Honey Progress Report: Credit Card Payoff Edition

This article is from new staff writer Honey Smith.

I’ve been at GRS for well over a month now, and I’ve learned a lot. At this point, I’ve been able to implement some changes to my spending. I can now provide an update on the effect those changes have had on my bottom line — namely, that I’ve paid off the outstanding balance on my credit card!

I have also been giving serious thought not only to debt payoff strategies, but also to my attitude about my debt. This reflection process actually started four years ago, when I stopped being a student and got my first “real” job.

Reductions in My Irregular Expenses

The post on where I’m starting from included estimated amounts based on the previous year. Now that we’re most of the way through the year, I have actual amounts for most categories. Rather than listing everything again, I am only going to address categories where my projection didn’t meet reality.

• Auto insurance: $530 (annual amount). I projected $500, so this is an increase of $30, or 6%. Sometimes my insurance is slightly more or less than the previous term — I have no idea why this happens since my coverage and location haven’t changed.
• Auto registration: $61.20. I projected $42, so this is an increase of $19.20, or 45%. However, it’s because I’m doing a two-year renewal, so I won’t have this expense again next year.
• Hair care (service): $248 instead of $600 per year going forward, a decrease of $352, or 58%. I accomplished this by switching to a cut every three months ($62) instead of a cut and color ($150).
• Health care (copays, etc.): $500. I projected $1,000, but I’d double-counted my massage membership as both a regular and irregular expense. This adjustment is due to an error, but compared to my original projection it is a reduction of $500, or 50%.
• Vet expenses (pets): $418 YTD for our two cats and a dog ($209 per person, since Jake and I split this expense). This is a savings of $1,882 or 81% over last year’s expenses of $2,300. I do understand that our pets are elderly and this could change at any time.
• Original estimate based on last year’s expenses in these categories only: $3,292
• Actual amount spent/projected in these categories only: $1,757.20
• Reductions: $1,534.80, or 46%

Reductions in Regular Expenses

I have decided to make only one change at a time in this category. I don’t want to overwhelm myself with too many changes at once only to find myself backtracking or rebelling. This month I took a hard look at my life insurance and supplemental disability.

The bill I received each month was actually for three policies: a whole life policy, a term policy, and a supplemental disability policy. Though they were separate policies, I received them as a single bill because they were all through the same provider. Originally this payment was $96/month.

The usual advice is to not get a whole life policy, as they can be expensive and tend not to be very good investment vehicles. However, at the time I took out the policy I was worried that if I ended up having the disease that killed my mother, then I would die after the term policy expired but also after incurring significant expenses for my care. I didn’t want Jake to be responsible for the cost of caring for me.

Now that I have a long-term care insurance (LTCI) policy, however, it made sense to take another look. It turns out that the term policy was until age 80 and had a payout of $450,000. Since my mom died when she was 46 and this disease tends manifest at a younger age in subsequent generations, I felt the term was more than sufficient. It turned out that the whole life policy only paid out $50,000 but was incurring about half the monthly expense.

I bought my LTCI through a group deal brokered by my employer, so first I confirmed that the policy would be portable if I left my job (it is). Then I spoke to my insurance agent and confirmed that I could cancel the whole life policy without any impact on the term policy or the supplemental disability policy (I could). So I pulled the trigger and cancelled the whole life policy.

This reduced my regular monthly expense by $46. However, there was another aspect to this cancellation that I didn’t anticipate.

Windfalls and Debt Reduction

If anyone’s ever tried to sell you whole life insurance, you will know that one of the “benefits” often touted about these policies is that they accumulate a cash value. In my case, that cash value was about $1,500. This windfall was direct deposited into my checking account after I cancelled the policy.

Funny aside: Immediately after trying to convince me not to cancel the policy because it was a “good investment,” my insurance agent told me that the cash value wouldn’t be taxed as income because the investment vehicle had underperformed compared to the market.

In my reckoning post in June, my credit card debt was $2,435.66. In July I made my normal payment of $200. After factoring in the interest payment of $16.93, my balance stood at $2,252.59.

The cancellation of my life insurance was processed before my August payment was due, so I bumped that payment up to $250 (I figured I could squeeze $4 out of my $40 cash allowance, which I normally spend at the bagel shop). After factoring in the interest payment of $15.13, my balance stood at $2,017.72.

I applied the cash value of my life insurance policy to my balance as soon as the direct deposit cleared, bringing the total balance to $517.72.

Next, and much to my surprise, my dad continued his traditional gift for my birthday. I sent him an email of protest when I saw the balance in my bank account (he doesn’t write checks, he has my account number). He said that I should “Have a great day, use your gift wisely or unwisely – just make yourself happy.” I decided what made me happy was to pay off my remaining credit card balance in full (again, assuming that I can go without a few bagels for the extra $17.72).

So now my consumer debt is completely paid off and I have $250/month of breathing room in my budget.

My Debt-Reduction Philosophy Going Forward

First and foremost, I am an optimist. To me, “taking responsibility” means learning from my decisions and making different ones going forward, not beating myself up about what’s already been done. I don’t think it’s necessary to punish myself or feel guilty about things I can’t change.

In that spirit, while I understand I will likely experience setbacks, I’m going to look at my budget as a Tool for Making Things Possible. I’m going to do my best to focus on celebrating successes along the way.

I am (and have always been) in good standing with my lenders and intend to pay off all my debts in full. However, I view this as a legal responsibility and not a moral one. I would feel differently if I owed money to individuals rather than the federal government, but that’s not my situation.

Second, I’m going to keep in mind that even under the best case scenario, my debt is something that is going to take years and lots of patience to address. I can’t speed up time and I’m not willing to eat nothing but rice and beans or not live my life for the next 20 years until this is done. This is especially the case since I am 33 and there is a 50% chance that I have the same disease that killed my mother when she was 46.

So I’m going to travel, both to visit friends and family and to see the world. I’m going to go to happy hour. I’m going to buy a new computer. I’m going to pay for these things with cash after I save up the entire cost in advance. I am going to balance these things against the desire to pay off my debts sooner rather than later, but it’s going to be a balance. That’s What Works For Me.

And I’m happy about that.

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This article is about Administration, Credit Cards, Debt