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Debt Reduction

Knocking Out Your Credit Card Debt

Credit card debt has become common for some families. Recently NerdWallet did an analysis data from the Federal Reserve and others on average households’ credit card debt. They found that the average household has $7,087 and when you look at just the indebted households it comes out to $15,191.  Families not only have to deal with the balances, they typically have to pay high interest rates on them, making it harder to get out of debt.

What if you are one of those families and you’re tired of having your paycheck being devoted to just keeping up with the bills? There are ways you can take control of your finances and gain your financial freedom.

Find Out Exactly How Much You Owe

This may seem like a obvious step, but you may be surprised with what you find out like discovering that your interest rate had shot up on one of your credit cards. Once you have a list all your creditors, the interest rates, and the total amount you owe, it’s time to get organized. You can use free online tools like ReadyForZeroFinovera (read my review here) or Mint to pull that data for you or if you prefer, you can use  a debt reduction spreadsheet.

Create a Spending Plan So You Stop Using Credit Cards

When I had credit card debt, taking the cards out of my wallet was a easy and effective step. I had less temptation to rely on them when I wanted to make an impulse buy. I was creating a barrier for myself and improving my finances. For others, you may have to lock them away or shred them to stop using them.

Tucking away your credit cards isn’t enough.  You can’t get out of debt if you keep going back into it. That means that the two of you need a spending plan that will avoid having to rely on credit cards in between paychecks. It has to be realistic and sustainable.

Choose a Payment Plan That You Can Keep

The wonderful thing with getting out of debt is that there are several different routes you can take to reach your goal. Use either a debt snowflake, snowball, or even an avalanche to work your way to being debt free. Just use a method that works well with your spending habits.  Highest interest rate method is the financially sound decision and lowest debt is the psychologically empowering decision.

I went for the debt snow ball method (lowest balance first) to give myself a win quicker and to keep me on the plan. When we were married and were paying off the car loan early, we relied on one another to keep motivated.

You two can set up payments through your credit union or bank so you don’t have to constantly worry about whether you did it while juggling your regular responsibilities.

Staying Motivated While Getting Out of Debt

Speaking of encouragement, most of us can appreciate rewards. As humans we all need incentives to do something. For some people seeing the numbers go down on their debt is motivation enough to continue. For me, it was celebrating each credit card pay off. Everyone has something that can keep them focused.  It doesn’t have to be big or expensive (no need to undo what you did), it just has to be special.

Thoughts on Paying Off Credit Cards

I hope you’re revved up to tackle your debt. For those who have conquered your credit cards, what tips do you have on paying off debt? 

Photo Credit: 401kcalculator.org

 

State of the Student Loan

Last month, I shared our goal for 2014 – getting rid of the student loan by the end of the year. I explained why we wanted to do it and mentioned that I’d be doing monthly updates, so here I am sharing our progress for last month. Funny thing about monthly updates is that when things go well, monthly updates are fun and you’re just excited to share the news, but when it doesn’t go as planned or intended it isn’t nearly as enjoyable.

Guess which happened in January? Yeah…..*coughs* ..last month wasn’t so great.

Hiccups on the Road to Being Debt Free

When I mentioned the plan last month, I said that we’d need to throw a little more than $1,100/month at the student loan to get rid of it in time. Even then I knew that was a huge number and it meant making big changes. The numbers are in and this is what we did:

  • Current Balance: $13, 674.43
  • Amount Paid in January: $198.18

Hmm, seems like we missed a number (like the one in the front). To make this easier to track, I’m using Mint to review our transactions:

  • Family Emergency: A loved one had a financial/medical emergency and I offered to help. Not a huge amount, but something to merely note since I’m looking at all the numbers.
  • Vet Visit: Two problems this month with our cats – blood in the urine and some diagnostic testing for a heart murmur they discovered. While both cats seem to be on the mend, our wallet is certainly lighter to get them there.
  • Business Income Slowed: While work kept me busy last month, payments have been a little slower. While I should see some income come in this week for last month, it still isn’t enough to get us to our target. There’s some cause for hope as I have some meetings scheduled this week that I hope will lead to more income. However there is no guarantee, so until it is in our bank account, I can’t count on it.
  • Utilities: Big surprise, the heating bill went up, albeit slightly.

So basically a few problems and mini – emergencies added up to a chunk of money (the cats alone set us back around $300) being redirected. I’m hoping next month will be much less stressful.

Taxes to the Rescue?

We may be able to get some relief from our taxes (though not by much). We’ll have to wait until everything is filed to get a closer approximation, but right now we’re looking at getting a refund.  Just off the top, though, a chunk of our refund will be directed towards finishing off our financial cushion. We had depleted it when we had to replace my husband’s car this summer so we want to get it back up in one swoop with the refund. With that out of the way, we hope to be able to tackle the student loan.

Your Progress

I shared my progress; I’d love to hear about yours – good or bad? Has 2014 started off well for your family?

Photo Credit: 401k

Pay Off Debt App and Giveaway

Paying off debt faster is a big goal for many couple, not just in terms of the financial amount it can costs, but also the emotional baggage of having debt hanging over you. The good news is that having a plan of an attack significantly increases your chances of success and increases how quickly you can get rid of it.

  • Break up your debts into smaller goals. Instead of looking at the total sum of your debts, it can be empowering to break it up into more manageable chunks and celebrating appropriate milestones.
  • Track your progress. staying focused can be hard of you have large amounts of debts, so tracking your progress is vital. It can as simple as a chart on your fridge or you can use an app on your smartphone to keep you in the loop.
  • Set up a doable payment plan. Eliminating and cutting back on unnecessary expenses that don’t really matter to you can be be redirected instead reducing debt.

For us,  getting out of debt meant getting adjusting our budget and automating a plan to keep us on track as we used a debt snowball.  It helped me as I paid off my credit card debt and when we got rid of the car loan.

Pay Off Debt Apppay-off-debt-iphone5

In case you’re not familiar with the debt snowball method, I’ll share a quick example. Let’s say you two have 5 debts, totaling $26,000 and with a combined minimum payment of $450, dividing like so.

  • Visa: $100 / $15 minimum payment
  • Mastercard:$500/ $50 minimum payment
  • Car Loan: $10,400/ $200 minimum payment
  • Student Loan: $15,000/$185 minimum payment

After trimming your budget, you two have an extra $100/month to use for the plan. With the snowball, you take that $100 add apply all of it towards your Visa. Once that is paid off, you take that $115 ($15 minimum + your $100 snowball) and use it towards the Mastercard for a total of $165. After that is completed, you pay $365/month. You continue until you’re completely debt free.

You may have noticed that I did not include interest rates with calculating the snowball plan. That’s because the debt snowball is about getting small wins fast. It’s less about the math and more about staying on target. You can also use micro-payments called, snowflakes to speed this process up.

If you prefer a high tech and handy solution to getting out of debt, you may want to check out the appropriately named Pay Off Debt App. Using the debt snowball method, you can set up a manageable plan quickly and easily that will get your paying off debt faster.

To celebrate the latest update of the app, The Debt Myth is hosting a huge iPad mini giveaway! If you’re look for more information about the Pay Off Debt app or the contest, please check out the Debt Myth’s Rafflecopter giveaway.

How Much of the Student Loan Have We’ve Paid Off?

It’s been a bit since I shared our student loan balance and since there is a new provider, I’ll updated you on how things are going. There is change with payments that the new loan service provider notified me about this week. When we were with the old student loan service provider, when we made extra payments, it pushed back our due dates for the payment. The automatic debits from them actually stopped because we were 3 years ahead of the schedule.

It felt great that we were making progress, but it meant we had to schedule put going payments from our bank to get them sent. Well, that’s all about to end. Staring in May, we will be having auto debits from our joint checking again. I went ahead and updated our banking system for the new change.

Looking at the balance, we’re happy to see this student loan keep decreasing. It’s been a fun couple of months as we’ve been trying to knock down this debt.

Paying Down the Student Loan

Since January we have sent in scheduled payments of at least $330/month. As part of The Debt Movement, we added the student loan to the pile to encourage us to be more aggressive with paying this debt down.

When we started this year, our balance stood at $19,453.14.  During the money we made our regular payment and we made one extra payment. The Debt Movement started in February and at the time the balance was $19,222.62. We sold the VW Jetta and used a portion of that money to pay down the student loan.

March was a good month as our balance started off with $17,471.93 and we used most of our tax refund to knock another chunk off the the loan balance. Now that April is winding down, where do we stand on the student loan? I logged into my account today and found the balance now $15,091.01. We’ve paid off $4,362.13 off since January 1st. That means we decreased our student loan balance by 25%!

What’s the plan now? We don’t expect any bonuses or bumps in income in the near future. Our progress is going to have to come from making the extra snowball  and snowflake payments. We’ve automated a minimum, but if we do get extra money in our budget it will go towards reducing the student loan even faster.

Thoughts on Paying Down Student Loans

I’d love to hear from you about paying down debt. What are your debt reduction goals for this year? Looking for strategies to reduce your debt? Please check out my debt reduction tips I’ve used as well as some strategies that have worked for other people.

I know there a lot of people who would like to get out of debt, but don’t know where to start. I think Ready for Zero can be a great option for them. I’m using them as we’re working through The Debt Movement. While their paid versions have their benefits, I recommend trying their free option first. I have found it quite handy and perfect for my needs. If you’d like to try it out, you can sign up for an account with Ready for Zero today.

Photo Credit: Drewski Mac

Digging Out From an Upside Down Car Loan

From time to time I get questions from Couple Money readers. I love to get your emails and money questions. Julie’s* situation was something that we’ve personally had to deal with – getting rid of a car loan. Neither one of us are financial experts, but we too had a car loan that we were just sick and tired of having and so we paid it off early. Not only has it freed up money in our budget, but it’s also taken some stress off of us as we have one less bill to worry about. I hope we can give Julie some advice that can help her get out of debt sooner rather than later.

​I currently have a $15,000, 6 year car loan for a 2011 Kia at an interest rate of  18%. I pay about $340 a month on the car. I had considered refinancing it next year with the same company. I don’t know if I would be able to go through a credit union or bank since my credit is so low.

After paying my bills and everything I have about $300 left over. I do have other debt I own my house and we pay on that every month. I have a credit card I pay $25 a month on it and the balance is $750 I really want to get this paid off by the end of the year. I have a loan but I only have three payments left till it’s paid off.

What is the quickest way to pay this off? Or what would you do?

So right off the bat, I see that in addition to the car loan Julie is looking to eliminate another debt. Good for her!

Options With an Upside Down Car Loan

First things first, whenever you have a car loan you’re trying to get out of (upside down loan or not), you have to have all your numbers in front of you so you can make a decision that not only works for you, but is in line with your actual finances.

  • Sell the car. If at all possible, my advice would be to sell the car. The terms of the loan are horrendous and that lender is making a killing off of Julie. When I was trying to get a ballpark figure from Kelly Blue Book on the value of the car it fell within $11k range. That would put her in the hole for at least $4,000 assuming you could sell it to someone for what it’s worth, but that’s better than $15,000. However it would also mean not having a car, so that may not be an option right now.
  • Refinance the car. Julie expressed doubt that a bank or credit union would refinance with her bad credit, but I do think that with a little hustle and shopping around it can be done. she won’t get the best rate, but it would most likely be better than the rate she is paying now. If Julie is still a bit reluctant to refinance because of her bad credit, she may want to pay off a few other smaller debts ahead of the car loan to get her score up. That could help her to refinance in the future and secure a better rate.

Starting a Debt Snowball

The good thing is that she has at least $300/month to use for paying off her debts. We’ll start off with that amount and build from there. I’ll share things that have worked for us and hopefully will help Julie get some ideas on where she can slash her budget.

Hunting for Money in Your Budget

Instead of guessing where she can cut back or hunting through receipts to find all the money leaks, I’m recommending Julie use a free tool like Mint that will gather all of her expenses for automatically and in 15 minutes you can create a budget that will help you reach your goals.

republic wireless smartphone plans

Car Insurance

We were able to significantly  cut our auto insurance premiums by switching providers. By using our Costco membership our car insurance premiums went from $118/month to $58/month. Since we have Executive membership at Costco, we also get free towing and jump starts included.

If you’re pressed for time, but still want to shop around for the best rates on car insurance you use Go Insurance Rates. It’s extremely handy as you can get several quotes in spot and it’s free!

Cellphone Plans

For new readers looking at to save money with their cell phones, I reviewed Republic Wireless for their cheap smartphone plans. If you pay for the phone up-front ($220), you can get unlimited talk, text, and data for $19. If you buy the phone at a discount, then the unlimited plan is $29/month. I have this phone as my business line and it has been great for me even when I travel.

Cable/Internet/Home Phone

Many times the deal they advertise on TV isn’t the best deal. The options are switching providers, dropping the service, or getting a promotional deal. When we were looking for a deal with our bundle years ago, we called Time Warner Cable to see if they could quote a better rate. Since they didn’t, so we went ahead and created own bundle with Time Warner for limited cable and high speed internet and used Skype for our land line number.

A few years later we managed to get a promotional deal on our internet services. If you’re willing to talk a few minutes ot talk with your current provider you can probably work out a better deal that what you have now.

Getting Rid of a Car Loan

While not all of these tips apply to everybody’s budget, I think it can couples shave a bit off their bills and use that money to build up their debt snowball.  As always, I’m reaching out to those of you who have tips and advice that could help Julie get rid of her debt quickly. What changes have you made to pay off debt quicker?

* I changed the reader’s name adjusted some details to maintain privacy.

Photo Credits: Motorola and Republic Wireless