As part of refinancing our house to a 15 year loan, I went through the process of reworking our budget with the new house payment involved. By having a detailed budget for every month, I knew exactly where we were spending our money. I looked at how much we typically budget per month and compared it to where we actually spent our money within each category over the past year.
Using our new house payment, I created a new template for our monthly budget starting point (no month is ever really the same, but I like to have a starting point as a guide), making sure that we can still pay off debt quicker than the minimum payments. I found out that we still have some extra to put toward debt, but it will be about half of what we were currently allocating to debt reduction.
I wanted to know when we’d be out of debt (except for the house), so I plugged the monthly additional payment into my adjusted debt snowball spreadsheet I got from a user in the YNAB forums (I don’t remember their name, as it was years ago, but Thank You!), and found out that we can still be out of debt within 4 years instead of 2. Within this spreadsheet, you can put how much extra you plan on paying each and every month. I put the number I came up with from our new budget in for most months, but then added most of an extra paycheck I would receive within a month twice a year. That’s the benefit of budgeting on a monthly basis; you essentially get a bonus paycheck every 6 months (assuming you get paid every two weeks).
I cut back the extra we’d be paying once we get out of non-house debt, but we’d still snowball our original debt payment into the house payment, and be paid off within 12 years instead of the 15 years on the note. I’ve gone back to this spreadsheet several times in the past few years to see how different scenarios would affect us. Here’s a graphical representation of the timeline of when we plan on paying off our non-house debt (available in the second tab of the spreadsheet):Once I got all the numbers figured out, I ran it by my wife. She is on board, so we have a goal of how much to put toward debt with the new budget every month. Don’t skip out on this step; it’s very important to get your spouse’s buy in on all your financial plans.
Want to run the numbers for yourself? Get the template of the debt snowball spreadsheet I used here. Just change the blue cells to fit your situation. Leave a comment to see how this spreadsheet helps with your debt reduction.