If you are currently working on paying off debt, have you set a “debt-free date” yet? I’m not talking about going out with your spouse without using a credit card. I’m talking about a date on the calendar when you plan to be completely out of debt.
If you haven’t set a goal for when you plan to be done paying off your debt, I encourage you to set one now! If you are married, sit down and do this with your spouse. In order to be successful, you need to decide together and both be invested in the goal.
First, take a peek at the total number, but don’t have a heart attack.
I know some of you prefer not to look at the total regularly because it makes each effort and payment feel like a tiny drop in the bucket. Normally that is fine, but if you want to set a date to be completely debt-free, you are going to have to look at it all. If you would rather just set a smaller goal (like a date for paying off one of your loans) that’s an option too.
Crunch some numbers.
Instead of just choosing a random day (or significant day), crunch some numbers first. A well thought-out and researched goal will be easier to achieve. Play around with a calculator likethis one.
You can go about it in two different ways: time frame or payment amount.
If you have a time frame already, you can start there. Enter your debt information (totals, interest rate, minimum payment, etc) and see what the payment schedule is like. Will the monthly payment be manageable? Will it be manageable for the entire time frame.
The other option is to look at how much you can pay each month once you cut all the fluff. Enter those numbers in the calculator and see what the time frame looks like. Experiment with different payment. What if you pay just $100 more each month? Play around with the payment amounts to get an idea of how adding to your monthly payment will shave time (and interest) off of your loan. If the time frame is much longer than you expected, you will want to do whatever you can to pay more than the minimum payment.
What we did
When we set our goal (debt-free by the end of 2016) we did a combination of the two. Time is a big deal for us, not just to save loads on interest, but because we are currently living in my in-laws’ basem*nt. We want to make the most of our time here by putting as much as we can toward our loans. We experimented with the monthly payments required to be debt-free in different time frames.
We decided being debt-free in 3 years would be a goal that would challenge us. We have to put $3,000 toward our student loans each month to stay on track. We have been close some months (Sept, Oct) and pretty far off other months (Nov), but that’s okay. Our income has potential to increase and that’s what we are working toward. For our motivated and positive personalities, having an extra challenging goal pushes us. If you are easily discouraged, then you can set a more reasonable goal
WRITE down your debt-free date and TELL someone about it.
You can write in your journal, on your blog, or put it on the fridge. Writing down a goal makes it real and helps you be personally accountable. Telling someone will contribute to the accountability and will hopefully get you some cheerleaders! If you’d like, you can comment below what your goal is.
Get pumped– this is going to be great!
I’m excited to have met so many of you who are eager to payoff your debt too. I feel encouraged when I read your comments. I am rooting for you in your struggles. Let’s work hard to do great things!
For more on how to get started paying off debt, see this post!
It’s Your Turn
Do you have a debt-free date? Feel free to share!
How did you choose it?
Tell us about your progress!
SMASH DEBT 7-DAY FREE ECOURSE
Want to get out of debt, but don't know where to start?
People between the ages of 35 to 44 typically carry the highest amount of debt, as a result of spending on mortgages and student loans. Debt eases for those between the ages of 45-54 thanks to higher salaries. For those between the ages of 55 to 64, their assets may outweigh their debt.
The 20/10 rule follows the logic that no more than 20% of your annual net income should be spent on consumer debt and no more than 10% of your monthly net income should be used to pay debt repayments.
A general rule of thumb is to keep your overall debt-to-income ratio at or below 43%. This is seen as a wise target because it's the maximum debt-to-income ratio at which you're eligible for a Qualified Mortgage —a type of home loan designed to be stable and borrower-friendly.
Your total debt load (except for your mortgage payment) should not exceed 15 to 20% of your monthly, after-tax income. Caution: This maximum may still be too high for some families, such as those with an uncertain job future, low income, high rent, or a high mortgage payment.
In 2022, the average debt of consumers aged 65 to 74 was $134,950, according to the latest Federal Reserve data, compared to $94,620 for those 75 and older.
High-interest credit card debt can devastate even the most thought-out financial plan. U.S. consumers carry $6,501 in credit card debt on average, according to Experian data, but if your balance is much higher—say, $20,000 or beyond—you may feel hopeless.
Generally speaking, a good debt-to-income ratio is anything less than or equal to 36%. Meanwhile, any ratio above 43% is considered too high. The biggest piece of your DTI ratio pie is bound to be your monthly mortgage payment.
The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.
According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts. Housing costs can include: Your monthly mortgage payment. Homeowners Insurance. Private mortgage insurance.
What is the average credit score? The average FICO credit score in the US is 717, according to the latest FICO data. The average VantageScore is 701 as of January 2024.
The good news is that if you earn $70,000, most estimates show that you can afford to spend around $2,100 a month on housing expenses so a home should be within reach.
On a salary of $36,000 per year, you can afford a house priced around $100,000-$110,000 with a monthly payment of just over $1,000. This assumes you have no other debts you're paying off, but also that you haven't been able to save much for a down payment.
You can figure out how much equity you have in your home by subtracting the amount you owe on all loans secured by your house from its appraised value.
“Household formation costs are very expensive, college is very expensive – everything costs more. I have a lot of empathy for people who are just starting out.” That said, the typical age of financial independence should be between 20-23 years old, according to a Bankrate survey.
To O'Leary, debt is the enemy of any financial plan — even the so-called “good debt” of a mortgage. According to him, your best chance for long-term financial success lies in getting out from under your mortgage by age 45.
According to Department of Commerce data, personal expenditures peak at ages 45 to 54—prime Gen X years—and then decline with age. Generation X, who in 2015 surpassed baby boomers as the generation with the largest average credit card debt, shows no sign that their credit card balances will be declining anytime soon.
Introduction: My name is Kareem Mueller DO, I am a vivacious, super, thoughtful, excited, handsome, beautiful, combative person who loves writing and wants to share my knowledge and understanding with you.
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