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Monday, March 24, 2014

Task 21 - Reduce debt by 10%

Our society exists based on credit. For many credit is a necessity to survive. Credit is a person’s ability to borrow money to make purchases that he/she doesn’t have the money to complete. Credit comes at a cost and any money borrowed must be paid back with interest. While there are many types of debt two are relevant to me. Those are short term revolving debt like credit cards and long term secured debt like mortgages.

I do my best to keep both types under control. When I started the Day Zero project I set up a plan to reduce my total debt by 10% over the course of 13 months during the 1001 day challenge. For me the majority of my debt is long term mortgage debt. All good plans sometimes find themselves with wrinkles. My wrinkle was car repairs.

This wrinkle came very early in my plan and delayed its execution while I recovered from that expense. It took me a good 8 months to replenish my reserves and start my debt reduction plan. What I focused on was paying double what I was required too on my long term debt and continuing to pay my short term debt off each month. 

The great thing about paying down more principle is that it reduces the interest on every payment after that. Reducing principle accelerates the total debt and reduces the total interest paid over the course of a loan.

In the last 8 months I have trimmed 15% of my total debt. That is with several large and expensive trips and purchases made. With no large expenses planned I am going to continue this debt reduction plan and trim even more debt. While I understand that mortgage are considered good debt I’d rather have no debt.

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