Debt Free/Savings Challenge: Paying Down Your Debts

It is hard to believe it, but we are ready for Week 4 of our Debt Free / Savings Challenge.   If some of you are new to this series, you can always jump in at any time.  Becoming debt free is something that feels like nothing else in the world.  Head on over and check out the prior series so you can get caught up.  Remember, this is set up to where you can work at your own pace.  I’ll share the information each week to get you started and you work it into your own schedule.

This week we are going to actually talk about how you get to pay down those debts.  Of course, if you are already debt free and are working on building your savings, just apply these same principles to your savings account.  Instead of paying the debtor, pay yourself!

DEBT SNOWBALL

You’ve made it through the first three weeks — congratulations for putting forth so much hard work.  Now comes the “fun” part – watching your debts slowly disappear!  Make sure that you have some of your forms handy, as you will need them for this step — Cash Flow, Budget & Debt Snowball.

The first thing we’ll review is your Debt Snowball Form.  As a reminder, you should have listed all of your debts from least owed at the top to the highest balance (excluding your mortgage).   You should also have indicated the amount you need to pay to each debt every month (minimum required payment).  Got that?  Good!

Let’s grab your Budget & Cash Flow Forms.  Do you have any ‘extra’ money you have freed up towards paying down your debts?  If you do, then go back over 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:

Extra money found in the budget:  $25

So, let’s revise the form to look like this:

This means you will pay $35 each and every month to Citibank until it is paid off.  You will not pay anything extra to any other debtors.  Then, when Citibank is paid off, you will roll that payment into Visa – which means you will pay the $50 per month.  You will continue to do this as you eliminate each debt, increasing your monthly payment – just like a snowball!

WAYS TO ELIMINATE DEBT

I previously shared some ways to help you eliminate your debt (outside of your monthly payments).  As a reminder, here are some ideas:

• 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.)