by Ashley
Hi All,
May the fourth be with you! (heh, get it – May 4th? okay enough of that.) : )
It’s another month and another opportunity to put a little bit of debt behind us.
Here we are and I feel a bit at a crossroads. I haven’t included the IRS in our debt spreadsheet because – honestly – I’m still so embarrassed that we owe so much!!! I’ve worked out a payment plan and we will be paying a hefty sum – $1,000/month – until the debt is fully resolved. It will be a large household expense over the next several months (year+). Maybe I’ll eventually add it to the spreadsheet just so it can be properly acknowledged but, honestly, I just can’t add it yet. It would push us back up over the 1/2 way milestone and just causes so much emotional distress by increasing our debt numbers that I just can’t fully face it yet. I mean – it’s been “faced” as far as the IRS goes (in terms of admitting the debt, establishing payment plan, etc.), but for some reason I can’t “face” it here with you guys. Not yet, anyway.
So that’s my one disclaimer. My debt spreadsheet remains with all our old/pre-IRS debt numbers and our monthly payments are going to be negatively impacted because the monthly payment indicated in the debt tables will NOT include our IRS payment.
With that caveat, check out April’s debt progress:
| Place | Current Balance | APR | Last Payment Made | Last Payment Date | Original debt, March 2014 |
|---|---|---|---|---|---|
| Navient - Federal 2 (unsubsidized) | $11,056 | 5.80 | 83 | April | $82,433 (all school loans, combined) |
| Navient - Federal 3 (subsidized) | $8622 | 5.80 | 25 | April | |
| Navient - 2 (subsidized) | $8502 | 6.55 | 33 | April | |
| Navient - 7 (subsidized) | $7202 | 6.55 | 28 | April | |
| Navient - 8 (subsidized) | $6376 | 6.55 | 25 | April | |
| Navient - 9 (subsidized) | $8502 | 6.55 | 33 | April | |
| Navient - 10 (unsubsidized) | $9768 | 6.55 | 71 | April | |
| Balance Transfer Student Loan #2 | $600 | 0% (through Sept 2017) | $400 | April | $7650 |
| Balance Transfer Student Loan #3 | $4369 | 0% (through October 2018) | $75 | April | $4594 |
| Medical Bills | $0 | 0% | $1215 | Paid off in April 2017 | $9000 |
| Balance Transfer student loan #1 | $0 | 0% | - | Paid off in March 2016 | $5937 |
| PenFed Car Loan | $0 | 2.49% | - | Paid off in January 2016 | $24040 |
| License Fees | $0 | 2.5% | - | Paid off in April 2015 | $5808 |
| BoA CC | $0 | 7.24% | - | Paid off in June 2014 | $2220 |
| Mattress Firm | $0 | 0% | - | Paid off in May 2014 | $1381 |
| Wells Fargo CC | $0 | 13.65% | - | Paid off in May 2014 | $7697 |
| Capital One CC | $0 | 17.9% | - | Paid off in March 2014 | $413 |
| Totals | $64,997 (March balance = 68,714) | $1,988 | Starting Debt = $145,472 |
So as you can see, we “only” paid $1,988 in debt in April. I say “only” in quotations because obviously that’s a huge sum of money. But we’ve been trying to pay closer to $3,000ish/month, so it’s a big decrease from our goal number. Though, again, this does not take into consideration the $1,000 payment to the IRS. I’ll do a goal update post soon just to check-in with numbers and take a pulse of how we’ve been doing so far this year in our financial goals. With the IRS hit, some of our goals are going to have to be re-thought. But I’m optimistic overall. Our biggest/most central goal is to pay $30,000/year toward debt and I think there’s still a good chance we can hit that number. We’re aiming for it!
I’ve also been re-working our budget to account for the changes in salary and expenses that are coming up. My part-time job officially ends this month. I have about another week worth of work, but my last paycheck was received last month (womp, womp!) My new rate of pay (from my big raise) doesn’t go into effect until July. So May and June will be TIGHT!
This is probably the first time in my debt-repayment journey (of 3+ years now!!!) that I’m a little bit nervous about the possibility of moving backward. I mean….these two months are going to be really rough. I’ll be writing a post soon to talk about different savings strategies and ways we’re going to try to reduce spending to only absolute necessities, etc. Be thinking about it because I could certainly use all the tips I can get!!!
I’ll be back soon! In the meantime, have a great week!
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Freshly 40, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!
I know that you are bummed about the IRS debt but can we get a drumroll that the medical debt says 0. That is a huge accomplishment!
I would suggest to add the IRS debt as you need to be accountable to yourself. I understand it is a huge bummer but it will be gone in a year and you will be that much closer to your goals.
Have you figured out your taxes so that you pay what you owe monthly? We are self employed so I understand how difficult it is.
I’d add the IRS debt, too. It was an honest mistake–it’s not like you went and bought a fancy purse or something. I know you have minimums on the student loan payments, but once you clear the two balance transfers, I might just pay the minimums and send all the rest to the IRS. You know you’re in it for the long haul with the loans–If you sent 2500 per month to the IRS (with the other 500 to student loans) think how fast the IRS debt would be settled. And then you can move on to just the student loans with no. other. debt. Or you could knock out the second transfer and leave the third alone since you have a year + to clear it and focus on the iRS now.
Okay, so I feel like we all get into debt because on some level we want to be kids again but with more rights and privileges like a real car and picking our own preschool but really college. On some level taxes is a real adult debt because only adults get them and their not directly linked to our childlike instant pleasure demands Dave Ramsey talks about. So, yes a big painful mistake in the debt journey but a real adult lesson. Sorry, this was my sad attempt at filling your glass half full…
Thank you! I appreciate the sentiment! : )
I would say add your IRS debt, it may be more cathartic than you think. Especially when you look at the “amount paid ” this month. (I found this also helps when tracking foods you eat, at least for me. Say you ended up going to a party and eating way more than you should, I’ve found owning up to it and moving on feels nicer than trying to pretend you didn’t eat that food, then get discouraged later when you look at the scale.)
And in the grand scheme of things this is a bump in the road. You’ve got plenty of things going on in your work & personal life and the fact that you are still making progress with debts with only one bread winner, job change and the stress of your father’s situation I think you are a great inspiration.
As for squeezing the most out of the next couple of months, a combination of a no spend month and being extra frugal with groceries do tend to make a huge difference. Maybe it’s a good time now that the semester is ending for a garage sale?
I don’t know if you would want to do this, but it might be “fun” to calculate how much you would have paid if you paid the minimum of your debts on time while accruing interest. It would obviously be a huge sum and it might make you feel better about where you are today. It’s a slow progress, but you are making strides! I love reading your updates.
Two months – you got this! I know it can be rough but it’s nothing you haven’t already faced (and rocked!) before.
Have you ever checked out a consignment sale to help with the cost of clothing your girls? I have saved a ton of money over the years by buying gently used clothes for my kids. There is a Just Between Friends Consignment sale at the end of July in Tucson. http://nwtucson.jbfsale.com/findAnEvent.jsp
Hang in there. You are making progress.
Thanks for keeping it real. I know it’s disappointing to have to hit the breaks a bit on debt repayment, but it’s not forever. Life happens and this too shall pass.
Think of all the interest and property tax deductions you are going to have on your 2017 taxes. It’s a one time tax issue, so what? Nobody cares, everybody hates the IRS. Agree that you should put priority on paying it off and bang it out quickly, just so you don’t have the IRS in your life any longer than necessary.
Hope you get a little down time to enjoy your kids’ summer before you have to launch into your new job duties.
Not as big of deductions as I would have thought. This was our first year with a CPA for our 2016 taxes. Granted, we had just barely bought the house, but we “maxed out” – paying WELL over the amount of interest that is allowed to be deducted by the IRS. So there was a lot of additional outflow (in terms of debt payments) that was not able to be deducted from our income for tax purposes. Womp, womp!
This doesn’t make any sense. There is no maximum amount of interest you can deduct for mortgages. In fact, I would think due to the low price of your home and timing of purchase that you may have been better off with the standard deduction of $12,600. If you have more deductions above this 12,600 only then is it a benefit to itemize your taxes. So let’s say 1500 property taxes, 4500 mortgage interest, 5000 state taxes… You are nearing the standard versus itemizing threshold but not significantly over so your taxes should not see a large difference by owning a house vs. no house. This is a common misconception by new homebuyers that they are getting a huge tax break.
There is a maximum of student loan interest you can deduct, $2,500 (or sliding scale based on income). So maybe that’s what you’re thinking of?
You really need to start understanding some of the basics of the tax code for your own good. A CPA is great to have, but I’d be terrified to be totally blindsided by my taxes every year. Your taxes will be so much simpler after this year when you are only earning W2 income (since I believe all your contracting jobs are being eliminated). With only W2 jobs, you should be able to file your taxes by yourself relatively easily.
***Adder to make it a little more clear**
Student loan interest deduction and traditional IRA/401k deductions are not counted towards itemized deductions. You get them whether you take the standard or itemized deduction. Both of these have an income level where the deductions phase out (I’d venture to guess you may be in the phaseout range).
Typical deductions (Itemize your taxes if the sum higher than the standard deduction 12,600 for 2016):
Mortgage interest
PMI
Property Taxes
State Income Taxes
Charitable donations
Work/Business related deductions
Yes, I too am confused by the interest thing. Were you confusing student loans with mortgage. I know there’s a cap on SL, but mortgage interest can be deducted and there is no way you should hit any kind of cap. It could be that you were not in the house long enough for it to matter, but I know in my case, I only made 4 months of payments (Sept.- Dec.) plus closing costs and it definitely impacting my tax return by a lot. (We got almost $4k back because of it) and next year, that could easily double if we don’t change anything. Did your CPA do any forecasting for next year.
My mistake! In looking back at our paperwork, the cap was for student loan interest (not mortgage).
Sorry for the confusion!
You definitely do NOT want the IRS debt hanging. I would focus all energy in getting rid of them before anything else.
Can I ask why? I’ve heard absolute horror stories of dealing with the IRS from others, but once I established my payment plan, it all seems fairly straight forward. It’s even got a much lower rate of “interest” (i.e., interest + penalties) than I would have thought. It’s lower than my student loans, for example. So I’m curious as to whether there are big benefits in prioritizing it above other debts??
I think it depends on each person’s unique situation. If your income is stable and you don’t think there is any threat of job loss, etc. than you are probably okay paying it on the scheduled repayment agreement. The IRS is considered priority debt for things like bankruptcy, garnishment, etc. (at least “new” tax debt-there is a process to get rid of 1040 in tax debt that is more than 3 years old but that is left better to another forum).
IRS debt really becomes a problem when you miss a payment. They can levy wages, tax refunds (creditors can get at wages too if they receive a judgment but tax agencies have broader powers). The IRS can also put a lien on your house. Some creditors can also put liens on property depending on the state, but the IRS takes priority here and bankruptcy will not get rid of a judgment tax lien.
So, as long as you stay current, have the means to pay, etc. I think you are okay going ahead with the scheduled payment. The biggest thing is that you need to adjust your withholdings so this is a one-time event. I also owed the IRS big this year (about triple what I was planning), so I feel your pain. Luckily, I had the savings to pay it but it also put a damper on my student loan repayment.
Tax issues happen, so I am with the chorus who are saying add it to the totals.
Yes, it feels crappy, but I bet it will feel just as crappy to not be able to see those massive payments going out, and to feel like you’re not seeing the debt drop when you do these updates for the next little while.
You’ve got this – you’re making amazing progress and we are all behind you.
I have a somewhat contrary view. I would say *not* to add it to the totals, because it’s not part of the debt you’ve been working on the last few years. Like your mortgage, it’s a monthly expense you’ve added for the foreseeable future. This is all accounting in the end — either you put the IRS debt on this list and pay a larger amount to “debt” every month, or you don’t and pay a smaller amount to “debt” every month — but I think it would be pretty reasonable not to add it to the chart at all.
Either way I don’t think you should be so upset about it. 🙂
I can see it both ways … add the IRS debt and get “credit” for paying it off, or don’t.
For whatever reason, you are obviously reluctant to add it to your total. Given how totally transparent you have been with your readers for the past 3+ years, if you really don’t want to add it, you shouldn’t.
On the other hand, I can see the value of anon’s idea of paying the minimums except for the 2nd balance transfer, and getting it out of the way. This said, I’m not sure I’d want to prepay an agreement I made with the IRS.
How about you leave it off, pay it, and then add it in later, IF you feel like it later down the road?
I do have one worry though: are you doing what you need to do to make sure this doesn’t happen again next year? Because I’m thinking if you are (and I’m guessing you are), then you have to pay it now for last year, AND save it for next year, if that makes sense.