Tag Archives: debt reduction

Life 101 for the New Millennium: Demolish Your Debt

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debt reduction, budgeting, interest
Photo by Erwin Zueger

Some people may not think about recent grads when it comes to debt. After all, how many recent students have a house, luxury vehicle, kids, etc. But those graduates who didn’t have the benefit of scholarships or parents who paid their way through college most likely had no other choice than student loans.

The faster you pay off the debt you owe—be it on a car, student loans, etc.—the better. Unless there’s a prepay penalty on the loan, you’ll save in interest when paying it off early. And student loans and/or credit card debt are a great place to start this practice.

First, make sure you have a budget. This way you can make sure you are covering your needs before your wants each month. Live within your means, spending what you have and saving up for anything that costs more than you have the money for. Then list out all your debts: the creditor, the total, the interest rate, and the minimum monthly payment.

The preparation above will help ensure (or identify if) you have some discretionary income to apply toward debt reduction (always pay against the principal when paying more than the minimum payment). You can also pick up additional work on the side, be it freelance or a part-time job in the hours around your full time job. For example, my friend Jason bartends two nights a week.

Pay off the debt with the highest interest first, then on down the list. Obviously, don’t take out mini loans from your bank, do Cash Advance type loans, or go on shopping sprees with your credit card. You don’t want to add to your debt when the goal is to be as debt-free as possible.

You may want to investigate consolidating all your debt into one lower interest loan. This strategy may help reduce the amount of interest you accumulate monthly, providing you more cash to use toward paying off the balance.*

If you have a month where for some reason you will not be able to make the full payment, contact that creditor. Creditors are used to working with their customers and would rather you be proactive in working out an alternate arrangement than get behind on payments. Further, you may have more options if you get in touch before that month’s deadline rather than waiting until the payment is overdue.

If you ever see you cannot make, for instance, your car payments, contact the lender to discuss options. It’s far better to do this than to allow repossession…or in the case of an apartment, eviction. Eviction has many consequences, and just running from the aftermath of that situation will not absolve them.

Though having your debts paid off may seem like an ideal but distant goal, don’t give up. Chip away at that debt. Getting it off your plate can reduce stress, save you money, establish good money management habits, and help raise your credit score.

*“How to Pay Off Debt: Six Steps to Success,” 2014 Regions Bank article

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MOOLAH MONDAYS:  Workin’ the System Part I

Budgeting & Money, , , , , , , , , , , , , , , , , , , ,
budget, system, spending
Photo by Annafur

Ok. So after the last post you know why it’s nirvana to live 1 month ahead and why you should create 2 Budgets, a Wantlist, and a list of Regular Yearly Expenses. Well, “What now?” you may say.

  • Buy what you need. Don’t go too crazy buying leisure stuff (clothes, eating out, drinks–whatever is “fun” to you.)
  • Keep any item receipts, ATM receipts, or paycheck stubs in a drawer or on a spike until you process them.
  • Have a section on your Tracking Budget called “Credit Card.” When you process credit card purchases using the aforementioned receipts, subtract the amounts from the respective section of your budget and add them to the “Credit Card” section. This way, you’ll have the cash to pay that credit card bill off when it arrives. Then, each time you pay your credit card bill, simply subtract the amount you paid (ideally the full amount!) from the “Credit Card” section.
  • In the “Pay” section of your Tracking Budget, log your paychecks (if you’re depositing that money into your checking account.) In the Pay” section, you’ll also log any other income you receive throughout the month and deposit. Of course, write anything you deposit in your checking account into your checkbook register as well.
  • Use your checkbook register and your Tracking Budget to log what you pay for out of your bank account—be it by check or debit card. For example, paying your electric bill or buying things at a flea market.

Next time, I’ll go over what to do at the end of each month to process your receipts and prepare the money you earned in one month for use the next month. There will also be a video tutorial so you can see me using this system and get a real-world visual.

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MOOLAH MONDAYS: Getting Ahead of Yourself (in this case, it’s a good thing!)

Budgeting & Money, , , , , , , , , , , , , , , , , ,
money, expenses, income
Photo by 3Peaker

Kind of a side-note blog post here…if you really want to take full advantage of this system, get 1 month ahead. In other words, everything you earn in November is your money for use in December. You may need to have a really lean month or two to accomplish this, but it is SO worth it. Here’s why:

  • Self loans – Let’s say you just found out that the leather jacket you’ve always wanted just went on sale big time. You won’t have finished saving for it until next month, but you don’t want to miss out on the $50 you can save now. Knowing you’ve got a little cushion since you’re using this handy dandy system, you go ahead and buy the jacket on your credit card (we’ll talk more about these later) at a great price today, logging the cost on your Tracking Budget. Then you can just “pay yourself back” (absolve that negative) next month. This cushion can also serve you well for unexpected circumstances (like that $800 of repair work you had to have on your car or getting laid off next week) if you don’t have a rainy day fund to cover such surprises. NOTE: Don’t abuse the cushion. This takes self control. You can do it. If you’re not so good at that, practice, practice!
  • Bills – Oh shoot, your cell phone bill is here! But, no problem. You already set aside that money and can pay it right away.
  • Bounced checks – …are over! I can’t remember bouncing a check since I was a freshman in college—and that was due to losing my checkbook. Since you’ve got a month’s worth of pay in your checking account at the beginning of the next month, you don’t need to sweat each expense, check your balance online every other day, or worry if your checkbook total is a little short of the actual balance.
  • Ready for block payments – Let’s say you’ve got a $500 car insurance payment due twice a year. Since you’ve been saving a monthly amount for this in your checking account, you’re ready to write the check (or even better yet, put it on your credit card, and get the points!) right away with no scraping up the dough in a mad panic!

In the next post, we’ll look at how to use the tools we discussed in the first post. If you live a month or more ahead, what’s your opinion of it? What benefits can you add to those above, or why would you recommend a friend do this?

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