As I mentioned last week, it would be a good time to jump start acting on a financial goal and motivate each other to accomplish it. I think this month would be the perfect to get a jump-start on getting out of debt. It’s never too late to get started on your money goals and I think by focusing on one thing – setting up your debt free plan – you can make the rest of your year much easier.
I want to share our personal strategy and system that we used to eliminate debt and then have some other people share their personal plans that have worked for them. My hope is that you find which tools work best for you and your situation.
Our Debt Reduction Strategy
My first experience with getting out of debt started when we got engaged. The two of us sat down and chatted about our finances and I discovered that had much more debt than he had. Not exactly what I was hoping to hear, but oddly enough it was fuel to a newly lit fire. I made it my goal to pay off my credit card debt before the wedding. I was determined to get married without having a huge amount of credit card debt over my head. I was happy to accomplish my goal, but there was still more to do.
This was an eye opening experience when I first started. I kind of ignored the whole credit card bill and just focused on the minimum payment that was due. When I actually sat down and found out the amount and the interest rate I was paying, it served as a motivation to get this done.
Find out how much debt you’re in by either calling up your creditors or compiling all your current bills. Grab or create a debt reduction spreadsheet and list all your creditors, the interest rates, and the total amount you owe. I think some of you will be really surprised at how much debt you have, but don’t get discouraged. You’re doing this to reduce your debt and come up with a plan that you can maintain.
If you want a more automated approach, you can use services like ReadyForZero or Mint to grab all that information and give you a single place to manage all of your accounts.
Set Up a Realistic Payment Plan
Eliminating and cutting back on unnecessary expenses that don’t really matter to you can be be redirected instead reducing debt. 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. Being realistic keeps you on board the plan.
Now that you have a spending system, you know how much money you have to put towards paying down debt. Call up your credit card company and see if you can lower your interest rate that works for you and your family and get it in writing.
In short: Make paying off debt a priority.
Strategies on Reducing Debt: Other Takes
Plenty of people have been successful with eliminating debt by coming up with their own strategies. The key to being success with personal finance is adopting or adapting what works into your own life. Several bloggers have been kind enough to share their tips and strategies.
Reducing your debt isn’t difficult. There is no magic pill regardless of what advertisers try to push down your throat. You have to make a plan, be accountable to someone, and follow that plan.
This is the list of items that I followed to get rid of my debt over the past year:
I needed to understand who I was and what I wanted.
I talked to my Wife and we created a plan, together. I’d like to say thank you to her since she is my greatest asset.
I started this blog so I would be accountable to everyone that reads it. The funny part is, at the beginning of the blog I had no traffic but even the small amount of traffic made me want to succeed. THANK YOU.
I was thousands in debt. I had been doing what I thought I could to pay a little extra to my credit cards, but really it just kept my debt at a standstill. Then something crazy happened – I lost my apartment. I had the choice of using what little savings I had and look for a new place to live or suck it up and move back home with my parents. It was hard but I made the move back to my parents, knowing that the savings in rent would be able to go towards credit card debt. I stuck to my guns and after a short time I was finally able to say I was debt free!
Sometimes you need to make the tough sacrifices to make your future better!
I recently finished an MBA program with a price tag of about $90,000. During the course of my studies, I took about about $40,000 in student loans. That was in addition to my existing car loan, which started at $11,000. I used a modified debt snowball approach to pay everything off.
My key was to clamp down on my budget as much as possible and put everything I could into the loans every payday. Making every other week payments helped match my cash outflow to my cash inflow, and allowed me to be more agressive in my payments.
I have since paid off the car and have about $16,000 left in student loans. I am putting $250 per paycheck into the loans, and expect to have them paid off completely in less than two years.
While I’m not out of debt yet, I’ve learned a few things along the way. 3 main ideas make up my debt repayment plan; budgeting, sacrifice, and work. Without having a written plan (a budget), it will be impossible to get out of debt. You need to understand all the money coming into and going out of the household in order to work a debt repayment plan.
The budget is the best tool to use for this task, but it must be personal. Budgets are not the same for everyone, so it needs to be setup with each households unique circumstance taken into account. Many rewarding parts of life require sacrifice. Getting out of debt is no different.
A person who is extremely serious about getting out of debt will stop at nothing to get there. They will forgo some family dinners, activities with friends, and even sleep. The reward for this sacrifice is the quick turnaround of debt repayment. The more energy put into getting out of debt the quicker it will happen. Why take 5-10 years to destroy debt when it can take 1 to 2 years depending on the debt load?
The last lesson I’ve learned is that working your butt of will give you the traction required to get a debt snowball moving. Budgeting and sacrifice will only save so much money, extra hours or an extra job will being in some much needed income.
Imagine getting a $1,500 a month raise, would that help your debt reduction plan? Of course, that’s what working hard to bring in extra income can go for you. It’s that simple, I’m been using these 3 ideas over the past 11 months to repay over $34,000 of my debt. After a total of 26 months I will be able to pay off $101,000 in debt, my debt freedom date is July 2011. It can be done, even if you are in debt up to your eyeballs.