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| Saturday, May 31, 2008 |
| M.P. Dunleavey is going medieval on her debt (finally) |
The New York Times article: Paying Off the Debts That Seem Unshakeable has MP Dunleavey declaring once again that she is going to get rid of her credit card debt once and for all. Just so you know what we have been through: When my husband and I were married five years ago, we had a horrific amount of debt left over from various relationships, one divorce, two cross-country moves and a trip to Hawaii I never should have taken. About $24,000.
The situation was daunting, but we threw ourselves into our antidebt crusade with grim determination. At one point we even took on a roommate in our two-bedroom apartment, a move that made some of our friends think we were crazy — and maybe we were. But I’m convinced that a certain insanity is what gets you into debt; digging yourself out likewise requires going to extremes.
Now here we are, finally down to about $4,800 in credit card debt. Unfortunately, in the last year we also accumulated about $1,200 in medical bills that were not covered by insurance. I found this article to be a bit confusing. It sounds like she is putting her retirement savings on hold to finally get rid of the debt. Since being debt free is one of her 2008 goals it makes sense for her to make every effort to reach this goal. One interesting thing to note - in her 2008 goals she mentions saving 10% of her gross for retirement while today's article says she has been socking away 20% of gross - so even suspending the retirement savings to eradicate the debt - she will likely meet her 10% target.
I do believe M.P. and her husband need to do far more to save for retirement. That 2nd home purchase in 2007 is still weighing down their finances. She did not mention her emergency fund - which is the other really important savings she needs to pay attention to - but getting rid of that debt would be a good start.
Now lets see if she can first retire the debt and then keep from accumulating new debt. That will be a big challenge for her.Labels: MP |
| posted by Boston Gal @ 11:51 AM *
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| 5 Comments: |
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I was disappointed with her decision to pay down debt at the expense of saving for retirement; I tend to think of retirement savings as sacred. I also like having something to show for all my hard work and find that seeing my savings grow inspires me to save even more money.
And yes, we all know high interest debt is bad, but 6% for Dunleavey's credit card and 0% for the medical bills is pretty reasonable. Given her track record, I worry that even IF she does manage to pay off her debt on this new timeline, she'll fail to redirect that money to savings later and may just run up the debt all over again. Especially without any emergency cushion.
I'd prefer that she continue saving at least 10% towards retirement while building an emergency cushion (especially as a landlord now!), and then put as much as she can after that towards paying off the debt.
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I'll go out on a limb and predict that she'll still have credit card debt a year from now, even if she puts retirement savings on hold. Something will come up and she'll have some rationale for explaining why she wasn't able to make her goal. Do I sound cynical?
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I think the 20% is both retirement and other "personal" savings, as she calls it. She refers to the types of savings in one place and the 20% elsewhere so not completely sure on that. I didn't think she *was* saving from the sounds of past articles....
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Just blogged about it because I read it on the WIR website. Saw a thread and thought BG must have written about it.
But here's my take, since I read WIR message board it pisses me off.
http://www.livingalmostlarge.com/2008/06/03/why-oh-why-mp-dunleavy/
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Hi Living almost Large,
Ouch, you are tough on M.P. I think I spent all my rage on her illogical financial choices back when she purchased the 2nd house. When she did that, she pretty much sealed her fate. She is too far along in life (in her 40's), has too many dependants (toddler and husband who works part-time), too many financial obligations (two mortgages on two homes, plus primary bread winner), and far too little saved (something like $20,000 for retirement and perhaps a couple of thousand in her emergency fund). Given where she is now, suspending her retirement contributions for 6 months or so is not her biggest financial mistake ever - buying that 2nd house pretty much was the worst. Having her husband work part-time and not full-time, giving the family a second retirement saver and providing additional medical and other benefits, is likely the second worst mistake.
If getting rid of the debt gives her the needed psychological boost to continue on her positive financial path - then fine. As I mentioned here and here - MP is learning what inflation is doing to her family budget. The easiest way to cope with rising costs is to clear as much debt as possible from your balance sheet. The "easy" debt for M.P. to tackle is the credit card and medical debt. What she may learn six months from now when she gets rid of that debt, is rising prices are eroding her ability to save as much as she thought. She really needs to do both - figure out how to cut out the debt AND increase salary.
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I was disappointed with her decision to pay down debt at the expense of saving for retirement; I tend to think of retirement savings as sacred. I also like having something to show for all my hard work and find that seeing my savings grow inspires me to save even more money.
And yes, we all know high interest debt is bad, but 6% for Dunleavey's credit card and 0% for the medical bills is pretty reasonable. Given her track record, I worry that even IF she does manage to pay off her debt on this new timeline, she'll fail to redirect that money to savings later and may just run up the debt all over again. Especially without any emergency cushion.
I'd prefer that she continue saving at least 10% towards retirement while building an emergency cushion (especially as a landlord now!), and then put as much as she can after that towards paying off the debt.