Debt Management

Monday, October 6, 2014

DEBT. That word alone makes you want to leave this blog, doesn't it? It's one of those things that is constantly looming overhead and a pain to deal with. But if you have it (like most people do) it's something that HAS to be dealt with. I'm going to give you a little background of my own debt and then tell you how I'm working hard to get rid of it. Not consolidate it, but actually make it DISAPPEAR. The whole, poof be gone and never come back again resolution. Because to me and my husband, living completely debt free means living in freedom.

I'll be honest with you here, we don't have a large number of bills to pay each month, but we do have two large amounts of debt that we are tired of paying the minimum balance on. Those debts are our car loan and the remainder of my student loan, which add up to just over $40,000. We have recently set a goal to pay them off over the next 2 years, hopefully sooner if we get really savvy with the techniques we've researched. (Let me preface the steps by saying it looks like there are a lot, but they shouldn't take more than a few minutes each.)

Since my husband and I are concentrating hard on reducing our debt, we've been doing tons of research on the most effective ways to do this. We've read books, articles, watched YouTube videos, follow Dave Ramsey on Facebook and have searched Pinterest for the best techniques on money management. So what I am doing for you here is plucking out all of the management skills we found are the best and have started to apply to our budget. I am also starting a support group for those trying to reduce their debt. I'm a Beachbody coach and one thing I have found with my clients is they cannot improve their physical health without improving their mental health. And their mental health is all dependent on their mindset, as well as daily struggles such as debt.

If you do not feel like you have control over your money, you will never feel like you can invest in yourself; but rather you'll invest in things that will never give you a return just to try and make yourself feel better for one moment.

1) Why do you have debt?
This is the first thing I want you to think about when it comes to doing an overhaul on your finances. You might say you have debt because you own a house, or you have two car payments, or maybe you have four credit cards and almost all of them are maxed out. Perhaps you have several small bills you pay each month and your paycheck is barely enough to cover them, let alone other expenses in your life. Whatever the reason, figure it out. When that part is clear in your mind it will be SO much easier to reduce that debt. To really drive home this point, let me put it to you this way: you wouldn't fight a disease without knowing what it is first so you can use the correct medication.

2) List out your bills.
List everything you pay for each month on a piece of paper, starting from the smallest to largest payment. And I'm talking EVERYTHING. Have Netflix? Add it. Amazon Prime? Add it. A gym membership? Yup, put it on there. Gas, groceries, insurance, mortgage, preschool, car loan, cable, internet, telephone, etc.

3) Cost is next!
Next to each bill you listed out, write the average amount you pay for it each month. If it's an odd number such as $73.47, round it up to $75. I recommend writing this in red so it stands out and really sets in how much you're paying for something. Also, total everything up so you know what all your bills come to on a monthly basis. Compare that total with your monthly income and see how much money you should have left over in each paycheck or see how much you actually spend OVER your paycheck. This happens a lot without people actually realizing it and why credit card companies are so successful.

If you're not sure how much you spend on things like gas or groceries each month, you should be able to go to your online bank account or credit card and search for transactions from previous months to add them up and get a good estimate. Again, if your total comes to a number such as $568, round up to $600 because some months you will spend more than others.

4) What can you get rid of?
Here's something that's really hard for people to do, yet really necessary to reduce debt and bills. Go through each bill you listed and CROSS OFF what you absolutely DON'T NEED. How often do you really use that gym membership? Is it worth the $50 a month? Because I can tell you that I do my Beachbody programs at home much more than I actually went to the gym and I'm not paying a monthly fee. And what about cable? We got rid of it and DON'T miss it one bit! And I'm saving nearly $100 a month! That's $1,200 a year on cable I'm saving. Once you go through and cross off what bills you don't need to keep, cancel them before you change your mind. You will talk yourself out of it if you don't do it immediately. Think of this as not only cleansing your finances, but cleansing your mind of financial clutter.

After you cross off and cancel these items, add up your bill total again and see how much you'll be saving monthly. You'll be really surprised!

5) Watch a video.
Take a little break from that pen and paper and watch this 7 minute YouTube video by Lindsay Krause. She talks about the War on Debt and really puts things into perspective. I love the advice she gives, and this was just another video I thought was full of fantastic advice.

6) Cutting "Fat" Out.
So you watched the video, right? That means you know exactly what I'm talking about when I say cutting "fat" out. Do you go to Starbucks often? Have tons of food in your refrigerator or pantry you never eat? Do you eat out for lunch daily or dinner a few times a week? Think about it - if you have to use a credit card to pay for a $4 coffee or $10 lunch, you probably shouldn't be purchasing it. What fat can you cut out of your budget so you can start applying that money towards your bills? List out everything you can cut out so you can actually visualize it and start doing it.

7) Snowball those bills.
At this point you've listed out your bills, decided what fat you can get rid of, and know your income to debt ratio. So you know which bills have a loan vs which bills are just a monthly fee (such as cell phone). The bills that have a loan should be payed off in a snowball effect (Dace Ramsey method). That means, you apply the extra money you've found from eliminating bills and cutting out fat towards your smallest loan. Once that loan is payed off, you then take all that new money you started applying towards it + the original payment amount itself and apply it to your next loan until that one is payed off. Then so on and so forth. I'll do a little pretend math here so you can see exactly what I mean. Let's say you have a credit card debt of $3,000.

Normal credit card payment = $250 a month
Eliminated bills = an extra $110 a month
Eliminated fat = an extra $65 a month

Now your credit card payment should be $425 a month.  And once that credit card is paid off, you can apply that extra $425 to your next loan.

8) It takes time.
My last step is an important one. I want you to realize this takes time to get in the habit of doing and it takes time to perfect. Don't get mad at yourself for splurging every once in a while and don't forget to have fun. But make it a habit to have fun for free whenever possible. Look into free attractions in your area, go for a hike, walk along the beach, play outside with your kids, see a high school play, etc.

If you want to be a part of my support group, please comment below. I'd love to help you out. If you have any questions or any advice, please leave it here! I love hearing from you!

Happy monetizing,

No comments

Powered by Blogger.

Get Notifications