Dave Ramsey, Farnoosh Torabi and Manisha Thakor in order to create an action plan best suited for my individual needs.
My first line of defense is to implement a debt snowball (ala Dave Ramsey) in order to pay off my personal loan totaling $2527. I plan on paying an extra $300-$400 a month towards the balance. When I get a little windfall--I tutor and babysit sporadically to earn extra cash--I will throw that towards the balance. The goal is to eliminate this debt by August 2012 at the latest.
My second line of defense is to save just enough for moving expenses. I already have a modest emergency fund and $800 in a separate savings account, but I would like to have at least $1000 for moving expenses. My boyfriend and I have debated on staying in my current apartment, but with the area's crime rate an an overall negative experience with my complex, we are moving to a new place relatively close to our respective jobs.
Once I have moved and my credit card loan is paid in full, my third line of defense is to gradually pay down my remaining debt expenses. The reasons why I will not pay these debts as aggressively as the credit card loan are 1) my auto loan has a 1.9% interest rate and 2) As a teacher in a Title I school, I'm eligible for student loan cancellations and forgiveness. While I plan on making additional debt payments to shrink my overall debt-to-income ratio, I would love to beef up my emergency fund, save more for retirement, and start thinking about a down payment for a house.
Your Turn: If you have debt, have you created an action plan? If you're debt-free, how did you achieve it? Any tips, suggestions or advice on maximizing a modest salary to pay off debt and save?
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