Reducing Your Debt Plan of Attack

Today’s post is for many of you out there that have several pieces of debt, or more, and are struggling to get by week to week. It looks like there is never an end in sight. Trust me, I know exactly how you feel. I once had so much debt it would make most of you vomit (literally). The problem, besides the debt of course, is that you have probably never attacked your debt load with a plan. Now is the time. Without a plan, it sometimes is impossible to gain any traction. So let’s lay out a plan.

Do this—take the time over the next week or so, even a month if you have to, and gather all of your debt information. Balances. Interest rates. Payments. Payee addresses (if you have online access even better). When you have all of your information, list the payees and balances in ascending order, or least to greatest. If you have some that are about the same, say within a $1,000 of each other, list the one with the highest interest rate first. Next to the balances, write down your payments for each. If they are credit cards, write down your minimum payment. Then use this link to determine how long it will take to pay off each balance. It assumes you know the months and not the payment, so play with it some until you can figure out the correct number of months. Write this down as well.

Once you’ve done that, figure out how much extra you could put on the first balance in order to pay it off ASAP. Recalculate how long it will take to pay it off. Ideally, the balance is so low or you can pay enough on the balance to have it paid off in less than 6 months. That should be the goal anyway. Then each month pay what you have written down. As your minimum payments go down, keep paying what you wrote down on your plan. *(if you want you can put the difference on whatever is your lowest to get it paid off more quickly) But you MUST continue to pay on your debt what you agreed on your plan. This is critical.

Hopefully sometime soon you can pay off that lowest balance. It should feel good! Now you have that payment freed up, but not really. Take the payment amount you freed up by paying off the lowest balance and start paying it on the next lowest balance. Do this until that one is paid off. Then do the same thing with the next one and so forth, until they are all paid off. The key is to stick to the plan. It may hurt. It may hurt a lot. But I can promise you it is better to hurt for the short term than to hurt for the long term.

You do not need to pay off your house loan, or any loan secured by real estate. You can, of course, if you want to. Paying off debt as soon as you can is always a smart decision. But if any debt is secured by real estate and you have it on a payout of over 15 years, once all the other debt is paid, refinance. The pictures below show an example of how the debt plan might look.

The reality is that if you don't get some of this debt paid off soon, you are likely to use one or more of those revolving credit cards again. And the cycle just continues.

You can see from this picture that I have assumed you are coming up with an additional $80 a month, from cutting out fancy lattes or from somewhere else. It reduces the payout of your lowest balance, Lowes, from 5 years to 10 months. A little long for my liking, but a good start. Something that can be done here at the beginning to get that down to 6 months is, have a yard sale. Get rid of some stuff that you have laying around the house unused and put a lump sum on Lowes at the start.

Ten months later, Lowes is paid off. The $105 a month that was being paid to Lowes can now be applied to Chase and will cut about 3 years worth of payments off of the Chase balance. It's important that you don't spend the Lowes amount on other stuff. Stick to the plan.

You can see in this picture 14 months after Lowes pays off, 2 years after you begin, the car loan pays off. Don't get a new car. Take your car payment and add it to AT&T. This will get AT&T paid off more than 2 years early.

And 2 years, 7 months after you have started, all of the credit card debt is paid and you own a car debt free. Look at the possibilities in this picture. The freedom. Two years and seven months of work and struggle. But it will be worth it.

I would suggest at this point refinancing your home. You have the finances to do it and still have a lot left over. If you would like, put it on a 12 year or even 10 year payout. You can afford it.

10 Quick Money Saving Tips

Today, I have a quick sampling of ideas that can save you money. No long explanation needed. Just some tips and, in many cases, reminders. Let’s get to it.

1. Cut one bag of chips (or similar item) out of your grocery list. A bag of chips costs about $3.50 where I live. One bag a week amounts to $180 in savings a year. Cuts the calories, too!

2. Drink water at restaurants. A couple of two can save as much as $260, possibly more, if they eat out just once a week.

3. Don’t buy new sneakers as often as the shoe companies tell you to. In most cases worn shoes don’t cause foot problems like we are often told by the companies. They don’t have your best interests at heart. They are only trying to sell more shoes.

4. Turn the thermostat down by 1 degree. This is one you won’t notice you are saving, but you are. So, go ahead and take out about $5-10 from your monthly budget and put into your savings.

5. Every 2-4 years shop for new insurance: cars, houses, health. Don’t give up quality or lower your coverage, but look for a better deal. This could save you $100-300 a year.

6. Cut out the soft drinks. Invest in a water purifier. Healthier and costs less.

7. Go to the store with a list and stick to it. Impulse items usually cost more and it doesn’t take many items to quickly add up. Shopping with a list can easily save you $10-20 a trip. That could amount to over $1,000 a year!

8. If you shop at a grocery store that also is a department store, stay out of that side unless it’s on your list. Track your wandering into the department store side on items you don’t need, you just justify the purchase. My bet is that you could save an average of $20 each time you go over there. Even if you only go every other trip, you could save over $500 a year.

9. Stay away from the cookies, chips, and other boxed items. Have you seen those price tags? Try cutting one a week. Savings - about $200 a year.

10. Replace the $8 bag of coffee with a $6 bag of coffee. Chances are, you won’t even notice.

If you follow each of these 10 tips and are average, you could save between $2,500 - $3,000 a year!