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Best Strategies to Get Out of Debt Faster

debt snowball faster

As I started the Pay off Your Debt Faster series last week with learning how deep your debt is. Hopefully you two have that number and you’re ready to get rid of that sooner rather than later. The good news is that there are numerous ways to pay off your debts, but it can be confusing and overwhelming.

To save you time,  I’m just going to list two  of the most popular ones that have helped others speed up their debt free plans to help you find a strategy that works best for you.

Debt Snowball

Dave Ramsey is most associated with the debt snowball as a part of his system to help people gain financial peace. Paying off debts is the second of his seven baby steps  as popularized in his Total Money Makeover book. Many people have sworn by Ramsey’s methods and have paid off huge amounts of debt in a year or two.

Basics of the Debt Snowball

Here’s how the debt snowball works:

  • List all of your non mortgage debts from small balance to largest
  • Pay the minimum payment on every debt
  • Figure out how much extra you can put towards paying off your debt
  • Use that money to pay down the one with the smallest balance
  • When that is paid off, roll over that money into the next debt (old amount +minimum)
  • Repeat and keeping rolling over payments until all your debts are gone

Many people have discovered that this method was the easiest to maintain because they only have to focus on one debt at a time.  With the intense focus, it made them want to pay off the debt faster. There are modifications to this plan, such as using debt snowflakes to build your snowball, but the premise remains the same – work on the smallest balance first and then continue to the next smallest.

You may be wondering why interest rates aren’t mentioned in this plan. The biggest reason is because the debt snowball is about changing behaviors and not so much on getting the most financially pressing debt out of the way. Dave states that 80% of personal finance is about behavior not numbers.

While I know this plan is not for everybody, I do believe that many couples could benefit using it. When you see your debts getting knocked out one by one, you ‘re motivated to stick with the plan and that’s the real advantage  – sustainability.

Debt Avalanche

On the other end of the scale are those who let the numbers rule the strategy. Personal finance gurus like Suze Orman suggest tackling your debt by interest rate rather than the balance. The reason behind it is straightforward, if you’re truly committed to being out of debt, paying your highest rates first will have you debt free faster.

The method is just as direct as the debt snowball – just organize your plan by the interest rate instead of the balance.

Tracking Your Progressmint pay off debt

No matter your method, most couples find it helpful to keep tabs on their progress. It can serve as motivation, especially if you have a huge amount to pay off. Once again I going to mention list as a handy tool to use. You can not only create a budget within minutes, you can also add your debt goals to the site.

  • To use Mint’s  goal tool, you simply select the goals tab and with the various options, you’ll find paying off debts.
  • From there you’ll be guided to customizing your goals.

Mint is even able to track introductory interest rates, which is extremely helpful for those who may have large balance whose repayment will exceed the special intro offer.

Along with monthly emails to track your progress, you can also log-in at any time and see how you’re doing. Mint can also share tips and offers from other credit cards that may give you better interest rates which may save you some money while paying down your debt.

Getting Out of Debt Faster

For those who are debt free, what method worked for you? How much debt did you pay off and how long did it take? For those still on the journey, how is it going?
Photo Credit

Managing Your Money the Smart Way

money smarts guide interview

As a member of the personal finance community, I’m amazed at how many people are a part of it. Unfortunately that often means that I can’t always keep up with everyone. It’s a shame because there are some wonderful bloggers with their stories and advice on handling finances responsibly and with fun.

To counteract that and get the word out on other sites, I’m interviewing bloggers in the community. Jon from Money Smart Guides is joining us this week. 

I noticed that you’ve worked in and around the financial industry since you graduated from college, how does that affect how you manage Money Smart Guides?

It makes managing Money Smart Guides both easy and difficult. On the one hand, it makes things easier because I have so much knowledge about personal finance and in particular investing, that I can pull in experiences from both personal and professional situations. This makes writing posts much easier. In a way, I always have content to write about.

But on the other hand, it makes managing these posts difficult.  For example, since I’ve worked in the investment industry for so long and went to school for it, I know much more about investing than most of my readers. There have been times when I sometimes talk over my their heads.

To me, what I am writing about is basic, but to my readers, who don’t have the same background as me, they get confused or lost more easily. I’ve had to work on taking a step back and making sure what I am writing about can be understood by those readers without the background I have.

Through your financial consulting experience you’ve seen how others have managed their finances – what seems to be the most common financial mistakes couples have made?

The biggest issue by far is lack of communication. Whether it is one person spending and not telling the other person or one person handling the finances and keeping the other in the dark, couples need to remember that they are a team. If they are open to discussing finances with each other, they can go a lot further, much quicker than they could alone. After all, most couples have 2 incomes compared to single people who only have one.

For example, I handle tracking our budget and net worth on a monthly basis. My wife has no interest in running the numbers, compiling the data, etc. But after I complete everything, I sit down with her for 5-10 and go over it and answer any question she has. Doing this not only keeps her informed, it helps to keep us both on the same page of reaching our goals. One of these goals is early retirement. She sees how saving more in certain months positively affects our net worth and how months when we spend a lot negatively affects things.

I make sure she is a part of our financial calculations because when I worked for a financial planner, I saw what happened when a spouse (typically the male) handled the money and passed away. The widow had no clue what to do financially or what they have in terms of investments and even accounts. In many cases we had to basically educate her on what they had and why they were invested the way they were and how to handle money wisely.

We don’t like thinking about death or even divorce, but it’s important to be part of the financial conversation. Even if you have no interest at all, take 5-10 minutes every few months to see where you are financially and where you have accounts. The more you know and understand, the better off you will be.

I’m especially curious about how you handle your own finances. What system do you employ with: budgets, investing, and your career?

When I first began budgeting, I tracked every penny because I was in debt and wanted to get out. After I paid off the debt and became more accustomed to my spending, I cut back and only tracked my variable expenses. I knew what my mortgage payment was every month, so for me, there was no point in tracking that. I was more concerned with my grocery spending, dining out, entertainment, etc.

Currently, however, my wife and I are tracking every penny. This is because she is looking at a career change and we want to get a solid understanding of where our money is going and what can be cut out if we need to trim down.

For investing, we are buy and hold investors. Through all of the research I’ve read and real life examples I’ve seen, there is no point in trying to beat the market. We just save a certain amount each month and invest it on a regular basis. Most people think investing is complicated, but to be a successful investor all you have to do is understand the basics.

With my career, I am self-employed. I make it a point to reinvest most of my income back into the business. I do take 25% out each month and put that towards a solo 401k so I have money for retirement and get the tax write-off. Once my business has the money saved that I feel is adequate, I plan to start paying myself a salary. Right now, we are comfortable living off of my wife’s salary.

You are tracking several bloggers efforts as they pay off their debts and invest. Why did you start these All-Star lists? How do you keep tabs on so many people?

I started both the Debt All-Stars and the Investing All-Stars to help my readers get inspiration. I was in debt after college and know it can seem overwhelming. By looking at how much others have paid off, my hope is that my readers will see that even though their debt might seem overwhelming, they can get out of debt.

The same idea holds true with the investing list. People who are just starting out don’t think investing $20 here and there will make a difference. But over time, it does add up, thanks to compound interest. Seeing how others have grown their portfolio hopefully helps readers continue investing on a regular basis. That is how to invest for success.

You’ve written three books on finances – each one covering a specific money question, what made you choose these particular topics?

I started out with the saving money book because that is the most common issue for many – how to save more money. I then wrote my book on investing because I wanted to show that just following 7 steps will make you wealthy. You don’t need to monitor your investments every weekend and constantly buy and sell. Just follow my 7 steps and you will see results.

Lastly, my early retirement book is for a small, niche market. As I mentioned earlier, my wife and I are on a path of early retirement. I wrote this book because I found things that many people overlook when thinking about retiring early. My book shows you a quick, comprehensive plan to successfully retire early.

What are some of your goals for Money Smart Guides this year?

My main goal is simply to attract new readers. I am always looking to grow my readership base. I love helping others and the more people I can reach, the more I can potentially help.

I am considering an investment course as well – something a little more interactive for those that would rather not just read a book. But that is in the very early stages and might not even become reality. At this point, it’s just an idea.

Thanks again to Jon for sharing his thoughts. Please check out Money Smart Guides!

Baby Girl on the Way!!!

baby girl parents again

I’m excited to announce that we are expecting another baby girl! We just had the ultrasound this week and we were so happy to get another look at our baby. We took our little one (can’t believe she’s 3 already!) with us so she could watch the ‘baby tv’. Watching her reaction to the baby that was on the screen was priceless.

We’ve been asking her if she wants a baby brother or sister and most times, she’s said sister. So happy the new one obliged, lol :) (I think it’s because of Frozen that she wants a little sister. She calls the baby Elsa or Anna, depending on her mood.)

I wish I could say this pregnancy has been smooth sailing, but it hasn’t. Like the first time, morning sickness has been a constant companion and there have been quite a few days I’ve been so sick and exhausted that I had to stay in bed. I dropped some weight and the doctors have been keeping an eye on me. Thank goodness for Ensure, or else I would’ve starved. :P

After trying out both over the counter and prescriptions to help, we’ve found something that has allowed me to start living and eating again. I still have bad days, but I don’t have to hide anymore when food is around. Hopefully things will subside and I can enjoy the rest of the pregnancy. The important thing is our baby girl is healthy and growing.

Don’t Trust Those Baby Gender Myths

Like last time, people were eager to share their guesses on whether the baby was a boy or a girl. I think I’m a little more laid back with the whole thing, so I’ve been writing down what people have been saying. Apparently I gave off the impression that I was having a baby boy by some of my symptoms, such as:

  • Carrying low
  • My skin has been great
  • Big sweet tooth (on the days I did eat)
  • Narrow face (think that’s due to the weight loss)
  • Prefer to rest on my left side (huh?)
  • Dry hands

What’s funny is that some people say the opposite with these symptoms (like the sweet tooth one). Meh, I guess it’s one way to pass the time. Even with being interrogated by some experts, most people guessed the wrong gender.

Oh well.

For us, our big concern was the baby being healthy so we got our wish and we’re so excited to meet our little one come wintertime.

Tracking Baby Expenses Again

One of change that they baby will bring is the return of baby expense series. When we first found out we were going to be parents, we had no idea how big of an impact a baby would be to our (financial) lives. Happy to report the first go around wasn’t a huge change.
We built a baby fund to handle an big expenses like the hospital bill, but we had some left over. That money ended up going towards the car replacement.

We’re doing the same thing with this little – building a baby fund and if any is left over, putting it towards another goal. Unless something comes up it will be going towards paying off the student loan.

Share Your Stories

So happy to share our big news; I’d to hear yours. How are you doing so far? What has been the big events of 2014 for you and your family?

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

Reach Financial Independence on Your Terms

be financially independent pauline

As a member of the personal finance community, I’m amazed at how many people are a part of it. Unfortunately that often means that I can’t always keep up with everyone. It’s a shame because there are some wonderful bloggers with their stories and advice on handling finances responsibly and with fun.

To counteract that and get the word out on other sites, I’m interviewing bloggers in the community. Pauline from Reach Financial Independence is the star this week. 

What inspired you to start Reach Financial Independence?

I had been writing for several travel blogs for years, and after over 5,000 posts, I was burned out and wanted to get out of the travel niche. I was reading PF blogs and felt like I could add my voice, especially when it came to living abroad, early retirement and deliberate life choices. I started RFI two years ago, then another blog called Make Money Your Way where I talk about ways to make extra money by investing, improving your career, freelancing and online endeavors. Then I bought a third site, The Savvy Scot 9 months ago, which has a focus on saving money and self improvement.

There are a lot of financial independence blogs that are covered by people who have amassed quite a bit of investments. You’re tackling it from another perspective – becoming financially independent even more the fortune rolls in.

How did you decide that this was the FI path for you?

pauline reach financial independence

Ever since I graduated college, I knew the traditional route was not for me. I always chose time over money and wanted to find ways to become independent and work wherever I wanted, whenever I wanted. So I lived in four countries while working decent jobs and saving money, and finally left my day job in the UK almost five years ago, to live life on my own terms. I could live off investments, but it gets boring to do nothing, so I relocated to Guatemala, bought a small house that I turned into a guest house, a 90 acre piece of land that I am developing into a residential complex, and I am blogging in the side.

I also ventured into trading, invested in cattle and other alternative investments as a way to diversify. I believe that with a high rate of savings, you can become independent in just a few years, even if for some it means you still need to hold a part time or freelancing job, you still get more free time than the average employee. I could have waited more until I had a big nest egg, but I guess I was impatient, and I also believe that if everything goes wrong and I need to go back to work someday, I can find any minimum wage job quickly and start again from there.

Fear is often your biggest barrier, without fear, you can open many doors. For example I took some risks by investing big sums and depleting my savings, which worked well and gave me a higher return than a safe 0.5% savings account, but I realize that it is not for everyone.

RFI had a post about how mind-set can trump strategies when it comes to financial independence. Could you get into that more?

There is no get rich quick strategy that works without huge risks. The secret is sticking to a high savings rate and smart moderately risky investments for a long period of time. Like a diet, it can get really boring after a while, unless you have the right mindset. It can seem like a daunting goal, but if you take a small action every day to reach it, you will.

You own property, including a place you rent on AirBnb. For those interested in having rental property, what’s been your experience? How hands off/on is the rental?

My little house in Guatemala is open to travelers who wish to rent it short term. Compared to traditional rental property, this is pretty hands on. You have to prepare the place every time a guest comes, clean it, change the soaps, we even cook them meals if they wish, meaning I have to be on site or pay a staff to attend guests. Generally they won’t tell you at what time they’ll arrive so you wait until they do, wait until they are ready to eat, then clean and wait until they go to bed. It is time consuming.

I still own a rental in the UK which is very hands off. I bought the property new so maintenance is minimal, I find new tenants online, the old tenants show them around, they pay via online transfers. It is as close as it gets to passive income. But I wish I was closer sometimes, just in case.

What’s the biggest financial mistake you’ve ever made? What have you learned from it?

I would say tying my money for long periods of time when I didn’t know what my life would be for the next few years. For example I bought a rental property in Paris before leaving for a year to travel, then settling abroad. Managing it from the distance was complicated as it was not a good tenant, and several times I had opportunities to invest elsewhere that were much better and for which I wish I had had the cash. I try to think things through now before committing big sums to long periods of time. There will always be another opportunity so no need to rush to grab the first one.

Finally, what are your goals for the next year on RFI?

At the moment, my blogs are a hobby, not a business, so I don’t have any big business plans, although I do have a goal to make $60,000 blogging this year which is on target!

On RFI, I want to keep bringing a different approach to money and life. I live an unconventional life and that is what my readers like to hear about. I will keep talking about more general money topics on my other two sites. RFI has recurring posts about life in Guatemala, how my projects are going, how 10% of my income goes to education and computer literacy projects in my village, and so on.

I want to keep showing people that you can live any life you choose if you are determined to make it work. It can be staying in your hometown and having more time for your kids or for a side project, making enough money to travel the world for a year, whatever suits you. As long as you work for it you can reach anything.

Thank you Pauline for doing the interview!