I had a realization yesterday as I was running the numbers on that consolidation loan I hope to get this fall (for my truck and trailer). I have started to think and plan out what I want to do post-credit-card-paydown. That period of time is what I call “Funtime.”
I want to balance debt repayment with savings. I want to keep my payments high enough to be able to pay the loan back in a reasonable period of time. I also want to, not only have that contingency fund, but ensure that I am able to handle the payments, if I ever find myself in a lower paying job.
I plan to literally balance the money that put in savings with the money that I pay on this consolidation loan. That means that I would be saving as much as I am paying down in debt; paying myself as much as I am paying the bank, so to speak. By the end of that loan I would have as much as the original loan amount in the bank as savings, a healthy nest egg, to be sure.
The downside is that would take five years to complete. So I then got to thinking, what if I structured the loan that way and made extra payments along the way? I would first build up that contingency fund to have the three month’s salary in it (so as to have a bit of “hinny-protection”). Of course I would maintain that no less than one thousand in my main account at all times.
Then I would put that extra money that was going into savings onto the loan as extra payments to knock that debt down and eliminate it in half the time. After that, my savings would grow insanely fast with all that extra money I would have. The other upside is that this way I would pay less in interest with the faster loan repayment.
In case you are wondering, the period of time that is after all of my debts are paid off I call “Freedom” (or “Giddy as a School-Girl Time”). I will wait to see how things shape up, as there are a few hurdles to get over before here and there. It is fun to think about what to do with something I have never had . . . extra income.