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Which Debt Payoff Method Is Right for You?

money and scrabble

The Pay off Your Debt Faster continues with the next step – figuring out the best debt payoff method as couple. By now you two have a clear idea of how much debt you’re in (and how you got there) and you two have read up on the basics of paying off debt. Now it’s time to make a choice – decide on how you’re going to pay debt and get started right away.

Getting Rid of Debt: Numbers vs Emotions

Last week I mentioned that most debt pay off method boil down to arranging your debts and either attacking them by  their interest rate or by debt amount. While very similar in appearance – you’re tackling debts one by one and building up your payments as you plow through them – there is a different reasoning behind them and that can make all the difference between your success or failure.

With the debt avalanche, you are interested in paying off your debt as fast as possible. You’re motivated by the numbers and are determined to make sure that your lenders don’t a penny extra from you than necessary.

How to Pay off Debt Faster: Finding the Best Strategy for You http://ctt.ec/16ICs+ @Elle_CM #money #yakezie

The debt snowball offers a behaviorally motivating set up as you get wins quicker towards the beginning. As each debt fall off your list, you two build momentum to tackle the next debt. You’re more concerned with crossing the finishing line rather than the speed in which you get there. Being debt free is a goal you can’t afford to miss and you know that personal finance is more than just numbers with the two of you.

Which Time-Frame Works for You Two?

I believe for many couples one of the big factors in deciding what works for them is how quickly they can get out of debt.  That means looking at both methods head to head and see the numbers and time-frame.

There are several ways you can do this; for me I love using spreadsheets. If you feel the same way, Vertex has an awesome debt snowball spreadsheet template that you can use as is or modify for your own plans. You simply plug in the numbers and you can easily see how fast your debt can be destroyed.

For those inclined towards a higher tech solution, you can use Mint, Quicken, or ReadyForZero. ReadyforZero and Mint are free to use and can help you get a good idea of how to pay down your debts.

What Fits Your Financial Personality?

The other huge factor in deciding what method to use is how closely aligned the process is to your own financial personality. I hope the two of you want to reach your goals and to do so, it’s important that you work with a plan that is sustainable.

Just starting on your journey and not sure what your financial personality is? Then start by looking at how you acquired your debt. Has this debt slowly accumulated, perhaps as a result of lifestyle inflation through the years? Or have you been spending beyond your means for various reasons? Depending on your answers, you may find yourself gravitating towards the debt avalanche or snowball.

Get Started on Paying Down Debt Faster

It’s now time to leave the talk and get ready to walk. If you haven’t already, go ahead and automate all of your payments. You can bypass a lot of mistakes and relapses if you automate your credit card payments with online bill pay. Most banks and credit unions offer this feature for free. (If your bank doesn’t then it’s time to make the switch to a better one.)

Get the minimum payments set up for the secondary debts and put the maximum you can towards the first debt on your list. Give yourself a small boost and 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.

Switching from Debt Avalanche to Snowball

Don’t feel bad if you decide to change mid game. In fact, if you two feel like switching methods would be a better fit than go for it now rather than later.That actually happened to me when I was engaged and determined to be free of credit card debt before I got married. Looking at the numbers, I went with paying down based on interest rate.

However I soon found that it lacked the motivating wins of the debt snowball so I shifted gears and went by balance. It worked for me and I was happy to get rid of the credit card debt and that’s the point – getting OUT of debt. Don’t let anyone make you feel bad that it took a little bit longer to reach your goal, just celebrate that the fact that you’re debt free. That’s something to be proud of both from the finances, but also as a personal accomplishment as a couple.

Thoughts on Getting Rid of Debt Faster

For those starting their debt free journey, I hope the two of you find a system that works for both of you. Next in the series, I’ll be share ways you two can pump up your debt debt payments so you can be debt free faster. For couples who have paid off their debts and are working hard at it now, could you share your personal methods?

Photo Credit: 401K

Managing Your Family’s Finances as CEO

Julie The Family CEO

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. So happy Julie from The Family CEO shared her story this week!

Since you’ve hired yourself years ago as your family’s CEO, what have been some of your favorite successes? What lessons have you learned along the way?

We really changed the way we looked at debt and that resulted in two big successes: 1. We paid off all debt except for the mortgage and one car payment. 2. We put our oldest through college using cash and are hoping to do the same for our youngest, who started college last month.

We’ve learned that little things really do make a big difference. And it’s not so much about deprivation as it is about choices. When you approach things that way it’s much more liberating. We skimp on the things we don’t care as much about so that we can spend on the things that are important to us.

Besides discussing family finances on your site, you also cover cooking, travel, and organizing. Have you noticed any parallels between these topics?

Definitely with the organizing or, more specifically, simplifying. Decluttering is a great tool to see what you’ve been spending money on in the past that ended up in a drawer or box in the basement or garage. You see what you really don’t value and you tend to quit spending on that. I did, anyway.

For instance I really, really wanted one of those steam mops. The commercials made them look so appealing. One of my best friends told me not to do it; that it wouldn’t get used. I did it anyway and guess what needs to go with my next decluttering effort? So I still slip up at times but I spend way differently.

You’ve mentioned hating to follow budgets, a sentiment that I’ve heard from others. How does your family manage its money?

I do hate to follow budgets. I love making them (I’m a numbers nerd) but I hate following them.

We stumbled on o a strategy called found money, where we take little bits of money and give them a job to do. For instance, anything extra that comes in to our bank account or wallets (gifts, rebates, Craigslist sales) used to go toward paying off debt and now goes to building up our emergency fund.

And the extra money that I make through bookkeeping and blogging goes toward offsetting college expenses. Every dollar that comes in has a place to go and that strategy has worked wonders with our finances.

I know that some personal finance bloggers have strong feelings about credit cards? How do credit cards fit in your family’s finances? How do you keep them under control?

While we were paying off debt we switched to debit only but now we use our main credit card for almost everything and pay it off every month. The cash back (about $500 last year) is one of our found money sources.

We haven’t had a problem keeping the credit card spending under control. I think the fact that we paid off so much debt and our monthly expenses are lower helps with that. Also, carrying a balance just isn’t an option any more. The alternative is dipping into savings to pay off the card and I hate the thought of that so that keeps things in check.

Giving seems to be an important topic to you. What tips or ideas do you have for couples and families who want to give more, but don’t have a ton of money right now?

Good question. I would say the act of giving is more important than the amount. Start with something, no matter how small. And there’s always the gift of your time, as well.

If you haven’t already, please check out Julie’s story at The Family CEO

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?