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Debt Reduction

Know How Deep Your Debt Is

tracking your money

As promised, to help couples get out of debt faster I’m creating a new series that will take you step by step through the process. Over the years, between our personal experience with paying off the car loan and discussing with other couples about becoming debt free, I’ve found that there is an effective way for the two of you to reach your goals. It comes down to:

  • Know How Deep Your Debt Is
  • Review Debt Methods as a Couple
  • Choose the Method that is Easiest to Keep
  • Build Up Your Debt Payments
  • Make It Automatic

Today I’ll talk about how you can run the numbers on your debt.  You can’t completely get out of debt unless the two of you know exactly how much debt you are currently in. The problem for some couples is that over the years they’ve accumulated quite a bit and it’s hard to get it organized.

Looking at the Numbers Objectively

One of the best ways to get a handle on your debt is to see which part of your budget is triggering the money leak. That means you two will have to look at all of your income and expenses for the past month (or longer if you have the data).

Free Tools to Automatically Get Your Numbers

You can always dig through your bills or take time to login into all of your accounts to get the data you need, but there is a way to streamline the process so they two of you can get an accurate snapshot and have a easy and quick way to track your progress.

  • Personal Capital: This is now my favorite money management site to use on tracking our finances. You can also get a free portfolio check-up to make sure your investments are aligned with your personal goals.
  • Mint: We’ve use them for years as we tracked our net worth. With a few clicks you can check month to month compare them against each other. You can also drill down to get to the individual transaction.
  • Finovera: The company is hoping to take money management a step further – giving users not only the ability to see their budget, but also manage their bills  AND store their financial documents in one place. After you link your bills into Finovera, it pulls 12 months of history and tracks averages. That gives you a snapshot of where you are with your monthly expenses.

Another big advantage of using the tools I’ve mention is how you’ve now created a system where you two can be kept in the financial loop without tracking every cent manually. It’s very handy for monthly reviews.

Blame Free Zone

With the hard numbers in front of  both of you, it’s time to start talking. As you look at the biggest trouble spots, resist the temptation to blame one another. It will mostly likely have the two of you fighting each other instead of the debt. A much better use of your time would be to focus on the top one or two areas to improve on (ideally you each pick one that you can be in charge of).

Coming Up with a Debt Pay Off Plan

Now that you have both the grand total  and individual amounts of debt, you two are ready for the next step – choosing a plan to get out of debt. I’ll be covering some of the most popular methods out there on the next installment of the series.

Photo Credit: seanmcmenemy

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