How to kiss your debt goodbye this year
By glblguy
Photo by: unknown
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.
For some money saving tips that may help you reduce your budget, read through my Money Saving Monday Tips Series or read the The Money Saving Methods Report.
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.
Snowflake
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.
Final Thoughts
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!
January 16th, 2008 at 10:42 am
Great article! This guide should be very helpful to a lot of people as they start their journey out of debt. This article is also applicable to a lot of other situations as well.
If I knew anyone just starting their get out of debt journey, I would recommend they print this out and refer to it often!
January 16th, 2008 at 11:18 am
Fun and inspiring to read. I imagine many people are dealing with this exact issue after the holidays.
January 16th, 2008 at 12:29 pm
@Patrick – Thank you! I sure hope it helps. I agree, very applicable to many situations. It’s all pretty basic, but the basic stuff works.
@Jason – “Fun and inspiring to read” -> Wow, thanks Jason. You just made my day :-)
I’m sure they are as well, so hopefully this may help.
January 16th, 2008 at 12:38 pm
Love the picture. :) Setting a goal does make a difference. I was able to pay off my credit cards by having a dealine and a plan. I feel so much better. I’m now working on my car loan and my student loans starting in July.
January 16th, 2008 at 1:30 pm
Thanks Laura. I think I spend more time looking for great pictures than I do writing the articles! Thanks for sharing your experience and thoughts. I agree, just have a plan and goals makes you feel so much better. It gives you hope.
January 16th, 2008 at 1:41 pm
Very nice overview. :) And stuff really is only stuff. Whether you’re acquiring it or saving it, it’s really just stuff.
January 16th, 2008 at 2:38 pm
Yes! Another snowflaker!!!
Vive la revolution!
:)
Great overview article, and so true. We can all get out of debt. Even if some of us backslide from time to time… :looks around innocently:
January 16th, 2008 at 3:48 pm
I imagine a CC would have come in nice and handy when your debit card was useless.
January 16th, 2008 at 4:19 pm
Nice advice and repetition of the basic fundamentals of finance should never get old to the reader whether advanced in their knowledge or novice.
As I’ve said before you literally have to rewire your brain to go in the opposite direction of the corporate nurturing you have had since birth.
This is a consumer based economy and that is great as it provides the best quality of life. We literally live a thousand times better then the Kings of medieval Europe who, at the time, lived lavishly. The free market provides all of this but it can suck you dry of your savings along the way.
Keep repeating the fundamentals such as “pay yourself first, make it automatic, max the 401K etc. The ones who have heard it before need to hear it again and there are ever arriving youngsters stumbling upon this knowledge on a daily basis.
As for your advice on Craigslist and Ebay sales that is my current side business. Buy low sell high is and always will be a staple of wealth building. For example just two days ago a co-worker asked me if I wanted a senseo coffee maker he no longer wanted. It was taking up counter space so I, of course, relieved him of his frustration. He even threw in a half bag of the coffee pods the thing uses. I had it on Craigslist shortly after for 25 bucks and it was gone in one day.
I made 25 dollars per ten minutes drive time to the meeting place. That’s the way to go folks and as a bonus I dumped that 25 clams into my index fund and I now employ them buckaroo’s and they are starting to make babies.
Again, great read and the three cent rub is on the way!
January 16th, 2008 at 5:24 pm
Thanks for the mention, Gibble :) I actually make very little from my blog (no ads) but it DOES keep me accountable and is a fun place to put my little debt reduction chart in the sidebar LOL
And yes, that is 110% pure solid advice on how to get out of debt…the way I am doing it ;)
@Justin: Come over to MY blog and argue the “credit card might come in handy” routine with ME! (Gibble, you need that smiling devil emoticon on this blog…)
January 16th, 2008 at 5:29 pm
DFR I may drop by tomorrow to argue the point. Credit cards in the hands of the disciplined investor are a nice tool that provides a money float and full purchase protection.
If used properly their benefits outweigh the detriments. If abused they can ruin ones life and set them back decades.
Bob
January 16th, 2008 at 6:42 pm
@Mrs Micah – Thanks…I agree, just stuff. (George Carlin has a hilarious skit on “stuff”).
@paidtwice – Yep, been paying my debts that way after listening to NCN’s podcast. Then I met you and you put the term snow flaking on it, which I love! Great metaphor to go along with the Snowball.
@justin – It would have, but fortunately I didn’t have one, and turned out I didn’t need it. We survived just fine :-P Now I have a spare debit card on a completely different account, so no worries.
@DFR – Trust me, justin and I have had out “discussions” about them. We have some fun conversations.
@Cheapster Bob – Great comment, and I agree the basics just work. Head on over to DFR, just bring a shield ;-) The problem isn’t credit cards, but the companies. You can do everything right and they can still nail you. Just not worth the risk if you ask me.
January 16th, 2008 at 7:01 pm
@Glblguy: Sure, you survived just fine, though I read the angst and anxiety in your post. It could have certainly alleviated some of that, knowing you had that backup. Now you do with a different debit card, I hope you’re monitoring the balance every few days and double check the statement every month.
@DFR: I could, but would there be a point? You obviously are very biased (I just read your citibank rant) against a bank that according to that rant did nothing more than offer you credit. As Cheapster Bob said, If used properly their benefits outweigh the detriments. If abused they can ruin ones life and set them back decades.
January 16th, 2008 at 7:06 pm
@Justin – Yeah, I do. Actually I check it most days, as I have my other savings accounts there. I have balance alerts set-up on it too.
January 16th, 2008 at 7:51 pm
@justin: You didn’t read back far enough…I have a whole laundry list of how credit card companies actually try to trip you, the user, up. Look for “Ways Credit Card Companies Seperate You From Your Money” for the most heinous.
January 16th, 2008 at 8:01 pm
@DFR: Only one item on your list is really a valid complain if you use your credit responsibly. Interest rates are irrelevant to someone who uses a credit card correctly. Moving due dates can be a pain, but you should be double checking the due date and every item on your statement as soon as you get it, be it online or in the mail. Ideally both. It shouldn’t be a problem for someone who isn’t spending more than they have available to pay a couple days earlier once in a while. If they were moving it up by 2 days every month in less than a year you would have a payment due before the statement went out.
Bank accounts have many of the same problems that require you to watch your statement like a hawk. I have been hit by errors in my regular bank account more than once.
January 16th, 2008 at 8:54 pm
I can see your point, Justin: and can’t help but comment the credit card companies obviously haven’t caught you in one of their traps yet. And perhaps you missed my statement in the comments that the “Move the Due Date” game didn’t start until I had made a significant payment on the balance, as oppoed to the usual minimum paymnet (while working the snowball method).
The way I look at it, it is all a big money shell game…and they have a LOT more lawyers on their team. I have cut my losses and walked away from the table as far as credit cards go. I am doing SO much better financially after ditching the credit cards.
January 16th, 2008 at 10:39 pm
@DFR:
I love credit cards. I haven’t paid a dime to the companies in over 10 years, and yet have received thousands of dollars in tangible benefits during that same time.
Your point about deceptive practices is conceded. Sadly, today it’s difficult to find any large corporation above such behavior.
I’ll also concede the point about credit cards messing up many peoples’ financial lives, if you’ll concede that credit cards can be also be a great tool when used correctly, and attentively.
If this is not possible as a starting point, then I guess you should avoid inviting any argument on the subject when your mind is clearly made up.
January 17th, 2008 at 3:16 am
I am also working on kissing our debt goodbye…with the full support of my family CEO(my wife).
We have put one of our stuff for sale (an investment property), and in the meantime, we are paying down one debt at 3 times the rate.
Still, it’s going to take a long time, unless the sale of the house goes through.
January 17th, 2008 at 6:20 am
@fathersez – Full family support is critical I think. Fortunately I have that as well, even our kids are into it. Best wishes on selling the house, hope it sells quickly for you!
January 17th, 2008 at 3:42 pm
I think we can bring this down to it’s most simplest level. If you have enough money that you do not need a credit card you, if disciplined, can obtain one and it’s many benefits. The monthly balance is paid off each month using auto-pay.
Thanks for the interest free loan.
No worries.
If you live pay check to pay check and have no savings stay far away from credit cards.
Easy enough.
January 17th, 2008 at 3:43 pm
That is “its” not “it’s” up there.
I hate when I do that. :(
January 17th, 2008 at 3:55 pm
@Cheapster Bob – On my list of things to add is the gizmo that let’s you edit your comments…tell ya, you can work 40+ hours a week on a blog and not have enough time to get everything done.
January 17th, 2008 at 4:00 pm
I know glbguy. I am currently trying to figure out how to remove the generic search box from my site and add the google ad-search box.
I also have a ton of stuff to learn and do. It never seems to cease!
:)
January 17th, 2008 at 5:13 pm
Cheapster Bob, that’s an interesting way to break it down on the credit card war. I like it, since back before all the easy credit it used to be that you had to prove beyond a shadow of a doubt that you didn’t really need the money to get a loan!