How to kiss your debt goodbye this year
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For the past two weeks, I’ve been spending time cleaning up my finances. I’ve been evaluating all of my auto payments, making sure they are all set-up like they should, looking at my automatic savings deposits for our property tax fund, Christmas fund, and emergency savings to make sure they are set-up. I guess you could say I’ve been doing a little spring cleaning on our finances. I’ve even switched from my custom budget spreadsheet to You Need A Budget, which is working rather well. I’ve also been updating my debt snowball and calculating where we are with paying off our debts and how much we can afford to pay against them this year.
I think about our debt frequently. As I’ve said, its a dark cloud that is always over me and a constant pressure that while easing up some, is continually there. I find it hard to not get discouraged when that dark cloud just never seems to shrink as quickly as I would like it to.
I thought I would share a few tips that will tell you how to kiss your debt goodbye this year:
If you don’t have a debt snowball, start one
I wrote about this some yesterday, so I won’t rehash it. If you don’t currently have a debt snowball, start one. A debt snowball is the quickest and most efficient way to start taking major chunks out of your debt. A debt snowball is visible feedback that you are making progress.
Stop going into debt
Climbing out of a hole is a bit difficult if you continue to dig the hole deeper. If you have outstanding balances on your credit cards that you can’t payoff monthly, stop using your credit cards. If you can’t stop using your credit cards, take a leap of faith and throw them out. I haven’t used one in over a year, and haven’t needed them once. Don’t take out a loan on a new car, don’t do the 90 days same as cash on that new HDTV you’ve been wanting, etc, etc. To begin making significant progress on your debt, you have to address the first and most difficult obstacle…you. Yes you. You got yourself into debt, your bad habits caused you to be where you are, and only you can get yourself out.
You just have to look at yourself in the mirror and decide to stop making bad financial choices. Once you do this, the road is long, but the process is fairly simple.
Pay as much as you can against your debt
Create a reasonable but tight budget. Apply whatever spare income you have against your debt snowball. We have cut out budget back about as far as we can, and are in a position to apply about $900 – $1300/month against our debt. The amount varies depending on our monthly expenses. Don’t make the mistake of overpaying on your debt and then not being able to pay your bills or life basics.
Set specific goals
Set goals about paying off your debt, and make them SMART. We set a goal to payoff a minimum of $1000.00 per month against our debt. There will be one or two months where this is going to be a little difficult, but we’ll cross that bridge when we get there (Matthew 6:34).
Setting goals helps keep you focused and driven. A goal is a constant reminder of your commitment, and it lays out a path to the larger goal you have of getting out of debt. Think of it as a plan or step.
Paid Twice over at I’ve Paid Twice For This Already started something called snowflaking. She advocates making lots of small payments against your debt to further the debt snowball effect. I do this at least weekly. We always seem to get some small check in the mail, or find spare cash laying around and even sometimes underspend a budget category. When we do this, I take that money and immediately make a payment against the first debt in our debt snowball.
You would be amazed how how quickly these small payments can add up and significantly increase your progress. I don’t make a lot of money on this blog, but it is growing. I take every single penny and apply it to our debt. When I receive a payment from an advertiser, I turn right around and make a payment against our debts. This is a good lead in to my next tip…
Earn some extra income
Another great way to increase your progress on paying off your debt is to earn extra income. I do this through blogging and through doing small computer consulting jobs on the side. I’m also into aquariums, and have been paid to set-up and do aquarium maintenance in the past. Others, like Ana over at DebtFREE-Revolution is getting a degree, blogs, and delivers pizza in the evenings. Other ideas include finding a night job, selling items on eBay, making money from your hobbies such as selling crafts or starting a small photography business. If you do a little digging, there are literally thousands of things you can do that will provide you with a little extra income. Be creative!
Just think, if you could make an extra couple hundred dollars each month, how much would that extra money speed up your debt snowball? For me, it’s cut years off.
One word of caution though, there are a number of scams on the internet that promise to make you rich if you just pay them $100 dollars. Others say you can make $25/hour just working at home. I believe in the old rule, “If it looks too good to be true, it probably is.” Do your homework, and don’t fall victim to these get rich scams.
Sell some stuff
We all have tons of stuff laying around that we no longer use or need. Have a garage sale or sell your items on eBay or Craigslist. Take the proceeds and pay off some of your debt. We cleaned out our closets, kid’s rooms, and storage areas. We sold all of it at 2 garage sales we had last year. We paid more than $1,000 against our debt, and removed a great deal of clutter from our home. Trust me, with 6 kids…we know clutter!
Regarding stuff: I know that getting rid of stuff is a little difficult sometimes. I used to be into model trains when I was younger. I enjoyed the hobby immensely, but once I got married started a full time job and began having children the amount of space and time I had for the hobby quickly diminished. All of my engines, cars, scenery and magazines went into storage and sat there for 15 years. While cleaning out our house and selling stuff, I asked myself, why am I keeping this? I never use it, probably won’t for along time down the road, if ever, and someone else could be using it. I told my model train equipment for a very nice profit, and again paid more against our debt. The message I am trying to convey here is take a hard look at the items you are clinging too and why you want to keep them. I’d rather be debt free and have to repurchase the model train equipment down the road.
Don’t get too attached to your stuff…it’s only stuff.
There are lots of things you can do to accelerate your debt payoff. These are just a few of them. Others include getting your rates reduced, transferring your balances to 0% or lower rate cards, and even using your savings if you have a lot. Don’t, and I repeat, don’t confuse trading one debt for another as paying off your debt. If you get a home equity line to payoff your debt, you’re still in debt, you just moved it. If you consolidate, you’re still in debt too…again you just moved it.
Persistence and determination is what will get you out of debt. So I challenge you to begin the process of kissing your debt goodbye this year!
Studies show that people who commit to doing something in writing have a 90% chance of actually doing it. People who don’t, have less than a 10% chance. Will you commit via a comment to do one or more of the above items? Do you have other ideas or suggestions for getting out of debt? Add a comment!