Getting Out of Debt

Snowball Payments to Get Out of Debt

Years ago, a good friend of mine and I were discussing finances. I was a newly single mom, and was feeling overwhelmed by the prospect of trying to pay my bills. My friend told me how she handled those bills that are payments (not regular monthly bills, but things like furniture payments, car fixits, medical bills, car payments, etc.). By organizing and paying them as follows, you will be surprised how quickly they can be paid off!

First of all, figure out your budget. How much is each payment? List the debts in order from smallest to largest. Make payments to each, EVERY month. List the following information:

• Pay to:
• Balance owing:
• Payment:
• New balance:

Do this for each bill.

1. Make the largest possible payment to the first bill (which has the lowest balance), as well as the normal payments for the rest of the bills. As soon as that first bill is paid off, draw a line through it and mark it as paid. Psychologically, that is a real boost to see the progress you're making.

2. Now apply THAT payment to the next bill on the list, in addition to the regular payment. (Example: If you are making $25 payments on each of five bills, and you just paid off the bill at the top of the list, now apply THAT $25 payment to the second bill. Now the bill at the top of the list (in this case, No. 2), is now getting $50 per month, and the rest are still getting $25). Because the payment is currently double, obviously that bill will get paid off more quickly, and you can cross that one off.

3. Repeat this pattern down the list, now that two are paid off, the next bill payment for Bill Number 3 is $75. By being disciplined in paying the bills in this fashion, you will be surprised how quickly you can knock off these bills and how much faster your stress level drops!

By paying the bills in this way, when one is paid off, you can make progress very quickly on the list of bills, without changing your budget/spending. It's very easy when a bill is paid off, to simply incorporate that money into the spending. By exercising discipline in paying the bills off in this way, when you get all the bills paid off, you can now put the money into savings, which was previously spent on these "one-time bills!

I hope this system of bill paying helps others who are struggling with finances! I have found that most people are good about working with a person if they receive regular payments. This way, everyone gets a little something, and the top bill on the list gets the most. By the time you get to the bottom of the list, you can make a hefty payment instead of the $25 (or whatever) you previously were able to make! Good luck!

Source: Another single mom struggling to make ends meet!

By Bzladi from Storm Lake, IA

Paying More Than the Minimum Payment

Making only the minimum payment on your debt not only lengthens the time it will take to pay off but it also ensures that you pay more interest. Why give them more of your money than necessary. You don't have to make huge payments, anything over the minimum will help. But the more you can afford to pay, the quicker you will be out of debt.

It is also important to avoid creating more debt, whether it is charging more on your credit cards or taking out loans. This will allow you to focus on paying off what you have. You don't want to stretch yourself so thin that you can't make your payments.

Ideas to Get Out of Debt

Plan

I ran across a little plan to get out of debt that really works if you just stick to it. Here it is:

1. Begin with your debt that has the highest rate of interest. Now pay the minumum payment plus 5%-10% of your monthly income, whatever you can commit to on a regular basis. Continue to pay the minimum payment on all other bills for now.

2. When the first bill is paid off (WOOHOO!) take the amount of the 1st bill's min. pay.+ the 5%-10% that you had been putting onto the 1st bill and add that to the min. pay. for the second bill. Pay this every month until the second bill is paid in full. Continue to pay the min. pay on your other bills.

3. Now that you have the second bill paid off, take the min. pay. from the 1st bill, the min. pay. from the second bill, and the 5%-10%, and add this to the min. pay. for the 3rd bill. Now you are making a nice payment to this bill and it is being paid off more quickly than usual. Of course, continue to pay the minimum payment on your other bills. Keep up the good work!

4. By the time you get to the 4th bill you are making what will seem like lump sums to paying off this bill. The trick is to keep the money that you were putting on bills going to paying off bills instead of incurring more bills with the extra money each month.

As with anything, this takes time, and as a result, takes patience.

I would also add that you must begin to live more frugally, learn to tell a want from a need, and enjoy the contentment that can come from being in control of your finances instead of them controlling you.

Fab4mom

First Step: Get Rid of Credit Cards

This is not something that is easily or quickly done. The first thing you need to do is get rid of any credit cards. Make as much as you can for payments on any loans or credit card bills you currently have. Before you ever borrow money for something make sure that it really needs to happen.

I am 31 years old and own my home (owe nothing), I drive an older car that I saved money for and paid cash. I only have to pay monthly living expense bills. Due to this when I lost my job the beginning of this year we were able to survive on my husbands income.

Our rule of thumb is if we can't pay for it now we don't have to have it. If we really want it then we save for it. My husband just built a garage this summer that we paid for with money that he has saved for the past 5 years. It would have been nice to have the garage 5 years ago but we survived with out it.

By DPCW

Start Paying off Highest Intrest Debts First

1. Dont make any new debts.

2. Pay off your debts starting with the one charging the highest interest. Make minimum payments on the others.

3. When you get the one charging the highest interest paid off, start on the one with the 2nd highest interest and pay that one off, and so on. Do this until all debts are paid including your car and your house. Do not acquire any more debts until all your current debts are paid off.

Make a distinction between "wants" and "needs."

By Carol

Cut Out the Extras

Sit down and really look at your bills. Is there anything you can cut? For example: Keep the basic phone service but get rid of call forwarding, call screening, and anything else you are paying extra for. Keep the basic cable but get rid of the "premium" channels. Do you subscribe to lots of magazines? I was shocked and appalled to realize how much money I spent on subscriptions. $10 here and $10 there adds up and I hardly had time to read them anyway! I contacted all my magazines and asked them to stop service immediately due to "financial difficulties" and refund the unused portion of what I had pre-paid. I wound up getting about $30 back!

The secret is, whatever money you get back, you add to any other "found money" (like the amount you have saved by reducing other services) and you apply this money to your debt. Another huge difference for me was sending an additional payment as soon as I received "found money" instead of waiting to send it when the bill was due. Your credit card company or other people you owe money to will be happy to accept a payment at mid-billing-cycle, call and get instructions, and be sure to put your account number on the check. That way, you won't be tempted to spend the money on anything less important than getting out of debt. YOU CAN DO IT!!!!

By Becki in Indiana

Monitor Your Spending Habits

First, spend 2 weeks-a month writing down every penny spent. Even the quarters you drop in the charity bin. You'll be surprised how much the little things add up.

Then use your red pen to mark the unnecessary expenditures. Entertainment and convenience foods are big ones. These expenditures can be cut, and the money used towards paying off debt.

Figure out what you owe, and how much "extra" in fees you are paying everyone. Pay off the highest interest/lowest bills first. Hospital and college loans usually can wait the longest, don't put those on credit if you can make a deal. Pay minimum payments on all but one bill and put *everything you can* into that one bill. Once its paid off, do the same with the next card. If you have Discover or another card with good rewards, use it for groceries, pay it off completely each month, and use the rewards to pay extra bills or to buy essentials.

The important thing is to cut your spending so you can pay off bills ASAP.

Debt Crash Diet: Plan Well

Pre-teens are notorious drama queens. (The girls and the boys equally!) There is no easy way to tell them things are going to change drastically. Giving them a couple of months heads up helps.

When my husband and I decided to go on a Debt Crash Diet in 2006 we gave ourselves three months to plan. During those months, we eased our kids into the changes that would affect them the most.

We also took a good hard look at our spending habits. We kept a record of our spending and our earnings. You'll find that this is one of the most important steps you can take. Once you have concrete information about how you spend your money, you'll be able to define Extreme Frugality for your family.

We will live on $28,800 in 2006, $14,700 of which is rent. (We considered renting an apartment for year but decided, with the Las Vegas housing market in such turmoil, to stay where we are. Our rent is moderate for our city.)

During the three months prior to the start of our Year of Extreme Frugality, we also got our food budget under control and built up a good stockpile of staples. During our Debt Crash Diet we will cut the $1000 we normally spend on food and consumables (including restaurant meals) by three quarters down to $300. It was nice to have three months to ease into that.

The most important thing you can do during this planning period is dream. Dream big, and out loud. Do it in front of your kids, and you might have an easier time getting them on board. Put together a Debt Crash Diet scrap book filled with your ideas of what a debt-free, job-optional life would look like to you.

By Shaunta Alburger

Debt Crash Diet: Earn More

In order to meet our goal of paying off nearly $20,000 in debt and saving $12,000 in 2006, it was clear that we would have to earn more money.

To bring in more money, we can earn more per hour, work more hours, or sell something. We plan on utilizing all three strategies during the next year.

For three years I was a paralegal with a home-based business preparing divorces and bankruptcies for my clients. I found the work depressing, so last year I started a different business, an online vintage clothing store. As much as I love my store, I can earn at least twice as much money per hour as a paralegal, so I've hung my shingle back out again. I can do anything for a year, right?

Kevin already works at a fairly high-paying casino on the Las Vegas strip. There are a small handful of very-high-paying and hard-to-get-into casinos in Las Vegas, and he will apply for work at this year. In the meantime he's taken a part-time second job.

We will also be selling my vintage clothing stock and a collection of memorabilia that is a throw-back to Kevin's bachelor days. By using these strategies, we'll be able to raise our income from $45,000 to about $60,000 in 2006.

I get a lot of email from people who want to get out of debt quickly, but don't want to do what they have to do to raise their income. While it is certainly possible to get out of debt on whatever your current income is, you probably won't be able to do it very quickly.

Get in the habit of reminding yourself that you can do anything for a year. When the year is over, your life will go back to normal. Except that you'll be debt free and have substantial savings, so suddenly even your one job is now optional.

By Shaunta Alburger

Debt Crash Diet: A Giant Step Toward a Different Life

Editor's Note: Shaunta Alburger has agreed to write articles for ThriftyFun. This is Part 1 of a 4 part series she has written about her plan to go on a Debt Crash Diet in 2006.

Do you have to work a job that doesn't fit your life because you can't afford to quit? It boils down to one thing; you work the job for the paycheck. You need the paycheck because you have debt.

I have a solution. Go on a crash diet. I'm not talking about giving up food so that you won't need to work as many hours. Go on a debt crash diet. Are you serious about being a full-time writer (or something else)? I have a plan that could bring you one giant step toward that goal.

A debt crash diet is simply a year of very intense thrift, during which time debt is eliminated and savings are built. Let me put my money where my mouth is, and tell you that my family is going on a debt crash diet in 2006.

A debt crash diet will take fifteen months; three for planning, followed by that year of intense thrift.

Will it be easy? I really doubt it. We're cutting our food bill by 2/3 and putting off replacing our twelve-year-old minivan. For one year, we are giving up movies, eating out, gym memberships and cable TV. Our goal is to pay off nearly $20,000 in debt, and to save $12,000 in one year.

I'd like to ask you to stop for a moment and ask yourself what being completely out of debt and having a four-month supply of money would mean to you. Could you stand to live a work-optional life? I thought so.

I can't promise that a debt crash diet will make your full-time writing dreams come true. I can promise that when you're through, you will be working to pay for today, instead of yesterday with interest. You will have gained some valuable insight into which material needs are most important to you, and which you can give up for good.

By Shaunta Alburger

Debt Crash Diet: Spend Less

In the book Your Money or Your Life, author Joe Dominguez makes the point that money is really an exchange for your life force. Every dime spent, represents the time and energy you spent earning it. So, being good stewards of our money really means being good stewards of all of our resources.

When I prepared bankruptcies for a living, I was constantly surprised at the amount of money people throw at their cars. My clients were sitting in my living room discussing their impending bankruptcies. And for many, their biggest concern was holding on to their $600 a month SUV.

Occasionally, if a client seemed interested, I would mention that our entire ugly, elderly mini-van cost $600. This statement was universally met with blank stares, followed by an awkward silence.

The fact that I was dealing daily with people who would file bankruptcy before driving an old car is one reason why I stopped doing it.

Kevin will be working a full-time and a part-time job away from home during our Year of Extreme Frugality. I'm very aware of the sacrifice he's making, especially considering the amount of time he will miss with our baby daughter, Ruby.

I consider it my job to make sure that every penny we earn is well spent. We will be living on less than half of what we earn. That's a big change for a family that has been living on every penny we earn, plus some that we borrow from credit card companies.

If your goal is to live on one income when your debt crash diet is over, start doing that now and use the rest for debt repayment and savings. Sit down and figure out the very least that you can live on, and then vow to spend a year living on that much. Every other penny gets saved.

We were able to reduce our home phone, cell phone, cable television and internet services from nearly $500 a month to less than $200. We gave up cable all together. We're also giving up restaurants and movies in 2006.

What can you give up in the name of being debt-free and job-optional? Can you eek some extra money out of your food budget to use for paying down your car loan? Do you need high speed internet? Could you get by with one car for a year? Maybe move into an apartment until your debt is repaid?

By Shaunta Alburger

Help Dealing With High Interest Credit Card Debt

I cannot keep paying this credit card at 39%, what can I do?

By yoyojoe from Las Vegas, NV

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Getting Out of Debt

I hope someone can help me with my problem. I am deep into debt and I would like to know if someone could guide me with a very basic easy way to get myself out of this ordeal. I have tried everything that i could and still I fall back. I am going to start this week when i get paid to get this monkey off my back. Could suggest a very simple and basic budget or using the envelope method what ever it takes. I don't want any thing that is to complicated right now.

I am looking at about seven thousand in total debt that includes miscellaneous items and credit card debt. I also owe the IRS. What should i do first? I get paid bi-weekly total of 679.86 monthly. Also, I have a second job in retail so that check is not always the same, It goes by the hours I work. Help me please someone.

Malmal from Boston

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Dealing With Credit Card Debt

My income is cut in half. My credit card bills are overdue. They are calling all the time and I don't have extra money to pay them. How do I start climbing out of this hole that I am in? I can't get a second job; I have tried! I can't even sell the family heirlooms. I am scared and worried! Any advice?

By Lynette from Ann Arbor

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