Second Job & Debt Snowballing

I'm looking in to picking up a second job.  It's nothing super impressive- actually it would be working 1 hour, 1 day a week. It would pay $20-$25 per day though, which is an extra $80-$100 a month.

Not setting the world on fire, but not bad for working a grand total of 4 hours each month either.

My plan, if I get this job, is to set aside 1/4 for taxes.  We have to pay taxes anyway (we withhold ourselves because of some crappy tax laws), so I might as well go above and beyond to cover and surprises.

That leaves, let's say, $60 left.  Now, I could do something fun with it.  Lord knows, I'm fighting the desire to use that money to buy fun things- dinners out, movies, buying new rabbit cages/equipment or just going nuts in stores.

Instead, I'm planning on using that money to pay on a bill each month.  The same bill- the goal would be to have $60 extra go directly to principal.  I am thinking right now it would be best to put it on our oldest car- we're so close to paying it off anyway, we'd free up a few hundred dollars extra as soon as that bill is gone!

Then I can work on doing a "debt snowball".  Basically, I'd take my extra $60 and combine it with what we are spending on the car payment to pay down another debt even faster. Then I take that money and use it to pay off something else even faster.  See how that works? The amount you pay to principal snowballs each time you pay off a new debt.

For instance (all numbers are made up to use as illustrations).

Let's say we that monthly we have a $500 car payment, a $500 house payment and a $100 credit card payment.  You can either pay off the lowest balance first, or the highest interest rate, whichever is your preference.

So I use my $60 a month to pay to principal and eventually pay off my credit card debt.  The next month I pay $160 extra towards my car payment.  We pay off the car after a year or two and then we pay an extra $660 each month on the house payment!  You're paying more to principal each month than your minimum balance is! So a 30 year loan just dropped to 15 years and you saved untold thousands of dollars in interest, not just on your car and credit card, but on your house as well.

So, fingers crossed for me.  $60 extra isn't a lot, but it's just the beginning!

-Kristen

Job Worry

In this economy, worrying about your job security is pretty commonplace.  Tim and I are lucky in that we know that Tim is guaranteed an appointment- though there are rumors that this guarantee may be nixed in the near future.  Even then, Tim is a rarity in his field- a young, first-career preacher.  Top if off by the fact that he hasn't been in major trouble and he graduated from a top University (two, if you want to be honest) and is oh-so-close to becoming fully ordained and you find him several pegs up from the bottom of the totem pole.  We all know the cuts start with the bottom positions and the oldest folks (think forced early retirement), so we are at least confident that Tim will have a job always unless something drastic and terrible happens to the Methodist Church as a body.  We are extremely lucky to know that we have one income we can count on.

Then there is me.   With Tim's job requiring moving around a lot, it's much harder to build a career.  In fact, in the mountains a career wasn't possible, as the few jobs that existed were very much filled based on who you knew or were related to. So I took the job I could find and dealt with the fact that I didn't particularly enjoy the work.

When we moved, it was a bit difficult to find new employment.  After all, the economy was down, the nearest big city has one of the highest unemployment rates in the state and not long after we moved here more businesses shut down- leading to more unemployment.

We all know all about this kind of thing- so why am I bringing it up?

My job is currently $15,000 in the red.  They made budget cuts at the beginning of the year and through some folks not giving what they had committed to and some complicated church politics... we are still hemorrhaging money.

An emergency finance meeting is being called for May.  My worry is that soon my position may be reduced- or eliminated all together.  Where does that leave me? Unemployed or working even less hours than I get now- which isn't going to work for us financially.

Luckily, thanks to my stockpile, we do have a lot of health items- toothpaste, shampoo, etc.  That will be helpful if we go down to a one-income-family.  I am going to be focusing my energy on finding things to sell around the house and hitting the sales even harder for non-perishable food items that I can stock up on.  What extra money I can scrimp and save will go in to our "Emergency Fund". 

I guess we should be thankful that the trip to San Diego is 80% paid for- we have our tickets, the rental car, the hotel, etc. already booked and paid for.  I'll just have to coupon harder to save us money while we are there!

This could all be for nothing- I could keep my job and my hours- but since I do have some warning that there could be a problem, it would be foolish not to prepare as best I can now.

-Kristen

Styles of Paying Off Your Bills

There are different styles that the "Personal Finance Gurus" use to tell us how to get debt free.

For instance, someone like Dave Ramsey recommends that you pay off the smallest balance first, regardless of the interest rate on your debt. Others recommend concentrating on the largest interest rate, while still others suggest concentrating on the highest interest rate, yet making larger payments on ALL the debt.

Wow. Polar opposites, in some cases.

So- do you need that quicker gratification of having a debt paid off quickly? Do you want to keep reminding yourself that while the debt is slowly shrinking, you're removing the biggest source of interest first. Or do you want to feel happy that all the bills are shrinking, even though more slowly?

You have to pay the minimum on all the bills, regardless. We try to add in a little money on all the debt (Car, Tim's student loans, etc.). Tim and I decided that the best plan for us was to pay off my student loans as quickly as possible. I was lucky in that at my first job out of college, I made good money. Rather than putting a lot of it in to savings, I made massive monthly payments on my education. Even though the minimum payment required was only $88 a month, I knocked it out extremely quickly- and it feels GOOD. We divided that $100 (because that's always the minimum I paid) up among the other debts.

So, what's going to help you the most? No one is right or wrong. Read one book, get one opinion. Read another book, get another one. Remember, Personal Finance is just that- your *personal* finance. If you don't follow Dave Ramsey's plan, don't worry about it! We're sure not. However, we took away a few good tips from his book ( I borrowed it from a family member when I was bored).

For instance, have $1000 in savings, which is enough to take care of most small emergencies, then take care of debt instead. I didn't take away the part where he starts advising selling off everything that is not absolutely essential to survival, in order to make bill payments. In my mind, our debt was not extreme enough to justify a complete purging of things that I consider to increase our quality of life. I have looked around the house and moved out a few books, movies, and "junk" items though.

So what is your style of paying off your bills? Sit down and think it out. :)

-Kristen