Ok, we’re getting very excited about all this debt reduction activity.
I’ve just calculated some figures using the BBC Homes mortgage calculator. The £98K mortgage could be paid off in 10.5 years, based on an interest rate of 6% and a monthly payment of £1,000. This goes down to 9 years if £1,200 is paid each month (at 6%).
This £1K payment would be possible if we use all the money which we were putting into the loan and credit card each month, added to the existing monthly payment for the mortgage.
So, in about 2 years time (once the credit card and loan is paid off), this is the plan, meaning in about 12 years from now, we should be debt free.
Well, the subject of the post isn’t about debts rising out of control, but rather the opposite – a snowballing of debt reduction!
Claire has just got us onto the path towards the light and we are now planning on shortening the time it takes to pay back the credit card, loan and mortgage.
How will this be done? Well, Claire has just setup a new blog (yes, another one!) which is dedicated to this new phase in our evolution! It will contain all the figures and details but the point of it is to shift all of our spare cash into the debts to pay them off more quickly. We’ll reduce any spending which we can and put these savings towards the smallest debt first, in our case the credit card.
Once this is cleared, in roughly 9 months, the monthly payments which were going to pay that credit card off (as well as the minimum payment) will be diverted to the next debt, which is the loan which was partly used to buy the solar panels and insulated render. Once this loan is paid off, in 2 years instead of 5, all of the funds will then be focussed on the mortgage. At this point, Claire has calculated there will be an extra £640 going into the mortgage, with a total of £1,120 being put in every month (compared with the usual £480).
This will mean a mortgage term of 7 years as opposed to 25! Claire has worked out that in nearly 12 years (taking into account the time it takes to pay off the other two smaller debts), we can be debt free and in a home we own outright!
The other side of the equation is increased income which could be focussed on the debts. There are loads of ways to bring in more money and even £50 a month would make a big difference over a couple of years (£50 p/m over 2 years is £1,200). The key is to not spend it!
Well worth considering for anyone with any kind of debt and I can see a lot less stress with much reduced debts.