Welcome to Week 4 of the Debt Free Challenge. Hopefully you are still excited and on track to get those debts paid off during 2011 and gain your own financial freedom!! Let’s do a quick recap of the lessons thus far:
During our first week, we prepared the debt snowball form and also calculated our net worth. We did this so we could see how we looked financially and to see where we needed to go from here.
During this week, we created our cash flow so we could track where our money had to go and our budget to help us actually redirect where we WANT or NEED for it to go.
This weeks’ lesson was about using cash to pay for items and also having some money in the bank for an emergency so you don’t have to rack up more debt to pay for it.
If you are reading on, then you are now ready to actually start tackling those debts! You will need to have some forms handy so that you can start to work on paying off those debts — Cash Flow, Budget & Debt Snowball.
First, let’s look at your Debt Snowball Form. You should have listed all debts from the least owed at the top down to the highest debt (not including your mortgage). You should also have indicated the amount you need to pay to each debt every month (minimum required payment). Got that? Good!
So now, let’s look at those budget and cash flow forms. Do you see any extra money you have freed up towards paying off debts? If so, go BACK to your debt snowball form and increase the minimum monthly payment on the smallest debt by adding ALL of the “extra” money to that debt. Here’s an example:
Citibank $200 $10
Visa $500 $15
Ford $15,000 $450
Extra money found in the budget: $25
So, let’s revise the form to look like this:
Citibank $200 $35
Visa $500 $15
Ford $15,000 $450
You will continue to pay the $35 every month on your Citibank card until it is paid in full — which will take about 6 months. Once you pay off that debt, you will roll the Citibank payment into the Visa payment and pay $50 a month towards Visa. Continue to do this as you eliminate each debt, increasing your monthly payment – just like a snowball!
WAYS TO ELIMINATE DEBT
There are some ways to quickly chop down your debt. I mentioned these previously, but since we are now officially paying down debts, we’ll revisit some of them again.
Sell items on Craiglist, Ebay or other methods. If you have extra things lying around the house, you may wish to sell them and raise some money and then turn around and make a nice big payment on that smallest debt.
Get another job. If you can swing it, pick up a part time job and apply all of your earnings towards your debt.
Reduce savings and pay down debts. If you happen to currently have MORE than $1,000 in the bank, but still have debts, you should really take any amounts above $1,000 and pay down your debts BEFORE you are saving. The reason is why are you saving money for yourself and paying more in interest to someone else than you are making yourself?
So, what about that nice big tax return that is coming your way in a few weeks? Well, if you really want to jump start your debt elimination, you would be wise to deposit $1,000 into the bank (if you do not yet have your emergency fund) and then turn around and use the remainder and pay down your debts.
Now that you have your budget and are starting to actually pay down your debts, you are on the right path! We’ll check in soon with everyone to see how you are doing! Good luck!!!
(I am not a financial advisor and the information listed within these Debt Challenge posts is not to be construed a financial advice. This is knowledge we gained through our own personal experiences and information as outlined in Dave Ramsey’s Financial Makeover — and is being shared as such. Participants are not required to follow any steps listed if they do not wish to do so. Financial concerns/issues should be addressed with a professional in order to receive advice and assistance.)